Category: Funds

A fund refers to capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise, and lower investment fees than investors might be able to obtain on their own. Types of investment funds include mutual funds, exchange-traded funds, money market funds, and hedge funds.

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Janus Henderson Australian Fixed Interest Fund: A solid core fixed interest offering

over rolling three-year periods. The fund invests in a range of securities including government, semi-government, corporate and asset backed securities.              

Downside Risks:

  • Investment strategy selection fails to yield alpha.
  • Lead PM departs or significant turnover in the broader investment team. 
  • Credit / interest rates risk.  

Fund Performance & Current Positioning:

(%)FundBenchmarkOut-performance
1-mths0.05%0.09%-0.09%
3-mths2.78%2.55%+0.23%
6-mths4.77%4.23%+0.54%
1-year (p.a.)1.92%1.05%+0.89%
3-year (p.a.)4.90%4.52%+0.38%
5-year (p.a.)3.62%3.33%+0.29%
Inception6.74%6.51%+0.23%

(Source: Janus Henderson)

Sector Allocation:

(Source: Janus Henderson)

Key Highlights:

  • Investment Team:

The Janus Henderson Australian fixed interest team, headed by Jay Sivapalan, is highly experienced and well resourced. The investment team consists of highly qualified people having adequate work experience in investment, portfolio management and credit analysis.

  • Investment Philosophy and Process:

The investment philosophy of this fund focuses on investing in compelling opportunities, diversified strategies, capital preservation and strategic view. The Fund’s investment and portfolio construction process consists of Fundamental Research, Strategy Formulation and Portfolio Construction. 

  • Credit Process:

ESG is integrated into the credit process. Since the manager believes in ‘quality before price’ philosophy, ESG considerations are fundamental to their four-pillar bottom-up credit analysis, which are: business risk, financial risk, management profile and ESG risk.

About the Company:

Janus Henderson is a global asset manager with more than 340 investment professionals and expertise across all major asset classes. Its individual, intermediary and institutional clients span the globe and entrust it with more than $500bn of their assets. Janus Henderson’s commitment to active management offers clients the opportunity to outperform passive strategies over the course of market cycles. Through times of both market calm and growing uncertainty, its managers apply their experience weighing risk versus reward potential – seeking to ensure clients are on the right side of change.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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During equity market sell-offs, Man AHL Alpha provided downside protection

 The strategy’s research program is driven by teams from other asset classes or themes (Specialist Strategies, Portfolio Management, Equities, Fast Strategies and Core Strategies) who are responsible for their respective models (existing and new models). The portfolio managers of the AHL Alpha Program are Matthew Sargaison, Co-CEO of Man AHL and Russell Korgaonkar, CIO of Man AHL.  

Investment Process 

The Strategy invests in approximately 500 international markets across a range of sectors, utilizing instruments such as securities, futures, options, forward contracts, swaps, CFDs and other financial derivatives. The Strategy can also gain exposure to sectors via stocks, debt, bonds, currencies, short-term interest rates, energies, metals, credit and agriculture.

Historical low correlation to traditional assets classes such as equities and bonds

Given the focus on Diversification, capital is allocated using a quantitative and systematic methodology to maximise diversification and avoid investment style bais. This aims to deliver low correlation to traditional assets such as equities and bonds.

Solid Performance 

Historically, the fund has delivered strong returns in equity market selloffs, albeit past performance is not an indicator of future performance, it is an indicator that the strategy has performed in the past. The fund delivered significant downside protection during market sell-offs – Covid – 19 market selloffs +5.8 per cent v/s S&P 500 Index -19.6 per cent v/s MSCI World -19.6 percent, fourth quarter in 2018 selloff +3 percent v/s S&P 500 Index -13.5 percent v/s MSCI World -12.9 percent, Eurpean debt crisis +5.3 percent v/s S&P 500 -13.8 percent v/s MSCI World -15.4 percent and GFC +25 percent v/s S&P 500 Index -49.2 percent v/s MSCI World -49.3 percent.

Downside Risks

  • Significant turnover in the Broader Investment team.
  • Investment strategy (trading systems) fails to yield alpha.
  • Uses of derivatives and leverage adds additional risks and complexity.

