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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Funds Funds

Zurich Australian Property Securities Fund

Our Opinion

Our rating is based on the following key drivers:

Experienced Portfolio Managers (PMs)

The Fund is led by Carlos Cocaro and Damien Barrack of Renaissance Property Securities Pty Ltd. The two principals have worked together for over 18 years, specialising in ASX listed property securities and have a combined total of over 45 years of experience in analysing and investing in listed property securities. Whilst one may criticize the size of the investment team, in our view, the size of the team and credentials are appropriate considering the small universe (relative to other investment classes).

Disciplined investment process

The Fund uses a rigorous investment process with the Managers employing an active, value-based investment style, characterised by incorporating bottom-up investment research into individual securities, with a particular focus on analysing and forecasting the present and potential future income generation of each underlying property investment.

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 up to 3.5% p.a. (3 years performance numbers) and a marginal -0.65%, since inception; This is surprising considering, the Fund’s active risks is minimised, with low tracking error and the PMs being very benchmark aware. Indeed, with the idea that the Managers are very benchmark aware and the Funds beta close to 1.0, over the longer term, investors are by and large taking a view of the S&P/ASX300 Property Trusts Accumulation Index (rather than whether a passive or active manager is best).

Downside Risks

Deterioration in Australian economy especially the property market (deterioration of property prices and fundamentals).

The Portfolio Manager/analysts miss-calculate their bottom-up valuation.

Softening in bond yields negatively impacting pricing.

Key-person risk in Mr. Cocaro and Mr. Barrack.

Our Opinion…

  •  investment classes).

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

Perpetual Smaller Companies Fund

Our Opinion

Highly competent PM

The PM, Jack Collopy has extensive experience and track record as an analyst and fund manager, with 21 years industry experience and 19 years with Perpetual. Mr. Collopy is supported by the wider Perpetual team of analysts, including deputy PM of the Fund Alex Patten. 

Constant rotation/changes at the PM level are a disappointment

 The constant rotation/changes at the PM or co-PM level in the last three years, for the Fund is a disappointment – we note that Mr. Collopy had transition to oversee other Perpetual strategies, leaving then co-PM Mr. Nathan Hughes to oversee the Fund. Mr. Hughes has since transitioned to become PM of Perpetual’s Ethical SRI Fund as of April 2019 (taking over from Mr. Collopy for that Fund). The Fund is now managed by Mr. Collopy with Alex Patten as deputy PM, who we think highly of, and have strong credentials and long investment experience. However, a period of stability at the PM level would give us more comfort before upgrading our recommendation.

Well-resourced investment team

Whilst the team managing the Fund is on the smaller end (relative to peers), the PMs of the Fund is able to tap into the expertise of the wider Perpetual investment team. The investment team is headed by Paul Skamvougeras, Head of Equities, and comprises a large and experienced team of Portfolio Managers (5), head of proprietary research (1), Deputy Portfolio Managers (3), Analysts (6) and the Responsible Investments team (2). Each Portfolio Manager is supported by the team of analysts and back-up procedures are shared throughout the large team. Jack Collopy is the Portfolio Manager of the Perpetual Smaller Companies Fund, with Alex Patten the Deputy Portfolio Manager. As such, ultimate investment responsibility rests with them. Mr. Collopy and Mr. Patten report directly to Paul Skamvougeras.

Solid investment process backed by bottom-up research 

The investment process is a bottom-up selection approach focused on quality and valuation, driven by research and engagement with management, which we think is particularly valuable in valuing smaller companies.

Downside Risks

Australian economic conditions deteriorate. 

The Portfolio Manager/analysts miss-calculate their bottom-up valuation.

Departure of key PM Jack Collopy or Deputy PM Alex Patten.

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 Global Equities Fund Overview

Our Opinion…

•New PM has solid investing experience, backed by a wider Fidelity analyst team.

On Mr. Kochar’s credentials and whether he is suitable to manage the Fund, Radhika Surie, Investment Director at Fidelity, highlighted in our meeting, that Mr. Kochar is “an experienced global growth-oriented Portfolio Manager. Ashish joins from Columbia Threadneedle and has over 16 years’ investment experience spanning across management of US, Global and Absolute Return products. He previously managed the Threadneedle Global Extended Alpha, American Extended Alpha, American Absolute Alpha and American Select funds. Prior to his 13 plus years at Columbia Threadneedle, he worked at hedge-fund manager, North Sound Capital, and Merrill Lynch. Ashish holds an MBA from Mason School of Business”. Mr. Kochar is expected to work closely with the broader global equities team and leverage the expertise of the 162 strong Fidelity global analysts

