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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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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Funds Funds

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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Funds Funds

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.

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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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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.