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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Pendal Horizon Fund: An actively managed portfolio of Australian shares

 The Fund is led by Crispin Murray, who has over 27 years’ industry experience and is currently the Head of Equity Strategies at Pendal. Mr. Murray is supported by a research team of nineteen, including Mr. Rajinder Singh who has over 17 years’ experience in Australian equities and manages a range of sustainability and ethical funds for Pendal.

The benchmark index is S&P/ ASX300 Accumulation Index.

Downside Risks: 

  • Market & security specific risk including Australian economic conditions deteriorate. 
  • The Portfolio Manager/analysts miss-calculate their bottom-up valuation. 
  • Stock selection fails to yield alpha against the benchmark – Companies which are screened out, such as in materials, energy, gambling, outperform. 
  • Key man risks with Crispin Murray, Andrew Waddington and Jim Taylor.

Investment Team:

Pendal’s nineteen-member Equity team is one of the largest in the industry. The Fund is managed by Crispin Murray, who is also the Head of Equity and is assisted by Rajinder Singh, who has a combined 44 year’s industry experience.

Fund Performance:

Fund Positioning:

Sector Allocation:

Investment Philosophy & Process:

Investment Philosophy: The Fund’s investment philosophy is based on the belief that good corporate governance and sustainability is a central factor to a company’s longterm success. 

Investment Process: The investment process is driven by bottom-up, fundamental research of stocks listed on the Australian Stock Exchange (both large and small cap). The key features of the process are best described in the diagram below. The Manager also utilises a proprietary system as part of its investment process, which includes Analyst Analyser which is a database that captures analyst financial models, valuations and recommendations

About the Fund:

The Pendal Ethical Share Fund is an actively managed portfolio of Australian shares which seeks to ensure that funds are invested in an ethical and socially responsible manner. The Fund invests in companies whose practices and impacts are aligned with an investor’s own social, environmental and ethical preferences and aims to provide a return (before fees, costs and taxes) that exceeds the S&P/ASX 300 Accumulation Index over a 5-year period.

(Source: Banyantree)

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

CFS Index Australian Bond: Simple and reasonably priced choice for diversified Australian bond exposure

Approach

FSI matches the risk factors of the benchmark, including duration, sector exposures, and credit quality by employing a full replication method. The strategy can hold securities that have been or are expected to be included in the index, and it can exclude those likely to drop in or out. On average, the cash holding would be in the vicinity of 0.5% because of the impact of daily flows and liquidity needs. The larger asset base gives the firm the benefit of scale and helps to keep a lid on overall transaction costs. FSI uses the BlackRock Aladdin portfolio management tool to manage the index-tracking process end to end, including trading and risk assessment and monitoring.

Portfolio

CFS Index Australian Bond replicates the Bloomberg AusBond Composite 0+ Year Index fully. As of 30 September 2021, the fund is composed mainly of Treasury (56.6%) and government-related (semigovernment and supranational) debt (36.4%). Corporate credit constitutes most of the remaining portion of the fund. A major portion of the credits in the index are issued by banks, followed by diversified financials and real estate trusts. . The concentrated credit exposure to banks and financials means Australian property fundamentals play a role in the portfolio’s performance in the long run.

People

FSI has a long history of managing passive strategies. FSI’s institutional passive funds under management is substantial. As of August 2021, FSI had around $5.1 billion in active funds and $12.2 billion in passive strategies. The Australian fixed-income team headed by Stephen Cooper within FSI is responsible for the CFS Index Australia Bond Fund. Cooper is an industry veteran. He is supported by four portfolio managers in the team, with Darja Milosevic and Alex Nikolovski dedicated to passive vehicles.

Performance 

As a core bond holding, CFS Index Australia Bond has served investors well over time by bringing broader portfolio volatility down and protecting capital when equity market slides. On the other hand, it has lagged when yields rose and when credit markets have been strong. This was evident in 2013 when the fund’s 1.7% gain trailed over half of its category peers or when yields rose toward the second half of 2020 through the end of the first quarter of 2021 (November 2020–March 2021). Encouragingly, the fund had done well when equity markets were weak. Its relatively long duration and high-quality exposure have been a boon during such occasions. 