•Undermined investment process

 On what will be the investment process which Mr. Kochar will adopt; Ms. Surie highlighted that the process remains to be officially determined (with the Fund’s documents to be updated). However, Ms. Surie highlighted “Ashish is a bottom-up fundamentals-based stock picker. His background in the hedge fund industry has given him a unique perspective, where he approaches investing in public markets like a private equity investor i.e. he likes to take an owner operator approach to stock selection – understanding business model is key. Ashish focuses on three main factors: high return on capital, strong management team and industry analysis which results in a portfolio that has a quality bias. A key metric is total earnings yield. In particular, a focus on operating earnings yield and factors that support growth in operating earnings, whether they come from businesses acquiring growth via factors like M&A; or restructuring via, say, divestitures; developing new products, adding production or distribution capacity. In evaluating management teams, he focuses on management compensation, track record, strategic plan, management accessibility and compensation. At any given point in time, Ashish looks to identify companies that meet a 15% total operating earnings yield potential”.

Downside Risks…

•          PM Ashish Kochar departs Fidelity or the Fund or fails to fit well within Fidelity.

•          The Portfolio Manager/analysts miss-calculate their bottom-up valuation.

•          Deterioration in global economy which affect company fundamentals.

•          Liquidity risk and volatility risk.

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

ClearBridge RARE Infrastructure Value Fund

Our Opinion…

  • Well-resourced with a highly experienced team. RARE’s investment team is one of the largest in global listed infrastructure with 11 investment professionals focused on analysis of infrastructure securities solely. The Fund is managed by Nick Langley, Shane Hurst and Charles Hamieh and more recently Simon Ong who possess strong credentials and investment experience. PMs Mr. Hurst and Mr. Hamieh are also responsible for the governance and management of the investment process and the Sydney-based Infrastructure Investment team. They report to ClearBridge’s co-Chief Investment Officers and PMs Scott Glasser and Hersh Cohen, who are located in New York, but by and large are left alone to manage the Fund.
  • Strong interest alignment. Relative to peers, the Manager has one of the best remuneration programs which aligns the interest of the investment team with investors. PM remuneration focuses on delivering 1-, 3-, and 5-year performance versus benchmark and peer group whilst research analysts compensation is skewed towards new idea generation, best ideas as measured in the performance model and PM feedback.
  • Investment process yielding proprietary investment Universe. RARE utilises a list of 200 infrastructure companies known as the ‘RARE 200’ as its proprietary investment universe. The ‘RARE 200’ consists of 200 of the most liquid, high quality, high concentration infrastructure companies globally. Additionally, these stocks are screened for specific characteristics including long duration in assets, predictable cash flows, low volatility, inflation protection, and monopolistic or little competition.
Main Details   APIR Code
TGP0034AU
Asset Class
Global Shares
Market Capitalisation Large
Style
Neutral (Value bias)
Fund Size
$846.6m
Fees (MER)
0.974% p.a.
Distribution
Quarterly

Downside Risks…

  • Rising interest rate environment.
  • Deterioration in growth of economies that the Fund invests in. This includes

unfavorable regulations towards infrastructure assets.

  • Key man risk – departures of any personnel on the investment team, but especially, Nick Langley, Shane Hurst and Charles Hamieh and Simon Ong.

Source: ClearBridge Investments Ltd.

Fund Performance

Figure 1: Fund historical performance (as at 30 Jun 2021) – Currency Unhedged

    
(%)FundBenchmark**Out-performance
1-mths+1.5+1.0+0.5
3-mths+5.4+2.8+2.7
1-year (p.a.)+12.0+7.5+4.5
3-year (p.a.)+8.1+7.1+0.9
5-year (p.a.)+7.5+7.3+0.2
Inception*+9.9+7.1+2.8

Source: ClearBridge Investments Ltd. Past performance is not indicative of future performance.

* Internal calculations for ClearBridge RARE Infrastructure Value Fund – Unhedged Class A Units. All index data sourced from FactSet. Results over one year annualised. Fund performance is net of fees, assuming all distributions are reinvested and before tax. Performance inception date for ClearBridge RARE Infrastructure Value Fund – Unhedged Class A Units is 31/05/2011.

