They may have a world of stocks to choose from, but being concentrated and risk-aware has helped the Five Oceans Asset Management team over the line with the ‘World Fund’.
This benchmark-unaware, long-biased fund topped the list in the Global Equities Long/Short category of the Money Management/Lonsec Fund Manager of the Year Awards, thanks to its solid performance and strong absolute returns in 2010.
Chief executive Ross Youngman said his fund focuses on picking a high-conviction portfolio of well-researched international stocks that the team feels is attractive from a business sustainability viewpoint.
But there’s also the risk management aspect, including active currency management that is incorporated into portfolio construction, the use of exchange-traded futures and options, as well as environmental, social and corporate governance (ESG) factors, Youngman said.
This ESG awareness, while it is difficult to quantify, has definitely contributed to the performance of the fund over the years, Youngman said.
“We don’t put percentage terms on it, but it’s fundamental and is fully incorporated into our approach to selecting stocks, so it’s always considered in terms of the overall competitive positioning of the company.
“It mitigates risk. Certainly from our perspective a lot of what happened in 2008 during the global financial crisis was a corporate governance issue within the finance sector,” Youngman said.
Another factor that helped Five Oceans make the top of the list was the considerable investment knowledge and skill of the portfolio managers, the Lonsec judges said.
Among the team is co-founder of the business Chris Selth, who manages the portfolio. He is backed by a Sydney-based team of 11, which has remained very stable since inception in 2005.
Youngman said although the team is based in Sydney, its members frequently travel internationally and bring information back to the central location for cross-referencing among the other team members.
“We think that for us, that’s the best way to run money – to have a centralised approach so as to bring the full experience set of the team to each idea that we’re looking at for the portfolio,” Youngman said.
Lonsec judges commented that given the absolute nature of the strategy, the fund would be suitable for investors who are seeking some downside protection via the manager’s ability to reduce net equity market exposure and its ability to exploit shorting opportunities.
“Lonsec considers the World Fund to be high quality, experienced and suitably resourced to implement this investment strategy,” judges said.
Last year’s runner-up, K2 Asset Management, was again a finalist, this time for its Select International Absolute Return Fund.
Head of international strategy Nick Griffin said both consistent outperformance during a volatile period and the stability of the team were factors of the fund finishing in the top three.
“Put in the context of recent times, the last 12 months was actually a relatively easy investment environment. By focusing on global growth-leveraged multinationals and shunning domestic focused stocks in the developed markets, the fund was able to outperform global indices,” he said.
Also in the finalist line-up is Platinum Asset Management’s Asia Fund, which took out the Long/Short global equities category last year.
Director and deputy chief investment office Andrew Clifford believes the long-term track record of the fund and its proven investment process have combined to contribute to its success.
Clifford said the fund’s approach to identifying out-of-favour stocks and its aim to protect against loss through managing currency risk all helped it to perform at a time when rising inflationary pressure and tightening policy in China created concern for markets.
