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Looking beyond a rising market


Many investors have benefited from surging asset prices over the past 12 months, but the question they should ask is whether the rising tide has lifted all boats.

  • In the second of two articles highlighting some of the finalists at the upcoming 10th Annual Zenith Investment Partners Awards, The Inside Adviser provides a little background on finalists in three more of the 22 categories covered by Zenith.

    As with the categories highlighted in the first of the articles (link here), these finalists are also strong candidates to take out the major Fund Manager of the Year award when it is announced on October 15.

    In the major local and international equities categories most of the long-term relative-returns experience for investors has been to do with their managers’ weightings to high-growth tech-orientated stocks.

    In the past 12 months, though, with a swing back to value, it has been more of a level playing field among all styles of investment management, from growth, and ‘growth at the right price’ (GARP), through to quality and value.

    Bronwen Moncrieff, Zenith’s general manager and head of research, has said previously that the researchers take account of a range of factors in making their decisions.

    “The methodology (available on the Zenith website) really comes down to two key components,” she says. “One, is the rating we give them, the most significant parts being to capture their philosophy, people, process and portfolio construction. Second is their performance, which is not just for the past year but also for previous years.”

    International equities, global, finalists: AllianceBernstein; Macquarie Asset Management/Arrowstreet Capital; and T. Rowe Price.

    The AllianceBernstein (AB) Global Equities Fund was launched in Australia in 2015, with the currency hedge back to Australian dollars actively managed. While valuations play a major role in the stock selection process, the four largest positions are Microsoft, Alphabet, healthcare stock Anthem and Facebook.

    The fund has returned 13.16 per cent a year since inception (against the MSCI All Countries index’s 11.63 per cent). One-year returns to August 31 were also ahead of benchmark at 32.25 per cent (ACWI 30.17 per cent).

    AB also has two international SMAs on offer in Australia – a concentrated US growth managed portfolio and a concentrated global growth portfolio.

    The managers can roam the world for their stock selections and seek to be uninfluenced by macro factors such as geographical tilts. They can also invest in frontier markets.

    T. Rowe Price, the Baltimore-based global manager, has had an established presence in Australia and New Zealand since 2007. It has $22 billion under management sourced from the region.

    The T. Rowe Price Global Equity Fund is available in hedged and unhedged versions. The firm also has a range of regional funds. Also highly recommended by Zenith, the fund has had very strong long-term performance. Unhedged, it has returned 21.94 per cent annualised since inception in 2012 against the MSCI’s ACWI benchmark return of 16.35 per cent. The one-year numbers are also very good, with a 36.92 per cent in the 12 months to August 31 versus the benchmark’s 30.31 per cent.

    The manager is a traditional research-driven stockpicker, but current sector overweights include consumer discretionary, financials and healthcare.

    Given the weakness of the Australian dollar over much of the past decade, the unhedged version has performed even better.

    Arrowstreet Capital has been represented in Australia since 2006 by Macquarie Asset Management, the RE to the Arrowstreet Global Equity Fund. It has retail offerings and has also secured mandates from big super funds, such as UniSuper, as a further tick of approval.

    A traditional manager with a blended style, the fund’s one-year numbers are particularly good. The return for the 12 months to August was 39.86 per cent (benchmark 31.37 per cent), while for five years was 17.10 per cent (15.59 per cent).

    International Equities, Global Small Cap finalists: Bell Asset Management; Fairlight Asset Management; and Lizard Asset Management.

    The Bell Global Emerging Companies Fund moves between small and mid-cap sectors, so is therefore tilted towards the larger end of the size spectrum as a portfolio. Its benchmark is the MSCI World SMID Cap Index.

    The fund has outperformed over longer terms since inception, in June 2016. The five-year return to August 31 was 16.6 per cent (benchmark 14.0 per cent) and three-year return 17.5 per cent (11.9 per cent).

