High quality assets, which are difficult to replicate.
The quality of APA’s assets; the Company will always retain its M&A appeal. Last takeover bid (by CKI) was at $11.00 per share.
Attractive and growing distribution yield.
Highly credit worthy customers.
Currently assessing international opportunities – USA focus.
Organic growth pipeline of >$1.4bn.
Growth through acquisitions.
Diversified customer base by sector.
Largest owner of gas transmission pipelines in Australia.
Opportunity to grow its renewable business.
Management announced their ambition to achieve.
Key Risks:
Negative market/investor sentiment towards “bond-proxies”.
Future regulatory changes by pipeline regulators.
Large portion of businesses are exposed to the energy sector.
Infrastructure issues such as explosions or ruptures.
Adverse decision from COAG reviews transmission costs.
Shorter contract terms on existing capacity.
Key Highlights:
Revenue (excluding pass-through) increased +4.3% to $1,117.7m, with growth across all segments including Victorian Transmission System, Diamantina Power Station and Asset Management driven by favourable tariff escalation given exposure to Australian and US inflation indices.
Underlying opex increased +4.5% to $257.6m, driven by higher bidding costs associated with corporate development activities, higher insurance premiums, and enhancements across technology, partially offset by ongoing discipline in management of operations & maintenance.
Underlying EBITDA increased by +4.5% to $859.8m as higher revenue was partly offset by increased investments in capability and strategic projects.
NPAT (excluding significant items) declined -2.2%, as higher EBITDA and a decline in interest expense due to lower average interest costs due to liability management exercise completed in March 2021 was more than offset by higher D&A and tax expense. NPAT (including significant items) was $155.6m compared to loss of $15.5m in pcp, largely due to a non-cash impairment of $249.3m in pcp against the Orbost Gas Processing Plant.
FCF increased +22.6% to $515.1m, primarily due to higher earnings and lower interest paid.
Total capex increased +27% to $314.4m (growth capex down -41.7% and stay-in-business capex down -16%), primarily due to IT capex increasing +77.5% and corporate real estate capex of $7.9m.
The Board declared an interim distribution of 25cps (20.12cps from APT + 4.88cps from APTIT), up +4.2% over pcp and equating to payout ratio of 57.3%. APA reaffirmed FY22 DPS of 53cps, an increase of +3.9% over pcp.
Company Description:
APA Group Limited (APA) is a natural gas infrastructure company. The Company owns and/or operates gas transmission and distribution assets whose pipelines span every state and territory in mainland Australia. APA Group also holds minority interests in energy infrastructure enterprises. APA derives its revenue through a mix of regulated revenue, long-term negotiated contracts, asset management fees and investment earnings.
(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.
Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).
With entry into the Australian market of brands like Zara and H&M, and online competition from players such as Amazon, it is anticipated domestic department stores will increasingly find it difficult to compete with the international disrupters because of limited comparable sales volume growth. It is seen online sales to become an even more meaningful percentage of sales during the next decade as consumers increasingly perceive online retailers as offering value and convenience. Myer’s strategy is to strengthen its online presence and is rapidly growing its e-commerce business, while rationalising its physical footprint to maintain productivity levels, owing to relatively weak sales growth in the brick-and-mortar channel. But it is likely competition from e-commerce to intensify.
While it is likely the online channel to grow faster than the brick-and-mortar channel to fiscal 2030, and Myer to partially capture its share of this e-commerce growth, Amazon Australia will pursue its piece of the pie, leading to a decline in the size of the sector’s addressable market. The outlook for Myer remains highly uncertain as it grapples with cyclical and structural industry headwinds. To account for this uncertainty, analysts require a large discount to perceived value before investing in Myer. In tough economic times, it is the discount department stores benefit from more frugal customer behaviour. It is expected earnings to improve gradually from fiscal 2022, with the removal of virus-related restrictions when a treatment and vaccine for COVID-19 become widely available.
Financial Strength
The balance sheet continued to improve, and Myer finished January 2022 with a net cash position of around AUD 217 million. This compares with net cash of AUD 206 million as of January 2021. A new four-year funding package secured in November 2021, eliminated near-term refinancing risk. Myer’s board reinstated the dividend, which had been suspended since fiscal 2018. The reinstatement of the dividend signals the board’s confidence in the underlying strength of the business and could improve market sentiment.As are many other retailers, Myer is committed to paying rent to landlords for its store portfolio. These operating leases are now on balance sheet with new accounting standards from January 2019.
