Macquarie revamps investment process

Macquarie Funds Management has revamped its investment process in response to its flailing Australian equities performance.

The revamp, under recently installed investment chief Peter Mouatt, has been in process since October but responds to some of the issues raised in the recent report from Morningstar which downgraded the manager from a four star rating to a three star rating. It also hopes to address the issues which caused the slump in its flagship active equities fund, the MAST fund, which lost 4.25 per cent last year, nearly nine per cent below the ASX 300 index.

Macquarie Funds Management director Phil Dolan says the revamped process "plugs up some of the holes" in the Price for Earnings Growth (PEG) process Macquarie adopted under former chief investment officer Greg Matthews.

Macquarie will continue with the PEG process but will tighten risk management and put more emphasis on analysts in stock selection and portfolio construction. Prior to the revamp, Macquarie based future earnings forecasts on the consensus views of stock brokers, which generally only focused on earnings for the next two years. Now Macquarie analysts forecast up to eight years ahead.

There is also increased emphasis on qualitative research of stocks and a method of evaluating assets that aren't producing cash flows at the moment.

Much of last year's poor performance relates to the first couple of months of the year when the group had no exposure to News Corp which grew to 15 per cent of the index at its peak. Under the new process, such a big call would not make it through risk management filters.

News Corp's massive rise at the start of last year was a bugbear for many fund managers who had little to no exposure to the essentially American-based media giant.