Investment Approach 

Fund Performance

Figure 1: Fund performance (as ofAug-21)–strategy has an absolute return target

(%)Fund (net)
1-mths+0.0%
Year-to-date (YTD)+6.5%
1-year+10.4%
3-year (p.a.)+7.3%
5-year (p.a.)+4.3%
Inception (p.a.)+5.2%
Annualised volatility 8.8%

Source: Man Group

About the Fund

The fund employs a systematic, statistically based investment strategy to exploit technical or price driven signals across a diverse range of global markets. The main strategy used in trend following i.e price trends (up or down) repeatable pattern ~ 500 international markets the fund can access. The portfolio invests in instruments such as Securities, Futures, Options, Forward contracts, Swaps, CFD and other derivatives, the strategy has an absolute return focus with target volatility of 10% p.a.

Company Profile 

Man group is a global investment manager offering investors a diverse range of specialist active strategies and manages over US$135 billion globally. The company has headquarters in London but a globally network of offices. The company employs an extensive team of scientists, technologies and financial professionals.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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The Fund provides investors an opportunity to diversify and distil grow

the portion of return attributed to the S&P/ASX 20 Leaders Index, by 4% p.a. after fees on a rolling 3-year basis. The Fund invests primarily in Australian shares with high quality business models, strong growth, and underestimated earnings momentum and prospects.

Portfolio 

This strategy looks very different from the S&P/ASX Small Ordinaries Index. First, it has traditionally held a significant stake in midsize and larger companies excluding the top 20.Bennelong believes it can capitalise on mispricing through superior fundamental research. The pronounced growth leaning also contributes to this vehicle’s differentiated look. It has traditionally led to an (unsurprising) aversion to the property trust, consumer staples, and utilities sectors. That said, A-REITs have featured on occasion, such as in mid-2019. Consumer discretionary, technology, and healthcare stocks are typically favoured, the attraction being both cyclical and structural growth. This is usually the source of the portfolio appearing expensive relative to the benchmark and peers. The search for growth can lead to mistakes; in such events, liquidity in small-cap names can reduce nimbleness for this strategy given its large asset base. The team is not averse to altering large positions quickly when its view on earnings growth changes. For instance, in early 2021, Bennelong cut the 10% allocation in Afterpay when business execution disappointed and competition increased. This fund is best used in a supporting player role. The firm manages around AUD 8.8 billion, including AUD 4.6 billion in this strategy as of 30 April 2021.

Performance 

The long-term performance at Bennelong is strong. Given the strategy excludes the 20 largest Australian companies, the portfolio has a larger-cap feel than more-dedicated small-cap offerings. As a result, performance comparisons against its equity Australia mid/small-growth Morningstar Category peers should be undertaken cautiously. Bennelong outdid the index and most peers during 2015 and the first half of 2016 thanks to such positions as Domino’s and Aristocrat Leisure. The second half of 2016 was a stumble for Bennelong (and many peers), as resources and value stocks outperformed. The following two years saw it ride the highs of stocks like Treasury Wine Estates, Costa Group, and BWX only to abruptly see their share prices plummet contributing to middling years of performance. Mark East cut the first two names but held BWX as better fundamentals were expected. More recently, 2019 delivered average returns, as Corporate Travel Management detracted while Goodman Group added significant value as investors supported its industrial real estate exposure. However, longtime holdings in James Hardie, IDP Education, and Domino’s delivered in spades in 2020 as the market sought quality growth companies and the fund blazed past both the index and peers. Together with Fisher & Paykel healthcare, Bennelong has continued its outstanding run into the first half of 2021.

Source: Mornigstar

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Funds Funds

Fidelity Australian Opportunities Tenured stock-picker with a unique approach

Approach 

Fidelity analysts use a variety of proprietary models and valuation methodologies to assess earnings, cash flows, and value. Site visits and extensive company management meetings play a critical role in the investment process, as fidelity believes these provide valuable insights into a company’s future prospects.  Each investment analyst covers around 25 companies, grouped along sector lines but sectors are rotated every three to four years. The overall portfolio tends to exhibit a growth bais. 

Portfolio

Fidelity Australian Opportunities is an all-cap domestically focused approach. The portfolio typically holds 40 – 70 stocks with core holdings in large-cap names but a longer portfolio tail of small-cap names. As a result, the average market cap slightly lower than other large-cap peers and around 50-55% of the portfolio sits in the top 10. This means active share hover around 45-50%. Positioning is aligned with a long term view of companies, and the historical average annual turnover has been moderate at about 30-50%, which will also make it reasonably tax effective.