Bulls Say’s
Myer is an iconic Australian department store brand resonates with Australians. Myer is hanging onto this perception by improving its stores and online offerings to meet customer demand.
Myer is well placed to rebound strongly if it can successfully navigate the current economic slowdown.
Strategic initiatives–aimed at vertically integrating retail from design, manufacture, and sales–ensure that Myer is capturing a higher share of gross margin and control of its exclusive bands.
Company Profile
Myer is Australia’s largest department store operator, with some 60 stores that are mostly spread across eastern states. Stores are generally located in areas of high foot traffic in major metropolitan shopping centres. Competitive advantages include a well-established brand and scale benefits from a relatively large revenue base. The brand is somewhat iconic among Australian domestic consumers. The group’s loyalty programme has more than 5 million members.
(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.
Sydney, Australia - March 14, 2013: The Australia Stock Exchange big board viewed from the sidewalk in front of the exchange building in Sydney. The ASX board displays real-time stock information for companies listed on the exchange.
Investment Thesis:
U.S. growth opportunity – the U.S. online sports betting market continues to open following the 2018 supreme court ruling which legalizes the industry. Market growth estimates forecast the industry to grow to US$51bn by 2033.
Strong management team with a solid track record – the ability to grow market share in a competitive and mature market of Australia gives us some confidence the management team has the right strategy in place to build share in the U.S.
Proprietary technology stack – The speed and useability are key differentiating factors. PBH operates proprietary technology, which it developed inhouse. This means new modifications and updates are easier to implement (i.e., more control) with inhouse tech versus outsourced.
Cross sell opportunities with iGaming – PBH’s recently launched iGaming product (online casino) is already highlighting cross-sell opportunities to its customers.
Key Risks:
Rising competitive pressures.
Adverse regulatory change in key operating jurisdictions (Australia / U.S.).
Loss of market share in key regions or growth rate fails to meet market expectations.
Higher than expected costs – especially around investment in sales & marketing to drive market share.
Trading on high PE-multiples / valuations means the Company is more prone to share price volatility.
Cyber-attack on PBH’s platform.
Deeply discounted capital raising.
Key Highlights:
PointsBet Holdings Ltd (PBH) reported 1H22 reflecting mixed results – on a statutory basis, revenue of $139.1m is up +85%, driven by Australia Trading and U.S Trading. EBITDA loss of -$130.6m, is -83% weaker than the pcp, with Australia Trading seeing a loss of -$16.1m versus $8.0m in the pcp.
On a normalised basis, net revenue of $139.1, and gross profit of $54.7m, are significant increases from $75.1m and $54.7m, in the pcp. Operating expenses increased to $180.8m, up from $95.1m in 1H21. EBITDA loss of $126.0m is significantly weaker than the loss of $69.0m in 1H21.
Australia continues to go from strength to strength. Canada is on the verge of an exciting hard launch, which will leverage our global capabilities with a brilliant local strategy and the U.S. is now gaining scale being live in 10 states. As it relates to North America, PointsBet has positioned itself as an indispensable significant player in the market.
The operators that own their technology and can execute a national strategy will be the operators that can maximize profit margins and maximize the huge North American opportunity”. The rating is given as buy because PBH offers attractive risk reward at these levels.
Company Description:
PointsBet Holdings Ltd (PBH), founded in 2015, is a corporate bookmaker with operations in Australia and the United States (New Jersey, Iowa, Illinois and Indiana). PointsBet has developed a scalable cloud-based wagering platform which offers customers sports and racing wagering products. PBH’s key products include fixed odds sports, fixed odds racing and PointsBetting.
(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.
Medibank is Australia’s largest private health insurer operating under the Medibank and ahm brands. The dual brand strategy has successfully allowed the group to offer differentiated pricing and messaging to grow members and profits. Despite the “free” universal public system in Australia, around 45% of Australia’s population have private hospital cover due to taxation benefits and penalties, shorter wait times, and a choice of doctor and hospital. We expect government policy settings, which promote the take up and retention of private health insurance products, to remain in place. With an ageing population, higher demand for more intense healthcare will further pressure the public health system.