    In the past 12 months, performance has varied with the one-year return missing its benchmark (36.5 per cent against 40.0 per cent) but with good outperformance over the most recent three and six-month periods.

    Fairlight Asset Management, a partner within the Perennial Group, is a boutique which specialises in Australian and international small and mid-cap stocks.

    The firm says portfolio managers take “an ethically-aware, quality-driven approach to investing, dedicated to deep fundamental research of both the quantitative and qualitative aspects of investee companies”.

    The four partners are portfolio managers Nicholas Cregan and Ian Carmichael, and analysts Will Dowd and Alvise Peggion.

    Also benchmarked against the MSCI World SMID index, Fairlight’s performance since inception, in November 2018, has been strong. The return in that, nearly three-year period, was 23.3 per cent (index 16.1 per cent) annualised.

    Like Bell’s global SMID fund, Fairlight’s narrowly missed its benchmark with a return of 37.3 per cent in the 12 months to August (benchmark 40.0 per cent) but had strong outperformance in the recent three and six-month periods included in that.

    Lizard Investors is an international SMID specialist which has attracted considerable interest in Australia, including from Pengana, its local distributor, which acquired a minority stake in the firm in 2019.

    A long-term focused value manager based in Chicago, Lizard aims to protect investor capital over the course of the market cycle. It was founded by CIO Leah Joy Zell. She has been quoted as saying small-cap equities are the “last refuge of active management” in a world increasingly dominated by ETFs and other index-tracking products run by algorithms and machines.

    The Pengana-named fund was established in April 2015 and is run by portfolio managers John Moog and David Li. Its longer-term performance, since inception, is a return of 11.4 per cent in the period to July 31 (SMID benchmark 10.6 per cent).

    However, like the other two managers short-listed for this award, Lizard failed to beat its one-year target, albeit by the slimmest of margins, with a 37.9 per cent in the 12 months to July (benchmark 38.0 per cent).

    Australian Fixed Income finalists: La Trobe Financial; Metrics Credit Partners; and Realm Investment House.

    The three finalists in the category this year each provides an alternative form of fixed income from that provided by traditional bonds in the low-yield environment.

    La Trobe Financial is a formerly family-owned mortgage lender which successfully diversified into fixed income managed funds under the long-time chief executive, Greg O’Neill.

    Greg O’Neill inherited the business from his father, Ray, and, after a long build-up, sold 80 per cent to the global private equity group Blackstone in 2017. This year there have been rumours of an IPO and, alternatively, potential sell-down of the majority stake on the secondary market.

    La Trobe has had strong growth in both lending and funds under management since the Blackstone takeover, offering investors a range of property-backed funds with better-than-bank returns.

    Metrics Credit Partners is the current darling of the fixed income sector, having democratised private credit through its actively managed quoted funds – the Metrics Master Income Trust, which has an unlisted version known as the Metrics Direct Income Fund (which has a highly recommended rating from Zenith), and the Metrics Income Opportunities Trust.

    The company was established by Andrew Lockhart and three other managing partners – Justin Hynes, Graham McNamara and Andrew Tremain – in 2011, and covers New Zealand and parts of Asia as well as Australia.

    Realm Investment House, a Melbourne-based alternative fixed income boutique with an absolute-return focus, was founded by Andrew Papageorgiou and Robert Camilleri in 2012 to concentrate on opportunities from the restructure in Australian banking and rising capital requirements. The manager has three funds, rated recommended by Zenith, across the risk range, plus a managed discretionary account service.

    The process is contrarian and opportunistic, with targets from cash-plus 4.75 per cent for the Realm Strategic Income Fund – Enduring Units – to cash-plus 3.0 per cent for the Realm High Income Fund and cash-plus 1.5-2.0 per cent for the Realm Short-Term Income Fund. Each has comfortably beaten its target over the longer term.

    Information and registration https://www.zenithpartners.com.au/zenith-fund-awards-2021/

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