New entrants which were rewarded with five and one Crown ratings

FE Crown Ratings Crown Ratings FE FE Analytics global equities funds management ratings

7 September 2018
| By Oksana Patron |
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Another run of the FE Crown Ratings re-calculation delivered a similar outcome to the last examination, with 35 per cent of all new entrants being rewarded with either four or five crown rating while a number of new funds rated as one crown went down to 22 per cent compared to the previous results which saw 27.5 per cent of new funds with one crown rating.

All funds need to meet a three-year history requirement in order to receive FE Quantitative Crown Ratings which aim to help investors distinguish between funds that have managed to strongly outperform their benchmarks and those that have underperformed.

The recent re-calculation also found that the global equities sector managed to attract the highest number of new funds, with almost 30 per cent of all new entrants coming to this sector, and was followed by the mixed asset and Australian equities universes.

One of the funds in the mixed asset (balanced) sector, which received a five-crown rating, was the CFS Mezzanine FirstChoice Multi-Index Moderate Fund.

The fund, which has an allocation of 60 per cent to growth assets such as shares and property and infrastructure securities, returned 6.87 per cent since its inception to 30 June, 2018 against the sector’s average which stood at 5.67 per cent.

Colonial First State’s (CFS) head of investments, Scott Tully, said: “The allocation to growth assets has provided good returns to our investors over the last year.”

He stressed that in the year to 30 June 2018, the allocations to global shares, unhedged to movements in the Australian dollar, returned 14.6 per cent while the Australian share allocation returned 13.2 per cent. Global share allocation, hedged to the Australian dollar, returned 10.7 per cent.

At the same time, the portfolio also had a 40 per cent allocation to defensive assets such as fixed interest and cash to provide relatively stable returns. Additionally, the fixed interest component included government bonds managed on a traditional index basis and a broadly diversified portfolio of credit securities.

Another fund from the same sector (mixed asset balanced) which was rated for the first time and also managed to take out a five crown rating was the Partners Group Global Multi Assets Fund. This is a diversified private markets fund which invests across private equity, private debt, infrastructure and real estate.

Partners Group’ senior vice president, client solutions, Jonathan Abraham said that his fund, which has been running in the Australian market since 2015, was based upon another strategy that has been running since 2003 and represented “the best idea’s across the Partners Group business.”

Abraham noted that the fund was not so exposed to public market sentiment, given private company and private asset valuations being much more earnings based, and as a result of that, the fund’s strong performance was assisted by low volatility (4.1 per cent since inception) and low beta (0.15 since inception).

“Two of the more recent drivers of performance have been from the private equity (29 per cent allocation) and private real estate (20 per cent allocation) components of the fund,” he said.

“On the private equity side, we are factoring in multiple contraction at exit for the businesses acquired today, therefore, the focus is growing the earnings and playing an active hands on role on the board. This is through a variety of initiatives such as buying platform companies with a strong management team and then purchasing add-on companies to further grow the platform.”

According to him, the recent examples of this took place across the childcare, property management and healthcare sectors.

Partners Group also said that it identified a structural anomaly currently existing in the private real estate whereby a high number of private real estate funds were launched just prior to the Global Financial Crisis (GFC) and they were approaching the end of their term life.

“These funds often have high quality real estate assets remaining, therefore, Partners Group has been providing a liquidity solution to remaining investors and thereby acquiring remaining assets at a discount,” Abraham said.

FE Crown Ratings also looked at a number of new funds which managed to attract only one crown during their first assessment, meaning they were in the bottom quartile for their respective sub-asset class.

One of such funds was the IPAC North Professional Conservative (mixed asset -moderate sector) which according to FE Analytics underperformed its assigned benchmark over three years to June, 2018.  According to FE, crown ratings benchmarks are applied on a ‘best-fit’ bases for each fund.

AMP Capital said is a statement sent to Money Management : “The objectives of the North Professional Conservative fund are to deliver a meaningful return premium above cash, returns that are competitive in the context of its peer group, and to avoid large drawdowns in the unit price of the fund.”

According to AMP Capital, the North Professional Conservative fund had delivered upon its investment objectives over the last year and the past three-year period.

The OnePath ANZ Private Global Equity (Actively Hedged), which returned 6.40 per cent since inception to 30, June, 2018 against the sector’s average of 8.98 per cent, was another example of the fund which was assigned a one crown rating by FE during its initial evaluation.

According to an ANZ spokesperson, the company had made changes to some of its funds, which included even a change of the underlying manager where required.

Some other funds that were also evaluated by FE for the first time and scored only a one crown rating included: the Janus Henderson Global Equity Income and QIC Liquid Alternatives however they declined to provide Money Management with comments.

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