Despite larger players generating respectable return on equity on mid-single-digit profit margins, smaller providers have less capacity to absorb the expected claims inflation. This could eventually lead to industry consolidation, or at the least a pull-back in marketing expenses and policyholder acquisition costs. Medibank’s Other Health Services division provides in-home healthcare services such as nursing, rehabilitation, and health coaching for corporates. Medibank health also includes the sales of travel, life, and pet insurance, where Medibank is not the underwriter but is paid a commission.
Financial Strength
Medibank’s first-half fiscal 2022 profit slipped 2.7% to AUD 220 million but was in line with our broadly unchanged earnings forecasts. In a debt-free position Medibank is in sound financial health. It is forecasted that Medibank can fund for long-term organic growth from cash flows, while maintaining the current 75% to 85% target dividend payout range. As at Dec. 31, 2021, Medibank held AUD 1.95 billion in capital, equating to 13% of annual premiums, the top end of the firm’s 11%-13% target range. Given low claims volatility in health insurance the insurer could carry some debt, but given a large acquisition is not expected, we believe the conservative balance sheet is likely to remain a feature of Medibank. Investment assets of AUD 2.8 billion were allocated 18% to cash, 61% to fixed income, and 21% to equities, property and other assets as at Dec. 31, 2021.
Bulls Say’s
Industry growth is tied to a steadily increasing population, ageing demographics and the rise in healthcare spending. Governments will continue to incentivise participation in private health insurance to share the burden of escalating healthcare costs.
Premium growth is generally tied to the increasing cost of healthcare.
The symbiotic relationship with the private hospital operators and buyer power over general practitioners is a key strength of Medibank’s business model. The majority of private hospital income is paid by the insurers.
Company Profile
Previously owned by the Australian government, Medibank is the largest health insurer in Australia. Its two brands, Medibank Private and ahm, cover over 4.8 million people. Medibank and Australia’s fourth-largest health fund NIB Holdings are the only listed health insurers. In addition to private health insurance, the firm provides life, pet, and travel insurance, as well as health insurance for overseas students and temporary overseas workers. The Medibank Health division provides healthcare services to businesses, governments, and communities across Australia and New Zealand.
(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.
Market leading position (significantly ahead of the nearest competitor).
Growing global trade and increasingly globalization of products sold.
High degree of revenue visibility and low customer annual attrition rates.
R&D spend will ensure product/services are enhancing WTC products. WTC’s vision is to be the operating system for global logistics. Having completed 39 acquisitions since its IPO in 2016, WTC has assembled significant resources and development capabilities to fuel its CargoWise technology pipeline.
Scalability of the business model.
Geopolitical tensions considered by management as “tailwinds” due to higher consolidation of the logistics software industry.
Key Risks
Company announces another earnings downgrade.
Organic growth could moderate further, which may no longer warrant such a lofty valuation. However, organic growth has improved over FY19.
Management noting that revenues from recent acquisitions actually declined and offered little margin. This means the return from these acquisitions could take longer than management’s expectations.
Competitive threat (new product/technological advancements).
Disruption to technology (data breach).
Adverse currency movements.
1H22 Results: Relative to the pcp:
1H22 Total Revenue of $281.0m, up +18% (+22% ex FX) on 1H21.
CargoWise revenue was up +29% (+33% ex FX) to $193.0m, driven by Large Global Freight Forwarder rollouts, new customer wins, price and increased existing customer usage.
Acquisition (non-CargoWise) revenue of $87.9m, down -1% (up +2% ex FX).
Market penetration momentum continuing – two new global rollouts secured in 1H22 – FedEx and Access World – and Brink’s Global Services (Brink’s) signed post 31 December 2021.
Ongoing product development delivered 589 CargoWise new product features and enhancements and continued expansion of the CargoWise ecosystem.
Organization-wide efficiency and acquisition synergy program well-progressed – $20.2m of gross cost reductions in 1H22 (net benefit $19.7m).
EBITDA of $137.7m up +54% driven by revenue growth and cost reductions. Margin of 49%, up 12bps. CargoWise’s 1H22 EBITDA margin of 58% represents an increase of 4pp on 1H21.
Underlying NPAT of $77.3m, up +77%.
WTCgenerated strong free cash flow of $90.3m, up +85%.