CFS Performance.png

About the Fund

CFS Wholesale Indexed Australian Bond Fund is a unit trust incorporated in Australia. The objective of the Fund is to closely track the UBS Warburg Australian Composite Bond Index, All Maturities. The Fund invests in securities issued or guaranteed by governments, statutory authorities, banks, and corporations of a high credit standing, with some cash for liquidity.

(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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Funds Funds

JP Morgan Investment Funds: A collection of top picks from diversified industries

He also tends to add and trim positions aggressively as they become more or less attractive according to analyst models, a tendency that benefits when stock prices mean revert. While Davis’ artful approach has some appeal, it doesn’t have a discernible edge relative to its competition.

Portfolio:

This portfolio finds a balance between differentiation and careful risk management. It held 51 stocks at the end of September 2021, significantly less than the 140-180 it used to have when it had three independently managed sleeves. However, manager Scott Davis’ desire to let stock selection drive results leads to only modest sector and industry tilts relative to its S&P 500 benchmark. Davis also considers factor exposure when building the portfolio. For instance, he increased the portfolio’s stake in financials companies toward the end of 2020 to bolster its exposure to cheaper, more cyclical stocks to help offset its lack of exposure to the energy sector.

The portfolio has historically leaned a bit more toward a growth style, and that still rings true. It displayed a slight growth bias relative to the benchmark as of October, sporting higher valuation metrics such as price/ sales and faster trailing revenue- and earnings-growth rates.

People:

This strategy continues to rely heavily on J.P. Morgan’s core research team, but it is now led exclusively by Scott Davis, who oversaw the strongest-performing sleeve of this formerly multi-managed offering. Davis became a named manager in August 2014, inheriting a 10% slice of the strategy, but quickly saw his share grow, most notably after manager Thomas Luddy stepped down at the end of 2017. Davis continues to leverage the ideas of J.P. Morgan’s core research team, which consists of 23 analysts with extensive industry experience.

Performance:

A good portion of the fund’s success came in 2020, which skews the trailing return figures a bit. Its 26.7% gain in 2020 outpaced the benchmark by over 8 percentage points, the best calendar year since Davis debuted. The fund’s case over other time periods is weaker: It outperformed the bogy about 51% of the time on a rolling one-year basis since Davis joined.

(Source: jpmorgan.com)

Price:

Analysts find it difficult to analyse expenses since it comes directly from the returns. Analysts expect that it would be able to generate positive alpha relative to its benchmark index.


(Source: Morningstar)                                                                      (Source: Morningstar)

About Funds:

The investment objective of this fund is to achieve a return in excess of the US equity market by investing primarily in US companies. It uses a research-driven investment process that is based on the fundamental analysis of companies and their future earnings and cash flows by a team of specialist sector analysts.

(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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Funds Funds Research Sectors

JP Morgan Investment Funds- A collection of top picks from diversified industries

Process:

Davis maintains a relatively concentrated portfolio of 50-60 stocks but seeks to minimize the magnitude of sector or factor bets. He also tends to add and trim positions aggressively as they become more or less attractive according to analyst models, a tendency that benefits when stock prices mean revert. While Davis’ artful approach has some appeal, it doesn’t have a discernible edge relative to its competition.

Portfolio:

This portfolio finds a balance between differentiation and careful risk management. It held 51 stocks at the end of September 2021, significantly less than the 140-180 it used to have when it had three independently managed sleeves. However, manager Scott Davis’ desire to let stock selection drive results leads to only modest sector and industry tilts relative to its S&P 500 benchmark. Davis also considers factor exposure when building the portfolio. For instance, he increased the portfolio’s stake in financials companies toward the end of 2020 to bolster its exposure to cheaper, more cyclical stocks to help offset its lack of exposure to the energy sector.

