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Fund Times: Updates for AMP, Aust Ethical, CFS, Zurich

Phillip Gray  |  20 Aug 2009Text size  Decrease  Increase  |  

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In recent news from the funds management industry, AMP Capital has hired in direct property, and Colonial First State in global listed property. Australian Ethical is seeking a new chief executive and terminating its world share fund; there have been changes in Australian Unity's mortgage investment team; and Zurich has amended its balanced fund asset allocations and is terminating funds.


AMP Capital hires in direct property
AMP Capital Investors has hired Adam Tindall as director of Asset Management, a newly-created role responsible for the firm's shopping centres, office, and industrial direct property portfolio. Tindall reports to director of property Andrew Bird. Tindall was previously executive director in property at Macquarie Capital Advisers, and before that spent 17 years in project management and construction, development, and property management at Lend Lease. AMP's direct property funds include AMP Capital Core Property and AMP Capital Core Property.


Australian Ethical seeks new CEO, shuts down World Trust
Canberra-based Australian Ethical Investments (ASX: AEF) is seeking a new chief executive officer. CEO and managing director Anne O'Donnell is stepping down on 11 December 2009 after nine years in the position. The company said in a statement to the ASX on 11 August that it would pay O'Donnell an additional $235,000 less tax on the date of her departure "in recognition of her significant contribution to company growth and profitability over her long tenure".

Australian Ethical stated in an ASX announcement on 19 June 2009 that it expected its full year profit to be approximately $1.20 - A$1.30 million, a fall of 23 per cent on the previous financial year. The firm stated that its assets under management was $530 million, up from $517 million at 31 December 2008, but down from A$562 million at 30 June 2008.

Australian Ethical has also announced the termination of Australian Ethical World, commenting that "the launch of the World Trust unfortunately coincided with the start of the global financial crisis". The fund was launched on 30 July 2007, but had only $0.37 million in assets by 30 April 2009, having peaked at $6.68 million at 30 September 2008. The fund produced a one-year return to 31 July 2009 of -14.80 percent, 3.37 percent below the -11.43 percent from the MSCI World Ex-Australia Index. Recent major shareholdings included Spanish bank Santander, Singapore Exchange, Osaka Gas, and Danish wind power producer Vestas.

Investors will from 1 October have access to a retail version of an existing wholesale international shares portfolio, which will have an $20,000 investment minimum and an annual fee of 1.35 per cent per annum. (This will make it price-competitive: the average annual fee for retail international share funds is currently a shade over two per cent.) Unlike the existing World Trust, the new option will be unhedged, and the firm is also removing currency hedging from the superannuation vehicle from the end of August 2009.

Australian Ethical has had a comparatively high rate of investment staff change and turnover during the past 18 months. Investment manager David Ferris left the firm in March 2008 after seven years. In August, Australian Ethical hired former nabCapital global markets managing director Martin Halloran as chief investment officer. Soon after, international shares portfolio manager Frank Zhu left for an undisclosed start-up. His replacement was Ursula Tonkin, who joined the firm in November 2003 as a trainee equity analyst and from May 2006 was the primary analyst for domestic and international infrastructure and metal recycling stocks.

Most recently, in January this year the firm hired David Macri to analyse and invest in domestic smaller companies, and to work with Andy Gracey running Australian Ethical Equities. (Gracey has been responsible for the fund since April 2008, after former manager Alastair Clark stepped away from day-to-day management. We updated our report for the Equities fund on 29 July, reconfirming our existing Morningstar recommendation of 'Hold', and commenting that while the strategy "has a well-defined social and moral structure, we'd like to see more continuity in personnel".) Finally, fixed income manager Noel Hyland also moved to work three days a week, and Tim Kelly assumed lead responsibility for Australian Ethical Income and for the income component of Australian Ethical Balanced.


Changes to Australian Unity mortgage team
Melbourne-based Australian Unity Funds Management has made substantial changes to the team responsible for managing Australian Unity Mortgage Income, Australian Unity Wholesale Mortgage Income, Australian Unity High Yield Mortgage, and Australian Unity Wholesale High Yield Mortgage.

Phil Preston, national lending manager since November 2005, has taken early retirement. His replacement is Mark Zukerman, who joined Australian Unity in January 2007 to manage New South Wales lending. Two other staff members have accepted redundancy, veteran lending manager Neville Gregory and credit analyst Carmine Cimilio. The team continues to be led by long-serving Roy Prasad, who's been in the top job since 1998.