WTC retained a strong balance sheet, with cash as at 31 December 2021 of $380.3m and no outstanding debt excluding lease liabilities. WTC has an undrawn, unsecured, four-year, $225m, bi-lateral debt facility, to fund future growth.
WTC’s Board declared a fully franked interim ordinary dividend of 4.75cps, which equates to payout ratio of 20% of Underlying NPAT.
Company Profile
WiseTech Global (WTC), founded in October 1994, is a leading provider of software to the logistics services industry globally. WTC develops, sells and implement software solutions that enable logistics service providers to facilitate the movement and storage of goods, domestically and internationally. WTC’s software assists their customers to better address and adapt to the complexities of the logistics industry while increasing their productivity, reducing costs and mitigating risks. WTC services over 6,000 customers across more than 115 countries with offices in Australia, New Zealand, China, Singapore, South Africa, United Kingdom and the United States.
(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.
Graphic of investment stock market data analysis business
Business Strategy and Outlook
VMware, a pioneer of virtual machines, dominates the maturing data center server virtualization market. With organizations prioritizing cloud over on-premises computing infrastructure, it is seen VMware’s robust cloud provider partnerships, including the hyperscalers, should help the firm handle the changing market landscape. It is anticipated VMware’s growth to come from being the glue between computing infrastructures, networking locations, and burgeoning security and developer offerings being bolstered from its strong end user compute portfolio.
Analysts’ view of cloud networking, akin to VMware’s assessment, is that most enterprises will utilize hybrid cloud solutions. Public clouds can precipitously augment network growth but enterprises face integration complexities among on-premises networks and private and public clouds. Beyond hyperscale cloud provider partnerships, VMware’s Cloud Provider Program offers thousands of cloud partners collaborating with VMware software. In Analysts’ view, this allows VMware to remain ingrained in networks while becoming the commonality between private and public clouds. It is held the November 2021 spin-off from Dell Technologies put an end to an uncertain future around VMware, and that growth can accelerate through VMware’s integration with cloud vendors and cadence of product releases outside of Dell’s umbrella. With solid free cash flow and growth opportunities, it is foreseen its $11.5 billion special dividend, to all shareholders, as part of the spin-off was worth the price of becoming a stand-alone entity.
VMware’s vSphere and ESXi hypervisor are virtualization gold standards, and its hybrid cloud platform creates a consolidated view across multicloud environments. It is projected the company’s strong franchises within end user compute, security, and virtualized networking and storage can be overlooked, and support growth ventures such as VMware’s integration of Kubernetes-based container management within vSphere. It is likely, software cohesion across on-premises and clouds along with nascent networking products should give VMware sustainable growth.
Financial Strength
It is held VMware a financially stable company that should continue generating strong free cash flow. The company’s main expenditures are in the forms of developing product innovations and marketing efforts. VMware’s R&D expenditures are in the low 20s as a percentage of revenue while sales and marketing expenditures are in the low 30s. In the past, VMware has bolted on firms to bolster its presence in focus growth areas, and it is projected organic developments to be supplemented with future acquisitions. As of the end of fiscal 2022, VMware had $3.6 billion in cash and equivalents, and it is anticipated the company will pay its debts on time.VMware completed its first special dividend of $11 billion in December 2018, which helped Dell Technologies facilitate an exchange of Dell Class V tracking stock (DVMT) for a new class of Dell Technologies Class C common stock or a cash buyout option for shareholders. As part of becoming an independent company and spinning off from Dell, VMware paid special dividends worth $11.5 billion and retained an investment-grade credit rating. Although VMware raised capital to help pay the special dividend, it is likely to quickly lower its obligations through cash on hand and its robust free cash flow generation.
Bulls Say’s
VMware’s hybrid cloud program could yield tremendous growth if VMware is cemented as the dominant software supplier between private and public clouds. Its presence in hyperscale public cloud networks could make it the de facto virtualization choice.
Product leadership in application management, enduser computing, cybersecurity, and software-defined networking provides robust growth opportunities beyond core virtualization.
VMware can more tightly integrate itself with Dell peers as a stand-alone company, while also benefiting from its Dell commercial contract and their salesforce.