The portfolio has historically leaned a bit more toward a growth style, and that still rings true. It displayed a slight growth bias relative to the benchmark as of October, sporting higher valuation metrics such as price/ sales and faster trailing revenue- and earnings-growth rates.

People:

This strategy continues to rely heavily on J.P. Morgan’s core research team, but it is now led exclusively by Scott Davis, who oversaw the strongest-performing sleeve of this formerly multi-managed offering. Davis became a named manager in August 2014, inheriting a 10% slice of the strategy, but quickly saw his share grow, most notably after manager Thomas Luddy stepped down at the end of 2017. Davis continues to leverage the ideas of J.P. Morgan’s core research team, which consists of 23 analysts with extensive industry experience.

Performance:

A good portion of the fund’s success came in 2020, which skews the trailing return figures a bit. Its 26.7% gain in 2020 outpaced the benchmark by over 8 percentage points, the best calendar year since Davis debuted. The fund’s case over other time periods is weaker: It outperformed the bogy about 51% of the time on a rolling one-year basis since Davis joined.

(Source: jpmorgan.com)

Price:

Analysts find it difficult to analyse expenses since it comes directly from the returns. Analysts expect that it would be able to generate positive alpha relative to its benchmark index.                                                              

                 
(Source: Morningstar)                                                                 

About Funds:

The investment objective of this fund is to achieve a return in excess of the US equity market by investing primarily in US companies. It uses a research-driven investment process that is based on the fundamental analysis of companies and their future earnings and cash flows by a team of specialist sector analysts.

(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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Funds Funds Research Sectors

WCM Focused International Growth Fund Institutional Class: A promising option

Approach

The managers first generate ideas through a quality-growth screen, which includes companies with market caps of at least $3.5 billion, a good liquidity profile, and other metrics such as strong and improving margins. The team excludes non-growth industries such as utilities and looks for companies with solid returns on invested capital. Factors such as economies of scale, intellectual property, and legal or regulatory advantages are key. The team also places a heavy emphasis on culture, believing that culture drives certain companies forward and helps maintain their competitive edge. The team takes its best ideas and builds a relatively concentrated portfolio of roughly 30 to 40 international stocks. Because of their benchmark-agnostic approach, the portfolio may have extreme over- and underweighting to various sectors.

Portfolio

The managers use their best ideas to build a concentrated portfolio. . Coming out of the 2007-09 global financial crisis, the managers felt like their portfolio was too concentrated at about 20 holdings. They’ve gradually increased that count, and in July 2021 had 35 holdings. While still relatively concentrated (the typical foreign large-growth peer held 83 stocks in July), the expansion helps reduce individual stock risk. The managers take other prudent steps to minimize risk and remain relatively diverse. They avoid sectors that they believe offer little growth potential and as of July 2021, the fund had no exposure to energy, real estate, or utilities.

Portfolio Holdings .png

People

Co-CEO and manager Kurt Winrich’s upcoming retirement has been long in the works and the team will still have four capable managers to pick up the slack. Mike Trigg, who has been on the strategy since the fund’s 2011 inception, is the final decision-maker here. . Peter Hunkel, who has also managed since the fund’s inception, is responsible for portfolio construction. The team promoted Sanjay Ayer, also a former Morningstar equity analyst, to the management ranks in June 2019. Ayer joined WCM in 2007 and manages the WCM Global Growth Fund WCMGX and the WCM Emerging Markets Fund WCMEX, which have had success under him. Paul Black, co-CEO of WCM, is a named manager here but serves mainly as an advisor to the team. 

Performance 

Strong stock selection has fueled the fund’s outperformance. Picks in technology and industrials, in particular, have been among the biggest contributors to its performance. That helped the strategy weather 2020’s first-quarter coronavirus-driven slide. The fund held up slightly better than the index losing 29.4% from Jan. 18 to March 23, 2020, compared with the index’s 30.3% loss. The managers then opportunistically added MercadoLibre MELI and Ferrari RACE, which benefitted the strategy coming out of the bear market. In 2021, the fund has returned to its winning ways. Its 12.7% return handily beat the index’s 4.6% and the Morningstar Category’s 4.5%. That was good for the top decile in the category. Holdings such as ASML Holdings NV ADR ASML and Shopify SHOP were among the leading contributors in that period.

