IOOF has had the equal second highest amount of individual funds awarded five FE Crowns of any fund manager, with six products achieving the top rating.
IOOF’s MultiMix Growth, MultiMix Cash Enhanced, MultiMix Wholesale International Property Trust, Balanced Investor Trust, Income and MultiMix Balanced Growth funds were all awarded five crowns. They received the top rating for recording performances, which were judged on alpha, volatility and consistency, in the top 10 per cent of funds over the three years to 31 July, 2017.
According to IOOF, its success was largely due to the investment philosophy underlying all its decisions. Its approach prioritises evidence over belief, aligns the investment team with the interests of investors, and is confident in diversifying into a wide range of asset types and strategies.
“This philosophy has resulted in all our underlying funds incorporating a strong element of active management ranging from tilting the asset allocation of our portfolios through to the stock selections made by underlying investment managers,” said IOOF’s chief investment officer, Daniel Farmer.
He said that IOOF’s disciplined and high conviction process on deciding asset allocations was also key to its strong performances. While the company does not make many dynamic asset allocation decisions, Farmer believed that the rigorous process in which they are made contributed to the five crown-rated funds’ success.
IOOF’s size was another contributing factor to its success, Farmer said.
“Our size ensures we are nimble enough to consider allocations to niche strategies, yet not so large as to prohibit us from investing in these niche low capacity strategies – such as microcaps and emerging market small caps; something very large funds are not able to do,” he said.
IOOF funds have often outperformed other funds by quickly capitalising on new opportunities and managers as they emerge, including through being the seed investors in newer boutique managers and sectors. This enabled funds to capture excess returns before they are competed away by the market.
Impressively, the six top rated funds came from five different sectors, suggesting strong consistency of performance across investments from IOOF. Farmer said that the company’s structure allowed fund managers to specialise, improving performance across asset classes and sectors.
“Our team is structured such that we have experienced specialist asset class Portfolio Managers who are aligned to the performance of their portfolio. This approach has allowed us to identify emerging strategies and managers early and have the conviction to back them,” he said.
Finally, while Farmer believed that IOOF’s fund’s outperformance was due to long-term commitment to its investment philosophy, he said that there were some practical decisions that had proved successful over the three years in which the Crown Ratings were based.
“Investment decisions that have been positive over the last three years include an overweight to global equities, an overweight to Australian small caps, an underweight to fixed interest and being unhedged in global equities.”
IOOF’s five crown-rated funds all recorded annualised returns significantly stronger than the averages of their sectors over the three-year period that determined the ratings. The MultiMix Growth and MultiMix Balanced Growth funds outperformed the Mixed Asset – Growth sector by 2.62 and 1.18 per cent respectively. The MultiMix Cash Enhanced fund outperformed its sector by 0.16 per cent, the MultiMix Wholesale International Property Trust fund beat its sector by 2.46 per cent, the Balanced Investor Trust fund by 1.73 per cent and the Income fund by 0.92 per cent.