Company Profile
VMware is an industry leader in virtualizing IT infrastructure and became a stand-alone entity after spinning off from Dell Technologies in November 2021. The software provider operates in the three segments: licenses; subscriptions and software as a service; and services. VMware’s solutions are used across IT infrastructure, application development, and cybersecurity teams, and the company takes a neutral approach to being the cohesion between cloud environments. The Palo Alto, California, firm operates and sells on a global scale, with about half its revenue from the United States, through direct sales, distributors, and partnerships.
(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.
Exposure to both developed and emerging markets’ growth.
Near-term headwinds should be in the price.
Revised strategy following recent strategic review.
Bolt-on acquisitions (and associated synergies) provide opportunities to
supplement organic growth.
Leveraged to a falling AUD/USD.
Potential corporate activity.
Capital management (current on-market share buyback plus potential for
additional initiatives).
Key Risks
Competitive pressures leading to margin erosion.
Input cost pressures which the company is unable to pass on to customers.
Deterioration in economic conditions in US, EM and Australia.
Emerging markets risk.
Adverse movements in AUD/USD.
Declining OCC prices.
1H22 Results Highlights
Sales revenue increased +9.6% (+10.6% in CC).
Underlying EBIT increased +10.4% (+11.1% in CC) driven by significantly improved performance in the North America segment.
Operating cash flow increased +0.6% to $145.5m with cash conversion declining -400bps to 75%, with higher earnings offset by an increase in working capital.
Net debt increased +13% over 2H21 to ~$512m, primarily reflecting the impact of increased debt arising from the on-market share buyback and increased capex partially offset by stronger earnings. ORA’s current leverage of 1.6x is below management’s targeted level of 2-2.5x EBITDA.
Company Profile
Orora Limited (ORA) provides packaging products and services. The Company offers fiber, glass and beverage can packaging materials in Australia and Asia and packaging distribution services in North America and Australia.
(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.
Shot of elegant smart businesswoman explaining a project to his colleagues with statistics on the computer on coworking place.
Investment Thesis
Operates in a large addressable market – B2C furniture and homewares category is approx. $16bn.
Structural tailwinds – ongoing migration to online in Australia in the homewares and furniture segment. At the moment less than 10% of TPW’s core market is sold online versus the U.S. market where the penetration rate is around 25%.
Strong revenue growth suggests TPW can continue to win market share and become the leader in its core markets.
Active customer growth remains strong, with revenue per customer also increasing at a solid rate.
Successful execution in new growth pillars – Trade & Commercial (B2B) and Home Improvement.
Management is very focused on reinvesting in the business to grow top line growth and capture as much market share as possible. Whilst this comes at the expense of margins in the short term, the scale benefits mean rapid margin expansion could be easily achieved.
Strong balance sheet to take advantage of any in-organic (M&A) growth opportunities, however management is likely to be very disciplined.
Ongoing focus on using technology to improve the customer experience – TPW has invested in merging the online with the offline experience through augmented reality (AR).
Key Risks
Rising competitive pressures.
Any issues with the supply chain, especially because of the impact of Covid-19 on logistics, which affects earnings / expenses.
Rising cost pressures eroding margins (e.g., more brand or marketing investment required due to competitive pressures).
Disappointing earnings updates or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower.
Trading on high PE-multiples / valuations means the Company is more prone to share price volatility.
1H22 Result Highlights
TPW delivered strong top line growth of +46% YoY for 1H22, despite experiencing some supply chain and product availability issues (which also impacted customer satisfaction metrics). Hence the growth rate would have likely been stronger in our view. The Company also saw some inflationary pressures on product and freight, which saw 1H22 delivered margin decline to 30.5% (from 33.0% in pcp) and was in line with management’s previous guidance.
Advertising & Marketing costs were up +55% YoY and increased as a percentage of revenue to 13.6% (from 12.8% in pcp), driven by a step up in both performance and brand marketing. TPW’s brand awareness continues to increase, now above 60%. Management also spoke about pushing the brand awareness strategy nationally.
TPW’s ongoing investment in the business (people and technology, new growth horizons in B2B and home improvement) saw fixed cost increase YoY and hence saw EBITDA decline -19% YoY to $12.0m.
TPW posted the sixth straight quarter of revenue per active customer growth, which was up +10% YoY. This was driven by higher average order value and the repeat rate.
Company Profile
Temple & Webster Group (TPW) is a leading online retailer in Australia, which offers consumers access to furniture, homewares, home décor, arts, gifts, and lifestyle products.
(Source: BanayanTree)
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.