Performance .png

About the Fund

WCM Focused International Growth Fund seeks long term capital appreciation by investing in equity securities of non-U.S. domiciled companies or depository receipts of non-U.S. domiciled companies.

(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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Funds Funds Research Sectors

Altius Sustainable Bond Fund- A fund that aims to provide a total return approach

The Altius Sustainable Bond Fund offers investors fixed interest investments, which are managed with the consideration of environment, social and corporate governance (ESG) principles. The Manager recently expanded its exclusion of companies engaged in thermal coal to all fossil fuels (or at least have revenue no greater than 10% sourced from these activities). The Fund is a credible offering. It is run by an investment team with strong credentials and lengthy investment experience in managed assets in the investment class (the team of six comprises three PMs all with at least 25 years’ experience and the remaining team members all with over 10 years’ experience).

Downside Risk: 

  • Interest rate risk (however the Fund’s total return focus should limit this). 
  • The Manager gets the thematic and top-down view wrong. 
  • Key man risk – Bill Bovingdon, Chris Dickman and Gavin Goodhand.

Investment Team:

The fund is managed by Australian Unity’s Cash and Fixed Interest team (Altius) consisting of experienced fixed interest investment professionals. The investment team is supported by a very experienced Investment Advisory Committee, which meet every quarter (formally). Below are the 

  • Bill Bovingdon – Executive Director, Chief Investment Officer 
  • Chris Dickman – Executive Director, Senior Portfolio Manager
  • Gavin Goodhand – Senior Portfolio Manager
  • Yen Wong – Head of Credit Research
  • Kirsten Lee – Credit Analyst.
  • Vincent Tang – Senior Portfolio Analyst

Performance:

(%)Fund  Benchmark**Out-performance
1-month-0.110.35-0.46
3-months0.390.77-0.38
1-year (p.a.)-0.550.32-0.23
3-years (p.a.1.422.49-1.07
5-year (p.a.)1.532.13-0.6
Since inception (p.a.)*2.262.65-0.39

Fees Structure:

The Fund has lowered its management fees 0.56% p.a. to 0.37%p.a. The Fund charges no performance fee.

Fund Positioning:

Sector Allocation:

Top 10 Holdings:

About the fund:

The Altius Sustainable Bond Fund is an Australian fixed interest fund that invests in companies which conduct their business and apply capital responsibly, considering a range of environmental, social and governance (ESG) issues. The Fund aims to provide a total return approach, offering duration exposure at appropriate points in the cycle, as well as positioning the portfolio defensively in a rising rate environment and invests only in domestic assets, thus avoiding importation of global risks (e.g. currency) and offering a different risk profile.

(Source: Banyantree)

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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Allspring Diversified Income Builder Fund – Class C: A fund providing high income

Fund Objective

The investment seeks long-term total return, consisting of current income and capital appreciation.

Approach

The strategy targets a yield of 4%-5% and allocates 60%-90% of assets in fixed income, with the remainder in stocks. The team may also employ tactical shifts, vetted by the firm’s tactical trading council, by trading currencies or equity sector indexes, but these can be difficult to execute well consistently. Since introducing a multisleeved approach in early 2018, this strategy has undergone three prospectus benchmark shifts that signal it continues to experiment with its profile. The most recent adjustment (February 2020) decreased the equity exposure by 10 percentage points to 25% in order to make room for a more diversified bond sleeve. Other adjustments include the removal of a REITs sleeve in September 2018, the addition of a securitized bond sleeve in March 2019, and the introduction of an options sleeve in January 2020.

