Tag: Australian Market
| Vanguard Australian Shares ETF (ASX: VAS) is an appealing and efficient alternative for investors seeking exposure to the broader Australian equities market. The strategy’s cost-value balance, in particular, is unrivalled. At 0.10 percent per year, it is one of the most affordable exchange-traded funds that provide diversified domestic equities exposure. Vanguard Australian Shares ETF seeks to provide broad Australian share market exposure in a passively managed, tax-efficient vehicle. To achieve that goal, the strategy uses an index-replication approach to track the S&P/ASX 300 Accumulation Index. The fund’s large size brings economies of scale to the effort and allows Vanguard to invest in virtually all the securities that make up the index. Security weightings are approximately the same proportion as the index’s weightings. However, the portfolio will deviate from the index when the managers believe that such deviations are necessary to minimize transaction costs. Such strategies have helped keep annual tracking error as low as 0.20% and annual turnover below 2%. So, while the passive approach means the strategy is unlikely to depart far from the index, it offers a low-cost and reliable way to get Australian share market exposure. |
| Vanguard Australian Shares ETF aims to track the S&P/ASX 300 Accumulation Index, a free-float-adjusted, market-cap-weighted index. It is one of Australia’s best-known stock market benchmarks and covers about 85% of Australian equity market capitalization. While the S&P/ASX 300 Index is dominated by giant- and large-cap companies, the fund has exposure to small caps, with an approximate weighting of 7.5%. The portfolio is top-heavy, with about 29% of the index in the top five companies. The concentration in banks skews the fund’s sector weightings, with financial services forming around 26% of the portfolio. The basic-materials sector also looms large, but its dominance declined as the mining boom waned. Basic materials peaked around 31% of the portfolio in 2008 but shrank to around 18% by March 2020, while energy fell from around 8% to around 4% during the same period. Some sectors that are prominent on the global stage are underrepresented in the Australian market. Technology and to a lesser extent healthcare (thanks to the share price rise of CSL) combined make up around 17% of the index–a lower proportion than equivalent US and European indexes. |
| Company’s Performance outlook Vanguard Australian Shares ETF (ASX: VAS) has rewarded investors well over time ahead of an average category peer. Given its exposure to small caps, which have underperformed large caps in the last 10 years, the strategy has modestly underperformed category index, S&P ASX 200 Index. On the other hand, the category relative outperformance has been led by the strategy’s higher market-cap exposure than an average category peer. More recently, when COVID-19 wrecked the market in the first quarter of 2020, Vanguard ceded 20.3% in line with the broader market sell-off and more than the category average. But the rebound was equally strong with 34.4% that ended the year for the strategy at just 20 basis points lower than its peers. In terms of risk-adjusted returns, Vanguard has delivered middling performance over long haul. |
(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.
an experienced investor with more than two decades of industry experience and around nine years at UBS. Grow steers the portfolio from its baseline allocation of 50/50 exposure to global and local fixed-interest markets.
The group philosophy is to find the best return available for a given level of risk, no matter where a bond is issued. Grow expresses thoughtful ideas via an allocation to several internal UBS funds, mostly in the International Bond Fund and the locally domiciled Australian Bond Fund. Further adjustments through overlays shape the portfolio when well-reasoned opportunities arise
Bonds and credit securities can be sourced locally and globally
The fund invests in a number of UBS pooled funds, which can include Australian Bond, Global Credit, International Bond, Asset Backed Securities, Asian Bonds, and cash. The fund uses the split benchmark for portfolio positioning, but the final portfolio has differed meaningfully in the past. This also means that the portfolio’s composition can move around quickly as the team’s view changes and markets move.
As at November 2019, there was around 40% allocated to the international strategy and 44% to the Australian strategy. The fund will also take significant duration and credit bets. During 2014, the fund’s duration position got as large as 1.8 years shorter than the benchmark in 2014 and contributed meaningfully to tracking error. While it was neutralised in April 2015, as at October 2019, it stood around 0.5-year longer than the benchmark.
The portfolio is predominantly made up of investment-grade exposure (typically 60% is in AA and above), but high-yield investments have featured (limited to 30% of the portfolio). China policy banks have been a new exposure since 2019 as they present a relatively attractive yield. As at June 2020, the team managed around AUD 2.6 billion in this strategy.
A balanced and experienced team
The UBS Australian Fixed Income team has been led by head of fixed-income Australia Anne Anderson and senior portfolio manager Tim van Klaveren. They have been with the business for more than 20 years and make for aformidable partnership. However, in October 2020 Anderson announced her retirement from UBS to seek advisory work in a part-time capacity. This means van Klaveren will take leadership of the Australian portfolio management team, and the responsibilities of senior portfolio manager Jeff Grow will increase.
Both are highly experienced with 31 and 26 years’ in the industry. Duties have typically been separated; van Klavaren is chair of the global IG subcommittee and is primarily focused on sector and credit allocation, while Grow is heavily involved in rates and currency positioning. Two additional portfolio managers assist here. On the credit side, Ben Squire leads the research efforts in APAC and has local analyst support. The Australian team has continual access to its global colleagues via the global macro committee, which produces key research for this strategy.
(Source: Fact Set)
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.
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.
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
| (%) | Fund | Benchmark** | 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 10 | Weight (%) | |
| Avg Market Capitalisation | 60.7bn | Enbridge Inc | 5.11 |
| Div Yield (Fwd) Gross | 3.10% | Union Pacific | 4.85 |
| 5 Yr DPS Growth (PA) | 8.10% | Vinci | 4.57 |
| Gearing (Current) | 34.00% | Exelon Corp | 4.37 |
| Interest Cover (Historic) | 3.7x | GetLink | 4.07 |
| EV/EBITDA (Forward) | 17.20% | Cheniere | 4.06 |
| American Tower | 3.93 | ||
| Cellnex | 3.78 | ||
| Public Services Enterprise Group | 3.75 | ||
| Ferrovial | 3.50 | ||
| Total | 42.00 |
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.
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 Code | WFS0486AU |
| Asset Class | Australian Fixed Interest |
| Inception date | 14 June 2011 |
| Style | Absolute Return |
| Fund Size | $133.39m |
| Fees (MER) | 0.46% p.a. + expense recovery |
| Distribution | Quarterly |
| 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)
| (%) | Fund | Benchmark** | 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 Government | 6.44 | 28.65 |
| Supranational | 15.06 | 4.63 |
| Industrials | 17.06 | 2.08 |
| Financials | 18.63 | 1.50 |
| Asset Backed | 9.62 | 0.00 |
| Agencies | 10.59 | 0.14 |
| 11am | 0.97 | 0.00 |
| Cash at Bank | 0.69 | 0.00 |
| RBA Cash | 0.00 | 50.00 |
| Semi Government | 20.95 | 13.00 |
Source: Altius Asset Management
Figure 3: Top 10 holdings (as at 30 June 2021)
| Fund % | Benchmark % | |
| New South Wales Treasury Corp | 11.13 | 3.09 |
| National Housing Finance & Investment Corp | 10.60 | 0.05 |
| Australian Commonwealth Government | 6.44 | 28.25 |
| Asian Development Bank | 4.94 | 0.40 |
| Treasury Corp Victoria | 4.34 | 2.78 |
| Queensland Treasury Corp | 3.28 | 3.09 |
| Inter-American Development Bank | 3.22 | 0.33 |
| UBS Ag Australia | 2.92 | 0.04 |
| Intl Bank Reconstruction & Development | 2.21 | 0.35 |
| McDonalds Corp | 1.89 | 0.00 |
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.