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7 funds to consider in 2017

Glenn Freeman  |  21 Dec 2016Text size  Decrease  Increase  |  

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SmartBeta, emerging markets, global macro, absolute return, global shares and small caps strategies are among those employed by these "best of the rest" funds nominated in the six-monthly Morningstar Prospects Report.


Earlier this week, Morningstar Australasia released its latest list of fund prospects. While these haven’t yet achieved a level to warrant full coverage under Morningstar manager research, the team of analysts believe they merit broader attention.

“The aim of our independent qualitative research is to determine which investments deserve the attention of investors and advisers, and which do not,” says Chris Douglas, Morningstar director, manager research ratings, Asia-Pacific.

“We’re always looking for strategies that may deserve a wider audience and eventually full analyst research coverage, and we designate the most promising candidates on our research ‘bench’ as Morningstar Prospects.

This time around, seven new strategies have been added, drawn from AXA Investment Managers, Fidelity, Henderson, JPMorgan, Nikko, PanAgora, and Spheria. Six have graduated to full analyst coverage.

New Morningstar prospects

AXA IM ACWI SmartBeta Equity [40549], launched in August 2014, combines a quantitative process with an environmental, social and governance (ESG) overlay. The fund targets an excess return of 1-2 per cent per annum above the MSCI ACWI ex Australia Index, with 80 per cent of market volatility over a full market cycle.

A total expense of 0.35 per cent makes this a very low cost option.

Fidelity Asia [13316] applies a high-conviction approach, investing in between 25 and 35 companies. The strategy favours companies that demonstrate financial strength and quality of accounting, strong management, and sound industry structure.

Valuations play a key role in positioning. The strategy has been led by portfolio manager Anthony Srom since June 2014, but has a longstanding track record since its launch in late 2005.

Henderson Global Emerging Markets Equity [41407] is led by portfolio manager Glen Finegan, who heads up Henderson Global Emerging Markets, which aims to deliver long-term capital growth by investing in high-quality, reasonably priced companies that are domiciled in, or derive a substantial proportion of earnings from, emerging markets.

The result is an index-unaware portfolio that can include companies domiciled in developed markets, as long as they have significant revenue from emerging markets.

JPMorgan Global Macro Opportunities [41086] follows a strategy that attempts to identify macroeconomic themes to drive investments across a broad range of asset classes.

While the vehicle has existed for many years, it underwent team and process change in November 2012, so its relevant history is still short.

The fund has an 0.75 per cent per annum ongoing fee and no performance fee, which is particularly low in the Australian alternatives space.

Pengana PanAgora Absolute Return Global Equity [41029] is run by Boston-based PanAgora, which has run quantitative strategies since 1989.

This absolute return fund focuses on exploiting inefficiencies in global equity markets using long and short equity positions.

The return objective is between 8 per cent and 14 per cent, and the risk objective is between 4 per cent and 8 per cent, while keeping equity beta below 0.2.

Nikko AM Global Share [6272] is a high-conviction global equity strategy, which has been led by William Low since July 2015. The fund was run previously by a different team and process.

Nikko invests in between 40 and 60 quality companies across developed and emerging markets, taking a long-term approach. In terms of expense, it costs 1.25 per cent per annum, with no performance fee.
Spheria Australian Smaller Companies [15723] is a small-cap Australian equities boutique, founded in May 2016 by Marcus Burns and Matthew Booker, with backing from Pinnacle Investment Management.

The investment process aims to identify high-quality businesses that deliver strong free cashflow, have no or minimal gearing, and are trading at a discount to intrinsic value.

Graduated to full analyst coverage

• Antipodes Global [5667])
• Bennelong Kardinia Absolute Return [19493]
• Capital Group New Perspective [40984]
• CFS Asian Growth [41320]
• Partners Group Global Value [19894]
• Payden Global Income Opportunities [19589]

Prospects which have been dropped

 Aberdeen Multi-Asset Real Return [3216]
• Fidelity Global Strategic Bond [19946]
• Perennial Value Wealth Defender Australian Share [40379]
• UBS Dynamic Alpha Strategies [40297].