** OECD G7 Inflation Index +5.5% over a market cycle (rolling 5-year periods)

Fund Positioning

Figure 2: Fund Characteristics and Top 10 Positions (as at 30 Jun 2021)

    
Portfolio Weighted Avg Top 10Weight (%)
Avg Market Capitalisation60.7bnEnbridge Inc5.11
Div Yield (Fwd) Gross3.10%Union Pacific4.85
5 Yr DPS Growth (PA)8.10%Vinci4.57
Gearing (Current)34.00%Exelon Corp4.37
Interest Cover (Historic)3.7xGetLink4.07
EV/EBITDA (Forward)17.20%Cheniere4.06
  American Tower3.93
  Cellnex3.78
  Public Services Enterprise Group3.75
  Ferrovial3.50
  Total42.00

Figure 3: Fund allocation breakdown (as at 30 Jun 2021)

Source: ClearBridge Investments Ltd.

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

Altius Bond Fund

Our Opinion…

  • Well-resourced, capable and experienced investment team. We regard the CIO and investment team of Altius as very experienced and capable investment managers.
  • We like the total return focus, to protect capital in a rising yield environment. The Manager has an absolute return focus and is looking to protect capital in a rising interest rate environment. Whilst global rates are likely to be lower for longer, a specialist manager that can adequately navigate this risk is highly desirable.
  • Being benchmark unaware requires conviction. We agree that most managers will look to manage their portfolios relative to a benchmark, which leads to risk managed on a relative basis (rather than absolute) and foregoing opportunities to drive alpha. This is where we expect Altius’ investment team to exercise significant investment experience and investment process to deliver superior returns.
  • Scenario analysis critical to the investment process. In our view, the key component of the investment process is the scenario analysis forecasting and building a case for Best Case, Central Case and Worst Case. Putting a well thought-out and researched narrative around each case allows the investment team to answer critical questions and define the macro economic landscape. In our discussions with the team, we broadly agree with their current view under each case and analysis to support it. Whilst agreeing to their view is not so important to us, what we appreciate is the analysis (and logic) and how the narrative was articulated to us. We believe the Manager understands the market and critical drivers.
  • Focus on liquidity management. The Manager embeds risk management in strategy formulation, with the liquidity risk being a key consideration during the security selection process and managed through a 10% buffer of cash-like assets, giving the fund some downside protection from impaired liquidity when credit cycles turn.
Main Details 
APIR CodeWFS0486AU
Asset ClassAustralian Fixed Interest
Inception date14 June 2011
StyleAbsolute Return
Fund Size$133.39m
  Fees (MER)0.46% p.a. + expense recovery
DistributionQuarterly
  
Portfolio Characteristics
    Benchmark  50% Bloomberg AusBond Composite (0+Y) + 50% RBA Cash Rate
  Yield to maturity (%)1.17 (versus 0.58 benchmark)
Modified duration (years)1.91 (versus 3.02 benchmark)

Downside Risks…

  • 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.
  • Key man risk – Bill Bovingdon, Chris Dickman and Gavin Goodhand.

Source: Altius Asset Management

Fund Performance

Figure 1: Altius Bond Fund historical performance (as at 30 June 2021)

(%)FundBenchmark**Out-performance
1-month-0.16+0.35-0.51
3-months+0.38+0.77-0.39
1-year (p.a.)-0.48-0.32-0.16
3-years (p.a.)+1.53+2.49-0.96
5-year (p.a.)+1.66+2.13-0.47
7-year (p.a.)+2.27+2.73-0.46
10-year (p.a.)+3.53+3.45+0.08
Since inception (p.a.)*+3.54+3.46+0.08

Source: Altius Asset Management; Past performance is not an indicator for future performance. * Inception date for performance calculations is 14 June 2011. ** Effective 1 July 2016, Benchmark is 50% Reserve Bank of Australia Cash Rate and 50% Bloomberg AusBond Composite 0+Yr Index and applied retrospectively for all periods.

Fund Positioning

Figure 2: Fund sector allocation (as at 30 June 2021)

   
 Fund %Benchmark %
Australian Commonwealth Government6.4428.65
Supranational15.064.63
Industrials17.062.08
Financials18.631.50
Asset Backed9.620.00
Agencies10.590.14
11am0.970.00
Cash at Bank0.690.00
RBA Cash0.0050.00
Semi Government20.9513.00

Source: Altius Asset Management

Figure 3: Top 10 holdings (as at 30 June 2021)

   
 Fund %Benchmark %
New South Wales Treasury Corp11.133.09
National Housing Finance & Investment Corp10.600.05
Australian Commonwealth Government6.4428.25
Asian Development Bank4.940.40
Treasury Corp Victoria4.342.78
Queensland Treasury Corp3.283.09
Inter-American Development Bank3.220.33
UBS Ag Australia2.920.04
Intl Bank Reconstruction & Development2.210.35
McDonalds Corp1.890.00

Source: Altius Asset Management

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

Quant Small Cap Fund Direct Plan-Growth Updates

Investing goal and benchmark

The fund’s primary goal is to “create capital growth through investments with a very well mix of small cap companies.” The NIFTY Small cap 250 Total Return Index is used as a benchmark.