Portfolio 

As fixed-income markets have proved richly priced, the portfolio managers cited more attractive capital appreciation and dividends in the equity space, prompting an uptick in the equity holdings to roughly 38% here by September 2021. Within that equity sleeve, technology stocks (Microsoft MSFT is a holding) and healthcare stocks (such as Bausch Health Companies BHC, DaVita DVA, and AbbeVie ABBV) occupied roughly 27% and 17% of assets, respectively. 

High-yield bonds dominate the fixed-income portion of the strategy (59% of the portfolio as of September 2021), and it is worth noting that these are more sensitive to equity markets than the investment-grade fare employed by many peers for downside protection in stressed markets. Other bond sleeves here are modest but diversifying relative to the portfolio’s historical profile and include municipal bonds (3%) and securitized bonds (2%).

People

Kandarp Acharya as co manager alongside Margie Patel, who was the sole manager since 2007 but is departing this strategy (though she remains on Allspring Diversified Capital Builder EKBYX) as of Dec. 13, 2021. This move is accompanied by the arrival of quantitative researcher Petros Bocray, a 15-year firm veteran and Acharya’s collaborator on Allspring Asset Allocation EAAIX.

Performance

Over the strategy’s short tenure with its new contours (January 2018 through November 2021), the 5.5% annualized return of its R6 share class modestly outpaced the 5.3% return of the Morningstar Conservative. Target Risk Index and trailed the 6.7% return of its custom benchmark (60% ICE BoA U.S. Cash Pay HY Index, 25% MSCI ACWI, and 15% Barclays Aggregate Index). From an absolute return perspective, the strategy also generated a higher return than the 5.0% median of its typical allocation–15% to 30% equity Morningstar Category peer.This strategy has a riskier profile than many strategies in the category, particularly during stress periods, resulting in risk-adjusted returns (as measured by the Sharpe ratio) that trail all comparative points (typical category peer and benchmark as well as custom benchmark) over the aforementioned period. In three recent stress periods (when energy prices plummeted from June 2015 to February 2016, the 2018 fourth-quarter high-yield sell-off, and the coronavirus-driven market panic of Feb. 20-March 23, 2020), the fund lagged its category index by more than double and trailed its typical peer.

Top 10 Holdings

C:\Users\Akhila\Downloads\Screenshot 2021-12-10 121827.png

About the fund

The Fund seeks high current income from investments in income-producing securities. The Fund will normally invest at least 80% of its assets in income producing securities, including debt securities of any quality, dividend paying common and preferred stocks, convertible bonds, and  

derivatives. The strategy targets a yield of 4%-5% and allocates 60%-90% of assets in fixed income, with the remainder in stocks. The team may also employ tactical shifts, vetted by the firm’s tactical trading council, by trading currencies or equity sector indexes, but these can be difficult to execute well consistently.

(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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Funds Funds Research

Vanguard Total International Stock Index Fund Investor Share: A fund providing outstanding diversification with ultralow fee

Investment Objective 

The Fund seeks to track the performance of a benchmark index that measures the investment return of stocks issued by companies located in developed and emerging markets, excluding the United States.

Approach

Vanguard’s portfolio managers use full replication to track the FTSE Global All Cap ex U.S. Index. This benchmark starts with all stocks listed outside of the United States and sorts them by their free-float adjusted market cap. It targets firms that land in the top 98% of each country’s market capitalization. The index uses buffer rules around the cutoff point to keep turnover low, and it applies some additional liquidity requirements to ensure that its holdings are investable. The index weights its final constituents by market cap, which helps further mitigate turnover and trading costs. It reconstitutes semiannually in March and September.

Portfolio 

This fund captures the entire foreign stock market. Its comprehensive portfolio effectively diversifies stockspecific risk, with only 9% of assets in its 10 largest holdings. . Sector weightings are comparable, with financial and industrial stocks collectively representing almost one third of the portfolio. Eurozone stocks represent the largest regional allocation, at 20% of the portfolio, while Japan and the United Kingdom make up an additional 16% and 9.4%, respectively. The fund does not hedge its currency risk, so its exposure to currencies like the euro, yen, and pound can add to its volatility. Stocks listed on emerging-markets exchanges account for a little more than 28% of this fund. Allocating to these companies improves the fund’s reach and shouldn’t materially impact its risk or performance. The fund includes small caps but weights its holdings by market cap. So, it leans toward large-cap multinationals, with companies like Taiwan Semiconductor, Nestle, and Samsung among its biggest names.