They need an advice. Young married couple talking while sitting on the therapy session with psychologist
TIAA-CREF Core Plus Bond has an experienced lead manager and the solid process remains intact, while the expansive supporting cast has only broadened. Veteran manager Joe Higgins, who has led the sibling strategy TIAA-CREF Core Bond TIBDX since 2011, took over this strategy at the end of 2020 when longtime lead manager Bill Martin retired.
Approach
Lead manager Joe Higgins continues the thoughtful relative value approach that has been in place both here and on his other charge, TIAA-CREF Core Bond TIBDX. This strategy earns an Above Average Process Pillar rating. Higgins has the ultimate authority in ensuring what holdings go into the portfolio but draws heavily on the strength and expertise offered by the sector managers, analysts, and macroeconomic strategists in identifying relative value opportunities across the fixed-income universe. The strategy can invest in everything from corporate bonds and mortgages to municipal bonds and emerging-markets debt, with the higher-risk sectors like high-yield bonds, bank loans, and emerging-markets debt ranging between 10% and 30% depending on the team’s outlook and risk appetite.
Portfolio
As of December 2021, the portfolio’s largest exposures were to investment-grade corporate bonds (24.2% of assets), agency mortgage-backed securities (18.6%), and emerging-markets debt (10.2%). The emerging markets exposure rarely if ever broke double-digit threshold, but its allocation has been on the upswing since March 2020 given the portfolio managers’ belief in its ability to outperform over the long term. The emerging markets’ relative lack of direct correlation to domestic corporate moves, as well as premium on offer from new issuance, make them attractive.
People
Joe Higgins, who replaced longtime lead manager Bill Martin at the end of 2020, is a seasoned and capable manager supported by three experienced comanagers and a robust analyst team. The strategy earns an Above Average People Pillar rating.
Performance
The strategy under Joe Higgins’ tenure has bested almost 70% of distinct peers in the intermediate core-plus bond category, keeping up with the record his predecessor Bill Martin set during his tenure from September 2011 to December 2020. Over that period, the Institutional share class returned 4.5% annualized and outpaced roughly two thirds of peers. While lagging performance punctuated this record at various points, most notably in March 2020, by and large “measured consistency” was the characteristic on display for this strategy’s 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.
Vanguard’s efficient, low-cost method provides series’ investors with broad market exposure. The sensible and well-executed approach earns a renewed Above Average Process rating. The equity exposure of the four funds in the lineup (Vanguard LifeStrategy Income VASIX, Vanguard LifeStrategy Conservative Growth VSCGX, Vanguard LifeStrategy Moderate Growth VSMGX, and Vanguard LifeStrategy Growth VASGX) is 20%, 40%, 60%, and 80%, respectively. Vanguard’s strategic asset allocation committee and the investment strategy group provide oversight for the fund series. On an annual basis, the committee reviews the allocations, leveraging research produced by the investment strategy group. The committee takes a cautious tack, which results in a relatively modest approach to implementation changes. Prior to 2011, the series included an allocation to a tactical asset allocation strategy, but that piece was removed, resulting in an exclusively passive underlying fund lineup and strictly strategic procedure. International bond exposure was introduced to the series in 2013, and in 2015 international exposure was increased within both the equity and the fixed-income sleeves: non-U.S. stock exposure increased to 40% from 30% and non-U.S. bond exposure increased to 30% from 20%. The firm’s research suggests that a market-cap weighted approach delivers broad exposure and effectively diversifies the funds but cites investors’ home-country preferences.
Portfolio
As of early 2022, the strategies comprising each portfolio receive compelling ratings. The series’ equity sleeves hold Silver-rated Vanguard Total Stock Market Index VTSMX and Gold-rated Vanguard Total International Stock Index VGTSX. On the fixed-income side, the funds tap Vanguard Total Bond Market II Index VTBIX and Vanguard Total International Bond Index VTIBX, both rated Bronze. The latest addition, Vanguard Total International Bond Index II VTIIX, was launched in February 2021 as a clone of Vanguard Total International Bond Index. The fund is exclusively used in the LifeStrategy and the target retirement series, allowing Vanguard to separate transaction costs generated by the massive target retirement series and LifeStrategy from those generated by other investors. Managers began transitioning the international bond exposure to the clone fund in March 2021 and will continue to do so in a tax-sensitive manner. In the wake of a volatile early 2020, the firm updated the threshold rebalancing policy for multi-asset strategies. Prior to 2021, the rebalancing policy stipulated allocation guardrails of 75 basis points; if exceeded, managers rebalanced the allocations to within 50 basis points of the benchmark. As of Jan. 1, 2021, the new guardrails sat at 200 basis points; if exceeded, managers rebalanced the portfolios to within 100 basis points of the target allocations. This change is reasonable and should reduce the strategy’s rebalancing frequency as intended.