Portfolio Structure & Asset Allocate

The fund’s asset allocation is roughly 95.85% in equities, 0.0 percent in bonds, and 4.15 percent in cash and cash equivalents. The top 10 equity holdings account for 43.41 percent of total assets, while the top three sectors account for 44.15 percent. The fund invests in a variety of market capitalisations, with roughly 1.41 percent in gigantic and big cap companies, 19.83 percent in mid-cap companies, and 78.76 percent in small cap companies.

Implications for Taxation

1. If units are surrendered within one year of purchase, gains are taxed at a rate of 15% (Short-term Capital Gains Tax – STCG).

2. Gains of up to Rs. 1 lakh accruing from units redeemed after one year of investment are free from tax in a financial year.

3. Profits of at most Rs. 1 lakh would be subject to a 10% tax rate (Long-term Capital Gain Tax – LTCG).

4. Dividend income from this fund will be assigned to an investor’s income and taxed as per to his or her tax slabs for Dividend Distribution Tax.

5. In addition, for dividend income in excess of Rs 5,000 in a financial year, the fund house is required to deduct a TDS of 10%.

Source: Economic times

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

Invesco Main Street Mid Cap Y OPMYX

Anello had been a lead manager of this fund since 2012 and had worked with Main Street team founder Mani Govil since 2006, but the fund had been a mediocre performer under his watch, so his departure was not really a shock. Now the fund’s sole lead manager is Belinda Cavazos, who was hired in February 2020 to manage this fund and Invesco Rising Dividends OARDX. She previously spent three years at Boston Trust managing small and mid-cap funds with some success. But this fund is much larger than any of her previous charges, and turning it around will be no easy task.

This fund is a mid-cap counterpart to Invesco Main Street MSIGX, which tries to identify profitable, well-run companies trading at reasonable valuations. Cavazos has not made any major changes to the process, but she has tried to put her own stamp on the fund, especially since Anello left. She reduced the portfolio’s exposure to some interest-rate-sensitive sectors, notably real estate and utilities, and added to some cyclical names such as Vulcan Materials VMC and homebuilder

D.R. Horton DHI. She also reduced the overweighting in energy that the fund typically had under Anello and sold some large-cap names that didn’t really fit with the fund’s mid-cap mandate. The effect has been to make the fund less reliant on sector bets and more driven by stock-picking. So far, the results haven’t been great. In 2020, the fund trailed about two thirds of its midcap blend Morningstar Category peers, similar to its performance over the past three, five, and 10 years. Results were similarly disappointing in the first five months of 2021. It is hard to come to any firm conclusions based on such a short time period, but Cavazos will definitely need to achieve better results than this before concluding that the fund is on the right track.

This fund’s strategy is straightforward in most respects. It is similar to the approach used by Invesco Main Street MSIGX, but less tested. It earns an Average Process rating. Lead manager Belinda Cavazos and her six co-managers employ a version of the strategy developed over the years by Main Street team leader Mani Govil. They seek companies with strong management teams and a fundamental catalyst for future value creation over the next two to five years, such as pricing power, market share gains, or improving profitability.

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

Devon Alpha Fund

This is the fourth portfolio manager change on this strategy in four years. In early

2019, Devon announced it was changing the portfolio manager to Mark Brown from Nick Dravitzki. Prior to taking the portfolio manager role, Brown had been the chief investment officer at Devon. Dravitzki had been the portfolio manager on this strategy since 2017 following previous portfolio manager Robertson’s ascension to the key business management role. This level of portfolio manager change on a strategy that allows significant flexibility for the key decision-maker rarely leads to good outcomes in the short to medium term, even with an experienced team.

The investment process seeks to identify companies in the NZX 50 and S&P/ASX 200 indexes that have the ability to generate strong returns on invested capital and achieve good cash flow expansion or have unappreciated catalysts for revaluation. The strategy allows for a portfolio of just 10-15 stocks, so the fund carries significant stock- and sector-specific risk, which may result in greater volatility than more-traditional strategies. In addition, the portfolio manager has a high level of discretion and can allocate 0-100% to New Zealand stocks, 0-100% to Australian stocks, or 0-100% to cash. Historically, cash levels have often been in the 20%-30% range but have been lower since mid-2020. The portfolio manager also has the flexibility to short-sell stocks (though we’ve rarely seen it used) and invests outside Australasia.

Since inception, the strategy’s returns have been largely lacklustre, which is not entirely unexpected given the difficulty in getting cash levels right and the portfolio manager changes.