People

The portfolio managers on this fund are part of Vanguard’s Equity Index Group. Christine Franquin and Michael Perre share responsibility for this fund. They are both principals at Vanguard and captain some of Vanguard’s largest index-tracking funds listed in North America. This duo not only oversees the portfolio but also executes trades on a day-to-day basis

Performance

This fund’s category-relative performance has not stood out from its competitors in the foreign large-blend category. The Admiral share class managed to slightly edge out the average of its peers by 18 basis points annualized over the 10 years through November 2021. The fund’s larger-than-average stake in emerging- markets stocks was a drag during the first few years of that period and partially explains its mediocre showing. The fund’s composition looks a lot like the category average, and it remains fully invested in order to tightly track its target index. That means it tends to post average performance during volatile periods like the coronavirusdriven sell-off in the first quarter of 2020. The fund’s 24% decline was comparable to the loss incurred by the category norm over those three months.

Recent category-relative performance has been stronger. The portfolio led the category average by 67 basis points per year over the trailing three years through November 2021, landing just outside the top third of the category. Poor stock selection in the financials and information technology sectors on the part of some active managers hurt their category-relative performance and boosted the fund’s standing.

Top holdings of the fund

C:\Users\Akhila\Downloads\vanguard portfolio.png

About the fund

The fund tracks the FTSE Global All Cap ex U.S. Index, which includes stocks of all sizes from foreign developed and emerging markets. It weights them by market cap, an approach that benefits investors by capturing the market’s collective opinion of each stock’s value while keeping turnover low. This is one of the broadest portfolios in the foreign large-blend category. Its exceptional diversification mitigates the impact of holding the worst-performing names. It holds more than 7,000 stocks and has only 9% of assets in its 10 largest positions. Its regional composition looks modestly different from a typical fund in the category because it has a larger dose of emerging-markets stocks. But their weight in the portfolio isn’t large enough to materially increase the fund’s risk or compromise its category relative performance.

(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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Funds Funds

Touchstone Flexible Income Fund Class Y: A flexible Income fund providing income as well as capital appreciation

Approach

The strategy’s primary hunting grounds include U.S. investment-grade and high-yield corporates, preferred stock, municipal bonds, and U.S. Treasuries. The strategy gains exposure to high-yielding corporate and municipal bonds via closedend funds–an uncommon tactic–which compose 5% to 15% of assets. Within these positions, the team focuses on the fund’s discount and quality of cash flow rather than its underlying holdings. Unlike most peers, the team doesn’t invest in emerging-markets debt, nor do they take on any currency risk. The strategy is benchmark-agnostic and flexible in its construction across asset classes and credit quality. It can invest up to 40% in junk-rated debt, which had peaked near 30% (including non-rated debt) up until September 2020. As of October 2021, the strategy’s non-investment grade exposure stands at 45%, owing to the increase in nonrated debt over the last year. The strategy tends to be concentrated; it is common to see individual positions between 2% and 4% each.

Portfolio

 The strategy continued to maintain a high allocation to preferred securities (34% of assets as of October 2021), followed by structured credit (32%, mostly in commercial mortgage-backed securities). The team modestly added shorter term Treasuries and maintained a nominal allocation to cash and cash equivalents towards the end of 2020 due to near zero interest rates. However, in the first quarter of 2021, the portfolio cut its 9% allocation to Treasuries to zero as the long-end of the curve sold off and no desirable returns were seen in the short-end. Post the first quarter of 2021, the portfolio’s exposure to treasuries, mostly short-dated, has increased drastically to 16% as of October 2021, owing to the flat credit curve and the credit spreads for riskier securities having tightened to pre-pandemic levels. The team has also reduced the exposure to corporate credits, both investment-grade (3.7%) and high yield (6.4%), given tight credit spreads. The portfolio’s exposure to nonrated debt has increased and stood at 30% as of October 2021, an increase of roughly 18 percentage points from last year. Most of this exposure comprises multifamily MBS originated by Freddie Mac, but still carry some risk.