People
Experienced leadership, a multigroup approach, and robust teams across Vanguard merit a renewed Above Average People rating. The LifeStrategy series is managed by the same teams that oversee the firm’s target retirement funds. Vanguard’s strategic asset allocation committee is responsible for ongoing oversight of multi-asset funds. The committee’s 10 voting members include senior leaders across the firm, such as its global chief economist, who also serves as the committee chair. The strategic asset allocation committee is supported by the firm’s investment strategy group, which is composed of a global network of more than 70 investment professionals. Their research covers an array of topics ranging from investor behavior to portfolio construction. Management of the underlying index funds remains stable and well-resourced. Gerard O’Reilly and Walter Nejman manage the U.S. equity index fund, while Michael Perre and Christine D. Franquin cover the international counterpart. O’Reilly and Perre each have roughly three decades of tenure at Vanguard. Franquin and Nejman have spent 21 and 16 years at Vanguard, respectively. Fixed-income manager Joshua Barrickman joined the firm in 1998 and assumed the role of head of fixed-income indexing in the Americas in 2013. Barrickman manages both the domestic and international bond strategies.
Performance
Over the trailing 10 years ended January 2022, three of the four funds outperformed their target risk Morningstar Category benchmarks and their allocation fund category peer medians in total annualized returns, respectively. The Moderate Growth fund was the exception: it managed to outpace its Morningstar Moderate Target Risk Index category benchmark but underperformed the typical peer in the competitive allocation — 50% to 70% equity category. On a risk-adjusted basis (as measured by Sharpe ratio) over the same period, all four portfolios outperformed their category benchmarks and their average peer constituent. Notably, the two most conservative funds of the series both landed in the best performing deciles of their respective category peer groups while the most risk-tolerant fund landed in the best performing quintile of the allocation — 70% to 85% equity category group.
The series’ bond sleeves have a higher duration profile relative to peers, which results in greater sensitivity to changes in interest rates. The recent low-yield environment and threat of rising rates presented a challenge to the profiles here, and for the one-year return ended January 2022, all four portfolios underperformed their respective category peer averages and three of the four underperformed their respective category benchmarks. Only the Growth fund outpaced its Morningstar Moderate Aggressive Target Risk Index category benchmark in that period.
About Fund:
The Vanguard Group earns a High Parent rating for its investor-centric ethos, reliable strategies, and democratization of advice. Vanguard is the asset-management industry’s only client-owned firm, and it shows. Vanguard uses the money that its passive strategies make from securities lending to lower if not eliminate headline expense ratios. Modest fees, capable subadvisors, and performance incentives spur its active business to competitive results. Vanguard also offers advice, human and digital, at an accessible cost. All of this helped its global assets under management grow to USD 7.5 trillion as of March 31, 2021. Yet, Vanguard’s non-U.S. business only accounts for a fraction of its assets. Incumbents within many of these markets have sought to keep this low-cost provider at bay. Vanguard has shifted from leading with exchange-traded funds to using advice for entry, such as its joint venture with China’s Ant Financial to offer a mobile-based retail service, which had more than 1 million Chinese users a year after its April 2020 launch.
(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.
Laverne Securities Pty Ltd, ACN 629 216 477, T/As Investor Desk, is a Corporate Authorised Representative of Laverne Capital Pty Ltd (AFSL 482937). This service is administered by OpenInvest Limited ACN 614 587 183 via the OpenInvest Portfolio Service ARSN 628 156 052. This website provides factual information about the service, and any general advice contained does not take into account your objectives, financial situation or needs. Before making any investment decision, please review the PDS and Target Market Determination available at https://www.investordesk.com.au/key-documents/. Should you require assistance in determining whether an investment in the service is right for you, you may wish to seek personal advice from an appropriately licensed financial adviser.
