When it pays to be passive or just say ‘no’
Only two strategies in the most recent bi-annual recalculation of FE Crown Fund Ratings saw a substantial rise in their number of Crowns, from one to four. One fund demonstrates that it pays to stick to your guns when it comes to certain market sectors, while the other reaps the benefits of maintaining a passive approach.
Evans and Partners International
Seeing its FE Crown Fund Rating rise from one Crown to four is the Evans and Partners International strategy, a fund which aims to provide investors with an attractive risk-adjusted return over a full market cycle, defined as a rolling five to seven-year period.
The investment manager also aims to generate a return in excess of the benchmark over this period.
According to Bob Desmond, head of international equities at Evans and Partners, key contributors to the fund’s outperformance have been from the technology and IT services space – stocks including Alphabet, Visa, Accenture and CDW, along with credit services business Experian.
Desmond said it is the manager’s ability to say “no” to large parts of the market, including banks, commodities, utilities and most parts of healthcare, which sets its investment process apart from that of its peers.
“We invest in a very concentrated portfolio of 10-15 high quality growth businesses mainly found in industrials, technology, business services, non-leveraged financials and the consumer space,” he said.
“We have a highly disciplined, repeatable process, focused on businesses we are comfortable with and have followed for long periods of time.”
Desmond said he expects that, over time, share prices would move higher in line with the underlying earnings growth of the businesses the fund holds, which is around 11 per cent.
“Our aim is to deliver 8-12 per cent per annum and the portfolio currently trades at a 9 per cent discount to our estimated fair value,” he said.
“Tailwinds include strong earnings growth from our businesses and despite rate rises, US bond yields are still low at around 3 per cent.
“Headwinds include rising US interest rates, trade tensions between the US and China, and valuations that are above long-term norms.”
Desmond said that despite the high-quality Industrials that are a part of our portfolio having lagged, barring a recession and/or a trade war, values are still relatively attractive.
State Street Passive Balanced Trust
Also witnessing its FE Crown Fund Rating rise from one Crown to four is the State Street Passive Balanced Trust, a fund which is managed using a “passive” or “indexing” investment approach, by which State Street Global Advisors (SSGA) attempts to match, before expenses, the performance of the benchmark.
The benchmark is a fixed combination of single asset class indices, rebalanced monthly.
Asset weightings as at 30 June 2018 were roughly 35 per cent to Australian equities; 23 per cent to international equities; 15 per cent to global fixed income; 9.9 per cent to property; 9.8 per cent to Australian fixed income; 5 per cent to money markets; and 2 per cent to “others”.
While a spokesperson from State Street Global Advisors Australia was unable to be reached for comment by publication deadline, the recent outperformance by the trust should come as little surprise given the recent strong performances by Australian and US equities markets.
Recommended for you
The role of alternative investments is to diversify a portfolio and capture differentiated sources of return, according to UBS Asset Management.
Private investment opportunities are moving up on the list of what investors want from their financial advisers, according to Natixis IM, and over half of firms say they are offering them more strategies.
Two asset managers have each expanded their product suite with the launch of new global equity funds for Australian investors.
Perpetual has confirmed it is in exclusive talks with global investment company KKR regarding an acquisition of its corporate trust and wealth management businesses.