People

Howitt was promoted to portfolio manger soon after joining fidelity in 2004 as an analyst covering banks, insurers and diversified financials. Prior to fidelity, she was an analyst/portfolio manager in AMP capital’s value team and also worked as an consultant with the Boston Consulting Group. Support comes from a wide range of local and global sources, including the Sydney based investment research team and the implementation of an assistant portfolio manager. Each analyst coverage responsibilities for a specific sector and these rotate every three to four year to ensure the analysts continued to produce well rounded insights. 

Performance 

Fidelity Australian Opportunities continues to impress long-term track records. The year 2018 was more Tricky, as positions in blue sky and Lynas materially detracted. The strategy responded well in 2019 as Lynas recovered, while CSL and Wisetech continued their strong appreciation. Despite the volatile markets during calendar 2020, performance was particularly strong, beating the benchmark and most peers. The sector Neutral-Approach protected capital on the downside, with the strong showings from Lynas, Mineral Resources, and BlueScope. Despite no significant sector bets, positions in the materials sector played a key role in the Outperformance, with Howitt’s stock picking talents on full display.

FAO Fund Performance .png
FAO Top Holidings .png

About the Fund

Fidelity Australian Opportunities continues to impress with its quality management and unique approach, bolstered by the firm’s global footprint and top-tier research capabilities. Despite the numerous benefits that come with size and scale, the large footprint of the Fidelity group does create limitations for portfolio construction. Where the firms owns 10% of a company, strategies under the fidelity banner can no longer invest in the stock, though it’s a small price to pay for fidelity’s resources. An adaptive process and tenured portfolio manager set the strategy apart, offering an solid choice for diversified exposure to Australian equities.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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A prudent and strong investment strategy that produced absolute returns

Philosophy of the Fund

The Fund’s investment philosophy is based on identifying long-term fundamental value picks that are both listed and unlisted. RARE believes that significant opportunities emerge during economic cycles as markets misprice infrastructure assets in the short term. In the RARE Emerging Markets Strategy, an accumulation index comprised of the FTSE EM Gov Bond Index USD plus 5.0 percent per year is used as a benchmark.

Investment Procedure

The investment team conducts fundamental analysis and valuation in order to identify ‘pure infrastructure’ assets with monopolistic characteristics, long contractual duration, and relatively stable cash flows. In particular, the investments must meet three key requirements:

  • The asset must be a hard-physical asset; 
  • The asset must provide a valuable service to society; and 
  • The asset should have strong foundations in place to ensure equity holders are adequately rewarded.

With these characteristics in mind, RARE uses the ‘RARE EM 150’ as the proprietary investment universe for their Emerging Market Strategy. Included in this list are companies in the MSCI Emerging Markets or Frontier Emerging Markets Index, as well as companies that are listed in other markets but produce a majority of their operating earnings from activities related to emerging markets. Of the 150 securities, 40% of these companies are considered Core and consistently covered, while the remaining 60% are watch listed and updated at least once a year. On a quarterly basis, the composition of the ‘RARE EM 150’ is reviewed by the Investment Leadership Team.

Sector exposure limits are also placed, with a clear preference towards regulated utilities and transport. The Fund notes this is due to their relatively stable performance, and typically lower risk nature in comparison to user-pay assets.

Source: RARE Infrastructure

Fund Positioning 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Fidelity Asia Fund

and draws on the research capabilities of Fidelity’s analysts based on the ground in Asia.The Fund aims to achieve returns in excess of the MSCI AC Asia ex-Japan Index NR over the suggested minimum investment time period of five to seven years.

Our Opinion

Our rating is based on the following key drivers:

Capable PM/team:

The Fund’s star portfolio manager, Anthony Srom, and his supporting cast of analysts in high regard. Mr. Srom is well-supported by 50 on-the-groundanalysts in Asia and Fidelity’s global researchteam of 180 analysts and 400 investmentprofessionals worldwide. This makes the team one of the largest buyside firms. Nevertheless, we question the extent at which ongoing and deep research can be maintained in order to beat the index –in our view, it is increasingly difficult no matter how large an investment team is,to beat a benchmark of an efficient, liquid and well researched market.

Well-resourced and access to Company management

Relative to peers, the investment team is well resourced with additional access to third party research and consultants to conduct deep investment research as well as a thorough company visitation schedule (as a result of the investment firm’s reputation). Fidelity conducts more than 15,000company meetings a year, in order togain better insights andknowledge, to make investment decisions.

