Starting this June, Money Management is going to fact check a fund each issue. We’re going to look at a fund’s claims – for performance, for risk and pretty much all the big promises it makes to investors – in its product disclosure statement and promotional materials. Then, with the help of FE Analytics, we’re going to see how these funds actually stack up against their aims.
The Perpetual Pure Value Share Fund
Perpetual’s five FE Crown-rated Pure Value Share Fund has ticked all the boxes in terms of the promises it has made investors.
Launched in 2006, the fund’s Product Disclosure Statement (PDS) specifies that it has no formal benchmark. However, it says that for reporting purposes, the fund is measured against the S&P ASX 300 Accumulation Index.
Since its inception to this April’s end, it has delivered returns of 17.28 per cent, far exceeding that of the index at 6.08 per cent. It has also outperformed its sector, Australian Equities, which returned 5.78 per cent over that period.
Its returns over the seven years, which is the fund’s recommended minimum investment period, to 30 April, 2018 were also strong at 11.98 per cent. This was significantly higher than the sector average of 7.32 per cent.
The fund specifies that its investment aim is “to provide investors with long-term capital growth and income through investment in quality shares”.
With the strong returns above delivered consistently across long-term time frames, the first half of that aim, to provide long-term capital growth, checks out.
FE Analytics reveals that the second part, to provide income through investment, also holds true.
The fund has provided dividend payouts consistently on a six-monthly basis, with interim payments at December’s end and final payments at the end of financial year.
An initial investment of $10,000 made at the start of 2013 would have provided investors with total income payments of $5,880 to date. However, some might ask how consistent these have been as the fund paid out $1,877 on $10,000 in FY14 but dropped to $738 in FY15 and $424 in FY16, before rebounding to $1,801 in FY17.
The fund checks out for its risk profile; if anything, it has been less risky than its PDS warns investors it may be.
The PDS ranks the fund’s risk level at 7. This is the highest rating that Perpetual has for its funds and means that its estimated number of negative annual returns over any 20-year period is six or greater.
As the fund has not yet existed for 20 years, the above prediction cannot be quantified.
Based on its 11 complete years to last December’s end though, FE Analytics showed that it had delivered just two negative years. The most significantly negative year, with returns of -17.24 per cent, was in 2008, timing with the Global Financial Crisis. The fund recovered strongly, returning 76.22 per cent the following year. Other than a small blip of -3.58 per cent in 2011, its annual returns had been consistently positive.
Its volatility over its seven-year recommended investment period to last quarter’s end was less than that of its peers.
At 9.05 per cent, it was lower than both the Australian Equities sector average (10.53 per cent) and the S&P/ASX 300 Index (11.58 per cent).
The fund’s FE Risk Score of 105 (as of 31 May, 2018) also suggests it is less risky that its PDS allows for. The Risk Scores compare a fund’s risk to that of the ASX 200, which is scored at 100. Being only marginally above this, and approximately the same as that of its sector, the fund is not highly risky.
Finally, the Pure Value Share Fund stacks up regarding its promises regarding investments.
To start, the fund employs an active strategy. It claims to track no index, and chart one, which puts the fund against its closest comparable index of the S&P/ASX 300, shows that it indeed has not index-hugged but proven active.
It also outlines under its Investment Guidelines that it will seek to hold 75 to 100 per cent of holdings in Australian equities and is also willing to invest up to 25 per cent in cash. The PDS caveats, however, that “the fund may have up to 20 per cent exposure to shares listed on or proposed to be listed on any recognised global exchange”.
At April’s end, it held 83 per cent in Asia-Pacific equities, 10.08 per cent in the money market and 6.92 per cent in international equities. As these investments meet the above guidelines, the fund checks out on its investment claims.