Performance

 Institutional share class has shown middling performance within its nontraditional Morningstar Category peer group, returning 3.8% annualized. From November 2018 through November 2021, the strategy’s I share class has gained 6.5% annualized, outpacing more than 65% of its category peers, and beating its typical rival by 60 basis points. The team has made good use of its flexible mandate by tilting towards Treasuries and high-quality securitized credit heading into 2020 which helped ease some pain as the markets tumbled during the coronavirus-led self-off from Feb. 20 to March 23, 2020. However, the strategy’s 14.2% loss over that stretch was still in line with its peers. As markets recovered, the strategy gained a swift 25.3% from March 24, 2020, through to the end of the year, owing to the addition of battered corporate credits that rebounded later that year

(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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Funds Funds

Vanguard Mid-Cap Growth Fund Investor Shares: A Solid Mid-Cap Growth offering with rock bottoms fees

Approach

Frontier’s approach is best described as growth-at-a-reasonable-price. The team, like Wellington, also invests with a multi-year time horizon, though the end portfolio is more diversified, owning 70 to 80 stocks, while sector bets have stayed within 10 percentage points of the index over the years. Rounding out the subadvisor group is RS, which employs a sector-neutral approach to build a 60-80-stock portfolio. While risk management efforts–such as a desired 2:1 upside/downside ratio for each stock and the use of technical indicators–have proven efficacious on RS’ small-cap offering, they have consistently failed to have the intended impact in the mid-cap arena.

Portfolio

Portfolio’s sector weightings hover fairly close to the Russell Midcap Growth Index’s. As of June 2021, the biggest overweighting was to consumer discretionary, with 19% of assets, more than the Russell Midcap Growth Index’s 16%. The Wellington team purchased hospitality firm Hilton Worldwide Holdings in 2021’s second quarter, believing its asset light business model, good management team, and strong growth prospects in Asia will serve the stock well going forward. Conversely, the end fund held modest underweights to industrials and information technology.

portfolio vanguard.png

People

This strategy’s three subadvisors are experienced, stable, and capable, driving a People rating upgrade to Above Average from Average. The group has been more successful in the small-cap space over the years, and the standalone RS Mid Cap Growth offering has struggled since its July 2008 inception. In October 2021, Vanguard slashed RS’ stake to 20% from 45%. Frontier also came on board in December 2018 and manages 40% of fund assets (down from 45%). While the January 2020 retirement of Stephen Knightly was a loss, a thoughtful transition to Chris Scarpa–who had been a comanager since 2010–and the grooming of longtime analyst Ravi Dabas as comanager mitigate concerns.

Performance

The current subadvisors have been in place here together since December 2018. Since then, through October 2021, the fund’s 28.5% annualized gain lagged the Russell Midcap Growth Index’s 31.1% return and 60% of its mid-cap growth. Frontier Mid Cap Growth–the strategy behind Frontier’s sleeve–gained 30.6% annualized gross-of-fees between December 2018 and October 2021, slightly lagging the index but placing in line with peers. While stock selection was strong in financials, it was poor in healthcare, and the underweighting to the solidperforming information technology sector also detracted. 

Wellington–via its Focused Mid Cap Growth strategy–has been the strongest-performing subadvisor but long had had the lowest allocation, though Vanguard raised its stake to 40% of fund assets from 10% in October 2021. Between December 2018 and October 2021, its 31.8% annualized gain gross-of-fees bested 57% of peers. The sleeve benefitted from solid picks in I.T., including DocuSign and Square.

performance vanguard.png

(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.