Sensible investment process rooted in bottom-up research, high conviction, highly concentrated and low turnover

The Fund conducts fundamentals bottom-up stock selection to build a high conviction and highly concentrated portfolio of 20–35 stocks based in the Asia Pacific ex Japan region. There is no deliberate portfolio management style bias, although new positions typically exhibit a contrarian/value bias. Mr. Srom is willing to take a long-term view on a stock, resulting in a low turnover strategy (40%–70%). This translates to a holding period of 18–24 months, but there are stocks that have been held for more than three years.

Downside Risk

Asian economic conditions deteriorate, leading to earnings downgrades at the company level. High quality companies underperform especially in stocks where the Fund has a relative overweight position.
Key-man risk should Portfolio Manager, Mr. Anthony Sromdepart.
The Fund invests in emerging markets which can be more volatile than other more developed markets.
The Fund invests in a relatively small number of companies and so may carry more risk than fundsthat are more diversified.

(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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SBI Mutual Fund has launched Balanced Advantage Fund

The SBI balanced Advantage fund’s investment objective is to deliver long-term capital appreciation and income through a dynamic mix of equity and debt investments. The CRISIL Hybrid 50+50 – Moderate Index TRI would be tracked by SBI Balanced Advantage Fund.

The Balanced Advantage Fund would invest in equities and fixed income securities based on a number of factors, including valuations, earnings drivers, and sentiment indicators.

The SBI Balanced Advantage fund will work in the following manner

  1. Asset Allocation: The Fund Manager will decide on the asset allocation between equity and debt based on a variety of factors including sentiment indicators, valuations, and earning drivers.
  1. Quantitative Framework: Our investment strategy is based on a quantitative framework that determines how we invest based on market capitalization, investing style (value, growth, or quality) and sector preference.
  1. Stock/Security Selection: The equity portfolios are managed under the discretion of fund managers and portfolios are based on the analyst team’s high conviction views and the discretion of the Fund Manager. There is duration management to generate alpha across the yield curve. The portfolio is built in such a way that alpha is generated through equity while stability is sought through debt.

The scheme would invest in equities and equity-related products for a minimum of 0% and up to a maximum of 100% and the risk profile for the same would be high. It will also invest in debt securities (including securitized debt) and money market instruments, with a minimum of 0% and a maximum of 100% and the risk profile for the same would be low to medium and 0% to 10% in units issued by REITs and InvITs –the risk profile for the same is medium to high  

During the NFO period, the minimum application amount is Rs 5,000, with subsequent amounts in multiples of Rs 1. Dinesh Balachandran and Gaurav Mehta will handle the equity element of the SBI Balanced Advantage Fund, Dinesh Ahuja will manage the debt portion and Mohit Jain will manage the international investments.

The SBI Balanced mutual fund is suited for the following investor:

  • Investors looking for long-term Wealth Creation 
  • Investors looking for a Dynamic solution for the right mix of Debt & Equity
  •  Risk-averse Equity Investors with minimum 3 years+ of Investment Horizon

 (Source: www.sbimf.com)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Lazard Global Small Cap Fund Updates

Well-resourced team

The Lazard Global Small Cap Fund is managed by an experienced team of 7 Portfolio Managers (most with >20 years industry experience) working as regional generalists led by Edward Rosenfield. The Portfolio Management team has been working together for 13 years on average with the lead PM having worked on the strategy for ~20 years. This makes the team one of the largest, well-credentialed and experienced teams managing FUM in the asset class. Further, the team is supported by the broader Lazard family of analysts (categorized as Global Sector Specialists). This team comprises of more than 100 investment professionals and is considered one of the largest teams. The back and middle office support provided by the wider Lazard group is a positive in our view, as it leaves the PMs to focus on investing rather than other activities.

Disciplined investment process rooted in fundamentals analysis

The Fund uses a rigorous investment process with the Managers employing an active investment style, characterised by incorporating bottom-up investment research, which is underpinned by extensive visitations and meetings with Companies and experts, in assessing fundamentals and valuations of individual securities. In our view, this should lead to the team being able to garner informational advantages and insights over their peers. Indeed, the team’s focus on companies in emerging markets, with capitalisations of between US$300m and US$5bn, or in the range of companies included in the MSCI World Small Cap Accumulation Index, is under researched and a less efficient part of the market (i.e. where mispricing of asset valuations are more prevalent), makes sense in our view.

