PorfolioConstruction Forum asks the major research houses about their most recent projects and appointments.
Lonsec
- Lonsec has been acquired by Financial Research Holdings (FRH), which has also purchased industry super fund rating firm, SuperRatings. FRH is a new research company owned by SuperRatings’ managing director Jeff Bresnahan and former chief executive Jason Clarke (now MD of FRH), along with Lazard Australia private equity adviser, Mark Carnegie. The company aims to become “Australia's best full financial services research and investment execution platform for advisory and dealer groups, and the wider superannuation and wealth management industry”.
- Inflation is, and will be, one of the key issues for investors to consider when assessing their investment strategy over the next ten years, according to Lonsec which has published a report on assets to include in portfolios to hedge against inflation risk. “There is no silver bullet when it comes to protecting portfolios from inflation”, the research house writes in a recent Perspective. “There are, however, some asset classes that exhibit characteristics that will provide a degree of inflation protection,” the report notes, citing commodities, infrastructure, inflation-linked bonds and equities (particularly those targeting growth areas). In particular, commodities exhibit a high beta to inflation and are also a portfolio diversifier versus equities and bonds. Lonsec warns that the list of available commodities funds in the retail market is quite limited. “Lonsec has been comfortable to achieve indirect exposure to commodities via an allocation to global macro strategies, as well as indirectly via Australian equity funds,” the report concludes.
Mercer
- Investors should maintain an overweight position in overseas shares relative to overvalued bonds, according to Mercer. Mercer’s medium-term view remains biased to overseas currency-exposed assets which should remain overweight. “With the Australian dollar at a post-float high against the US dollar close to $1.10, we are currently experiencing a sweet spot of strong commodity prices and rising interest rate differentials. However, this strength will be hard to sustain once US interest rates begin to rise, and there are downside risks to commodity prices in the medium-term,” said David Stuart, head of Mercer’s dynamic asset allocation team. “This isn’t expected until 2012, but if the US dollar turns, it could also impact commodity prices and put significant downward pressure on the Australian currency over the next one to three years. Therefore we have placed a very conservative valuation on currency, shifting [its rating] from unattractive to very unattractive.”
- Mercer has introduced two new international fixed income universes – absolute return and total return. Strategies included in the Absolute Return category are benchmark-agnostic and designed to deliver a positive return in all market environments, are designed to have low/stable absolute volatility and will generally target returns of cash, plus 2 to 4 per cent per annum. Strategies included in the Total Returns category are also benchmark-agnostic but have an unconstrained approach to fixed income investing, may have a higher correlation to spread sectors and risk assets, and have less downside protection than an Absolute Return strategy.
Morningstar
- Morningstar is introducing a new global fund ratings scale, including in Australian and NZ. Funds will be assigned one of five ratings: AAA, AA, A, Neutral or Negative, based on five underlying ratings criteria of people, process, parent, performance and price. “The move to a common rating system will further emphasise the global depth of our fund research, and make it easier for the growing number of our clients who use our research across multiple markets,” local CEO Anthony Serhan said. The new ratings model is scheduled to be rolled out globally in September.
Standard & Poor’s
- Australian fixed interest funds (including credit, high yield income and fixed interest peer groups) provided benchmark-beating returns net of fees in 2010, according to S&P. The exceptions were index managers BlackRock and Vanguard, and the benchmark-agnostic Vianova. “The returns were all above the benchmark net of fees and in line with, and in most cases, above objectives on a gross basis,” said S&P Fund Services analyst David Erdonmez. “Investors are paying for active returns and for 2010 have been receiving them. In our view, this has clearly been a good time to be in actively managed funds as there have been and continue to be a number of opportunities to add value through duration, curve, sector, and security calls.”
- Australian mortgage funds are still experiencing redemption pressure and a lack of positive funds flow, according to S&P Fund Services. “The status of the sector is only slightly more positive than that at the time of our last review,” S&P noted in its latest report on the sector. “Managers of liquidity-constrained funds continue to face significant difficulties in balancing the competing interests of investors.” Credit quality continues to be patchy.
Van Eyk
- Chinese stagflation could be a potential threat to global growth, according to van Eyk. “While China has been hiking its reserve ratio in a move to staunch money supply and inflation, this has been largely ineffective in controlling inflation,” the firm said in a recent discussion note. “Chinese stagflation can be a potential risk to global growth,” van Eyk warns, adding that a stagflation scenario could be due to several factors, including monetary over-tightening causing sluggish economic growth, introduction of a power tariff from June 1 causing higher inflation in the near-term and driving down industrial output, and high unemployment in urban areas and inflated housing rental, fuel and food prices leading to greater social unrest.
- Van Eyk has boosted its distribution team with new hires Adam Coughlan, Angela O’Connor (business development manager) and Karlena Burnett (client services co-ordinator).
Zenith Investment Partners
- Melbourne-based dealer group Securinvest Financial Planners has selected Zenith as its principal research adviser. Securinvest is an independent Australian Financial Services licensee with around 17 authorised representatives, has its own dealers licence and life insurance brokers licence as well as its own accounting practice. Zenith will initially provide research to the head office business, which has nine advisers.
- Zenith has appointed Chris Huang as a data analyst. Huang joins Zenith from the Australian Stock Report, where as a research analyst, he conducted fundamental and technical analysis on variety of financial securities, and was responsible for providing general investment advice to retail clients and assisted them with trading requirements.
