Fundamental approach key to funds’ early Crown success
It can be difficult to get off to a strong start in the competitive landscape of funds management, but seven funds have managed to do just that by receiving five Crowns on their first FE Crown calculation.
AtlasTrend’s Online Shopping Spree and Big Data Big funds, Vanguard’s Managed Payout and Global Minimum Volatility, and the Montgomery Global, Nanuk New World, and Zurich Investments Concentrated Global Growth funds all achieved this honour. They each only hit three years of investment history in the last six months, meaning they didn’t qualify for a rating at last August’s determinations.
While these funds varied in size and manager, a common theme, unsurprisingly given the asset class’ strength before last quarter’s struggles, was a focus on global equities.
Six of the seven funds were global equities offerings and the exception, the Vanguard Managed Payout fund, still sourced 48.06 per cent of its assets from the sector. Its next two largest asset weightings, of 25.06 per cent in global fixed interest and 14.9 per cent in Asia Pacific equities, kept with the international theme.
The decision to go global was key to AtlasTrend’s success, with founder and head of investments, Kevin Hua saying that he and his fellow two founders, Jade Ong and Kent Kwan, saw a “real gap in the market as Australia has an understandable local bias”.
When you consider what their two five Crown funds invest in (the names Big Data Big and Online Shopping Spree are self-explanatory), looking internationally was especially key to their strong returns.
“It’s overseas that has the best companies for some big, long-term structural trends, such as data and e-commerce,” Hua said, pointing to Amazon as an example. “They are bigger and better companies [than domestic options] … and are global businesses that are global leaders.”
For both AtlasTrend and Vanguard, who had the equal most funds to earn inaugural five Crown ratings, a fundamental approach to stock selection was unsurprisingly key to their success.
“Our QEG [Vanguard’s Quantitative Equity Group] manages there two funds … they are passionate researchers who rigorously test and scrutinise ideas to ensure that only the best ones make it into their models and investment processes,” Vanguard’s head of investments, Asia-Pacific, Daniel Reyes, told Money Management.
“QEG finds that by focusing on investment themes designed for the long-term investor they can systematically capture inefficiencies or target exposures in the market that can add value to clients’ portfolios.”
Hua said his team also have “very much a fundamental approach in stock selection”.
“We first pick thematics with a long-term view, seeking out structural trends that we think will last 10, 15 years or longer,” he said.
From there, they distil a large investment universe down based on quality, valuation and sustainable growth estimates, before intensely researching each company. As a small fund manager, this usually means dialling into market updates, for example, rather than meeting with companies as large as Amazon.
Both fund managers also watch risk factors closely, unsurprisingly considering their five Crown ratings and the fact that the Crown Ratings methodology considers risk.
The Vanguard Managed Payout fund, for example, seeks to make monthly cash distributions, and to keep these and invested capital apace with inflation over the long-term, Reyes says.
The manager’s Global Minimum Volatility fund minimises volatility through quantitative modelling that both identifies shares with low expected volatility and shares that are expected to have low correlations with each other.
Hua too, keeps an eye on both macro and micro risks: “A lot of it can be noise, but one has to be pragmatic as well,” he said.
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