Solid absolute performance but relative underperformance

Although past performance is not an indicator for future performance, it is an indicator of whether the Fund’s strategy has worked in the past. Although the Fund has performed well on an absolute basis, the Fund has now underperformed relative to its benchmark by ~3.6% p.a. (5 years performance numbers) and a marginal -0.8%, since inception.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Perpetual Pure Equity Alpha Fund Updates

Highly rated PM backed by a strong team

The Portfolio Manager of the Fund, Mr. Paul Skamvougeras has extensive experience and track record as an analyst and fund manager, with 25 years industry experience and 15 years with Perpetual. Further, Mr. Skamvougeras is well supported by Mr. Anthony Aboud and the wider Perpetual team of analysts and PMs. Whilst we think highly of Mr. Skamvougeras, we are concerned about his ever-increasing responsibilities (as he is also PM of the Concentrated Equity, Pure Equity Alpha and Pure Value strategies, and Head of Research) and the time he has available for the Fund. Likewise, in our view, Mr. Aboud has significant other responsibilities as he is also PM of Perpetual’s other funds (Industrial Shares, SHARE-PLUS Long-Short) and is also an analyst.

Solid investment process backed by bottom-up research

The investment process is a bottom-up selection approach focused on quality and valuation for both long and short positions. In our view, the Fund is able to take advantage of rising and falling markets and provides useful protection for investors against falling markets.

A note on fees and benchmark

In our view, investors should be comfortable with the Fund’s fees, which are higher than its wider peer group. Furthermore, in our view, we note that the Fund’s performance is measured against the RBA cash rate (which is currently a low hurdle in our view); and in our view, a ‘more appropriate’ benchmark would be an equity benchmark, such as the ASX200 or ASX300, especially when charging performance fees.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Vanguard High Yield Australian Shares

Vanguard Australian Shares High Yield is a compelling and efficient option. The cost-value balance of the strategy is a solid strength. At 0.35% per year, it is currently one of the cheapest unlisted products offering domestic high-yield equity exposure. Vanguard aims to own every stock in the FTSE Australia High Dividend Yield Index, an index Vanguard has exclusive rights to replicate. Vanguard choose to keep the some of the index’s construction rules undisclosed to ward off speculative market participants looking to capitalize on the semiannual index changes before they have been completed within the strategy.

A well-managed, close replication of the FTSE Australia High Dividend Index

Vanguard Australian Shares High Yield replicates the FTSE Australia High Dividend Index, offering investors an above-average yield in a passive, tax-efficient vehicle. The benchmark leans toward the highest-dividend payers, excluding property trusts. The index provider ranks all dividend-paying stocks based on their dividend yield forecast for the next year and constructs the index using stocks that make up the top 50% of the float-adjusted market capitalization. Industries are capped at 40% and individual stocks at 10%. The index is rebalanced semiannually, and in 2018, it changed its rules around buying and selling so that stocks are added or removed more gradually.

This should increase the portfolio to around 55 names from 45 and reduce stock turnover, though it will likely remain higher than market-cap-weighted index funds. Vanguard’s global presence allows the Australian team to leverage the U.S. team’s extensive index-tracking experience. It is worth noting the risk of dividend traps may be exacerbated in a portfolio that has an automated bias to high dividend-payers. The index attempts to minimize this risk primarily through sector and stock caps that enforce a minimum level of diversification by incorporating consensus yield forecasts and by excluding companies not forecast to pay dividends in the next 12 months.

A top-heavy portfolio with large sector and company biases

The biggest sector exposure is financial services, at around 39%-40% of the portfolio. The fund’s exposure to materials has historically been volatile. Following dividend cuts in the sector, exposure dropped to 4% in 2016 from 20%. However, a fall in Rio Tinto’s share price and corresponding increase in yield saw the stock return to the portfolio in June 2017, increasing the fund’s exposure to the sector to 21%. That came at the expense of industrials exposure, which fell to zero. As of 30 June 2021, materials exposure was at 23%. 

Mixed results over the long term

Vanguard has fared relatively well over the long term, but short- and medium-term results have been a drag. Moreover, the annual return track of the strategy is visibly inconsistent as compared with its category index. In 2012 and 2013, the strategy delivered 24.5% and 26.5%, respectively–incredible relative and absolute returns. But investors should be cautiously optimistic about a repeat of such performance as the fund delivered equally subdued relative performance in 2014, followed by a 4.22% decline in 2015 and category benchmark relative underperformance of negative 1.2% in 2016.

Source: Morning star

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.