An insight into 4 top managers
Christine St Anne  |  02/03/2015Text size  Decrease  Increase  |  
Christine St Anne: Today I'm joined by Tom Whitelaw to give us an insight into the Morningstar Fund Manager of the Year Awards. Tom, nice to see you again.

Tom Whitelaw: Nice to see you, Christine.

St Anne: Tom, firstly, can you give us a little bit of an idea about the processes behind the awards?

Whitelaw: Sure. So our Fund Manager of the Year Awards is that we run every year and we're really looking across the categories that we cover for managers who had an excellent year. I mean, it's more than just performance terms, it's more than just the one-year performance number, we are looking a little bit longer term as well to make sure it's just not a one-off. We also want to make sure that there are strong risk-adjusted returns as well. So they've not just taken a lot of risk one year, beaten everybody else and then take out the award. So you will see from the winners that we announced that they're managers who have really excelled this year, but also have great longer-term track records as well.

St Anne: Now on that point of the winners, of course, now Vanguard has taken out two awards, including the top gong. So what's so special about Vanguard?

Whitelaw
: I mean, Vanguard funds had a great year kind of across the board. So not only did they win the overall award, they also were the runners-up in our property and our fixed interest award and they won the multi-sector award as well.

I think it shows active management had a hard year last year, so a lot of managers were taking risk off the table coming into 2014, whereas obviously Vanguard's passive approach means that they didn't.

The US was also a strong market, a lot of manager (run toward) the US. They didn't maybe feel the recovery was going quite as strong in the fixed income space while a lot of managers were pulling back their duration and pulling back their fixed interest and moving to cash. Vanguard obviously did none of these. In fact, in the multi-sector and fixed interest funds, they moved their cash allocation into fixed interest, which was great for their performance last year.
So just given the strength of their performance across all of those categories, they really were a deserving winner. When you title in the fact that they have got such low fees across all of their products, that was a great kicker for them to start off as well.

St Anne: Let's look at specific categories now, Tom. PIMCO took out the top award in the fixed income category. Of course, that manager had a bit of a problem with the departure of a high profile manager, most notably, Bill Gross. So what does that tell us about the people behind this fund's and the concept of the star manager?

Whitelaw: I think quite a few people will be surprised by us giving the award to PIMCO and we thought quite a lot about this, but I just think if you look at the strength of that business and if you look at also the research that we put out during this time, both domestically here and globally, we said that this was much more than just one manager. It was much more than Bill Gross. There is a great stable of fund managers underneath Gross and they're really coming through to the fore now.

And not only that, but if you look at their Australian business as well, their Australian businesses suffered no turnover at all. It's an incredibly strong group of investors. They are continually kicking goals and that's really come through in performance as well. So we just felt that there has been a lot of noise at PIMCO and the way that they have come through it and managed to perform this year really meant that they were a deserved winner of the fixed income category.

St Anne
: Now Tom, what about the Australian equity category. We had Investors Mutual the winner. Of course, a lot of Australians are self-directed investors. So what value does a manager like Investors Mutual bring to the table?

Whitelaw: I mean, Investors Mutual across their entire history have shown incredible performance in down markets as well as up markets, which I think is a really great feature because when markets are falling, investors tend to panic. Whereas the guys at Investors Mutual, Anton (Tagliaferro) and Hugh (Giddy), have really shown how well they can protect capital.

So just over the last three years, for example, when markets have dipped, those strategies have only captured about half of the falls, which means that when markets rally again that compounding effect means that they've got a lot more money to move up the ladder with.

Also if you think of the way that those guys invest, markets have somewhat played into their wheelhouse. So they tend to not like resources. They haven't had a lot of resource exposure, which as we know over the last few years has been a great place to be and as well as that they always had a preference for income producing shares and we know that the market, and especially SMSF investors and private individuals have really liked the banks and Telstra. They are performing really well and providing this income, which has been a further kicker to their performance. But again long-term numbers, not just 2014, the IML strategy has got great long-term track records.

St Anne: And finally, Tom, an interesting category the Undiscovered Manager Award, which was, of course, awarded to UBS. Now that got an interesting process, particularly the use of ETFs. So, can you give us a little insight into that?

Whitelaw: Sure. The Tactical Beta range, as you say, very interesting funds, so what they do is they use UBS's tested formula on their balanced and defensive funds, but they implement to using purely passive options. So they just use ETFs and managed funds, passive managed funds, and what that does is it means they can bring the fees down. So the fees are a lot cheaper on those products, as we said, with Vanguard gives that kicker. But also you get access - for the cheaper fee, you also get access to UBS's 50 strong team of global asset allocation specialists and investors across different regions which really kind of adds a lot of value.

So you get that longer term strategic thinking, but also their short- and medium-term tactical and dynamic views, which kind of came to the fore over the short time that the products have been running. And as these funds get more money given their investing through passive vehicles, actually bring the costs down for investors even further, which will be a great thing.

St Anne: Well, thanks, Tom, for giving us your insights into these quality managers and thank you.

Video Archive...

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