Devon Alpha has some interesting characteristics, but the numerous portfolio manager changes constrain our enthusiasm.

Devon seeks to identify Australasian companies with the ability to produce strong returns on invested capital. Devon generates investment ideas through its fundamental research process and draws on its members’ extensive experience. On-the-ground research is an important part of the process; the team will not only visit management of companies in the portfolio and potential holdings, but also competitors, suppliers, and customers. Discounted cash flow is the most important factor in the valuation decision, ensuring the team avoids overpaying for companies. The investment decision also considers the strength of the business model, the relative attractiveness of the industry, quality of management, and the company’s financial health. These factors are assigned weightings that the portfolio manager uses in his portfolio construction process.

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

Devon Dividend Yield Fund

However, Nick Dravitzki, who had been portfolio manager on this strategy since it was launched in 2012, resigned in early June 2020. Devon’s experienced chief investment officer, Mark Brown is now portfolio manager here. He is assisted by the investment team, which includes managing director Slade Robertson, three portfolio managers, and two senior equities analysts.

The investment team is tight-knit and possesses valuable experience, but in recent years the good quality research and portfolio construction we had come to expect from Devon has marginally declined relative to peers. In addition, a change of portfolio manager, in the short term, can be unsettling for an investment team and strategy. However, Robertson has restructured and reinvigorated the team by hiring two additional analysts and increasing his mentoring of the investment committee. The investment process is straightforward, with an emphasis on fundamental bottom up research. The team invests in companies based on their gross yield to a New Zealand investor and the sustainability of that yield. The 20-25 stock portfolios is high-conviction and therefore carries significant stock- and sector-specific risk, which may result in greater volatility than peers.

Utilities, listed property, and financial services companies typically take up 45%-50% of FUM.

However, there are no restrictions on the amount invested in Australian and New Zealand companies, providing the portfolio manager with significant flexibility to allocate capital where he sees opportunities. Since inception, the strategy has experienced mixed performance. The process worked well up until late 2016, but since early 2017 the strategy has struggled against the index and equity region Australasia Morningstar Category peers. The process behind Devon Equity Income is reasonable, but our conviction is stronger with peers at this time.

Devon Dividend Yield aims to provide investors with a stream of income by constructing a concentrated portfolio of New Zealand and Australian companies, with a 2% blended yield improvement compared with the market. Devon screens the S&P/NZX 50 and S&P/ASX 200 indexes and ranks stocks by their gross dividend yields to a New Zealand investor. Valuation of top-ranked stocks is determined using a discounted cash flow methodology. Devon will go the extra mile to obtain an understanding of the intrinsic value of a business. Fortunately, a healthy travel budget accommodates this, whether for company visitation or investment conferences.

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

Devon Trans-Tasman Fund

Willis and Robertson are supported by the Devon investment team of Chris Glaskin (portfolio manager), Mark Brown (portfolio manager/ chief investment officer), Victoria Harris (sustainability portfolio manager), and two investment analysts. The investment team is tight-knit and possesses valuable experience and knowledge. In addition, Willis undertakes considerable company visits and management meetings in New Zealand and Australia. However, during the past few years, there have been some missteps in stock selection and portfolio construction that have prevented the fund from outperforming its index and peers. Issues have included limited exposure to some of the largest and best-performing New Zealand stocks. We believe the good quality research and portfolio construction we had come to expect from Devon had declined relative to peers. However, during 2020, the highly experienced Slade Robertson restructured and reinvigorated the team by hiring a sustainability portfolio manager and two additional analysts; he also became co-portfolio manager of this strategy. Robertson had been portfolio manager of the fund up until 2015.

The process is straightforward and repeatable, with an emphasis on fundamental bottom-up research. The team searches for companies with sustainable earnings, high return on capital, good cash conversion, and low capital expenditure. A benchmark-agnostic high-conviction approach is adopted when constructing the growth-orientated portfolio of 25-35 stocks, which often contains mid- to small-cap companies. Despite recent solid performance, on a trailing returns basis, the strategy has fallen behind equity region Australasia Morningstar Category peers the category index (50% S&P/NZX 50 Index and 50% S&P/ASX 200 Index) over the trailing three and five years to 30 April 2021.

Devon seeks to identify Australasian companies with the ability to produce strong returns on invested capital. Devon generates investment ideas through its fundamental research process and draws on its team members’ extensive experience. The team travels extensively to obtain an understanding of businesses and to determine the intrinsic value of companies. A healthy travel budget accommodates this, whether it is for company visitation, investment conferences, or idea generation.

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.