Like the majority of mortgage fund managers, Australian Unity experienced substantial outflows in October last year, following the Australian federal government's imposition of a government guarantee for deposit-taking institutions. On 23 October 2008, the firm imposed restrictions on investors' ability to withdraw their capital, announcing subsequently that $15 million was to be made available to fulfil redemption requests. (We moved our Morningstar recommendation from 'Investment Grade' to 'Hold' following this announcement.) The Mortgage Income funds continued to make their regular income payments, and the team adopted practices such as rolling over existing loans to generate liquidity to help fund the anticipated redemption requests.

In July, Australian Unity implemented revised arrangements for access to capital, introducing a capped monthly redemption policy which enables investors to withdraw up to a maximum of one percent of their money every month, with a minimum of $1000. For the High Yield funds, the firm anticipates offering quarterly withdrawals of up to 2.5 percent of money invested.

In an update to our research report for the Mortgage Income funds, we argued that this was "a sensible response to the need to overcome the problem of the mismatch between investor liquidity requirements and the nature of the underlying assets", and moved our Morningstar recommendation back to 'Investment Grade'. Given the nature of the changes to the team managing the funds, and the continuing liquidity challenges, we'll be meeting with Australian Unity shortly to discuss these latest developments.


Colonial First State hires in global property
Colonial First State has hired Stuart Axelrod as portfolio manager, global property, based in New York. Axelrod was formerly an investment analyst at Citigroup Global Markets, where he worked in real estate securities investing. His previous roles have included stints at US fund manager Platinum Management, High Rise Capital, and in real estate stock research at Lehman Brothers.

Axelrod will be responsible for research and management of the US component of the global real estate investment trust portfolio, working with Marc Lederman and Jessica O'Brien, and will contribute to the management of Colonial First State's global listed property funds which include Colonial First State Wholesale Colliers International Property Securities and Colonial First State FirstChoice Colliers Global Property.

Colonial First State's global property business has also had more than its fair share of change over the past two years. Former head of property securities John Snowden arrived from UBS in 2006 to establish the global property investing capability. In March 2007, the firm appointed Barry Oxford and Marc Lederman as portfolio managers, reporting to Snowden. O'Brien joined them in April 2008. Snowden then departed in unexplained circumstances in April 2009, followed by Oxford in May. Snowden's replacement was former Colonial First State and UBS property portfolio manager Andrew Nicholas.

In our most recent assessment, in April this year after Snowden's sudden departure, we moved our Morningstar recommendation to 'Hold', noting that Colonial First State's team was already one of the smallest and least experienced in the peer group of global property fund managers, and that the further departure - followed a month later by Oxford - "further dampen[ed] what little enthusiasm we already had".


Zurich adjusts balanced fund asset allocations, switches shares manager
Zurich has made adjustments to the underlying asset class allocations for its balanced funds, and changed management of their Australian share assets.

For Zurich Blended Series Managed Stable, the firm has trimmed the allocations to domestic and international shares, and introduced allocations to domestic and global property securities. The allocations to Australian and international fixed interest and cash - which account for the majority of assets, 70 percent - remain unchanged. Balanced funds such as Zurich Blended Series Balanced have unchanged benchmark allocations to Australian and international shares, but Zurich has cut the allocation to domestic listed property from three to two per cent, and increased the global property securities allocation correspondingly from three to four per cent.

Managed growth funds like Zurich Blended Series Managed Growth now have benchmark allocations to Australian listed property of three per cent (previously 4.5 per cent) and to global property of six percent (previously also 4.5 per cent). Zurich Blended Series Priority Growth now has a strategic asset allocation to domestic listed property of two per cent (down from 3.5 per cent), and to global property of five percent (up from 3.5 per cent). Zurich has also altered the split between Australian and international shares for managed share funds such as Zurich Wholesale Super - Managed Share from 62.5 percent Australian shares/37.5 per cent international shares to an even 50/50 balance.

In related news, Zurich replaced Challenger with boutique Above The Index for management of 25 per cent of the Australian shares assets of these multi-sector funds. (Schroders manages a further 25 per cent, and index manager State Street the remaining 50 per cent.) Zurich dropped boutique Constellation in favour of Above The Index for single-sector domestic share funds such as Zurich Investments Australian Value Retail Share and Zurich Investments Australian Value Share in September last year.

Above the Index is owned by senior management and funds management incubator Ascalon, and was founded five years ago. The seven-person investment team is led by chief investment officer Simon Burge, formerly portfolio manager at Tyndall, and head of research David Liu, with input from industry veteran Tim Phillips and analysts Peter Meichelboeck and Andrew Davidson. Above the Index uses a relative value approach to selecting Australian stocks, choosing companies whose share prices appear cheap relative to the market and industry sector.

Finally, Zurich has also closed its retail Blended Series of funds to new and additional investments, citing small amounts of assets making the funds costly to administer. (The six funds, launched five years ago this month, had a combined total of only $4.63 million at 30 June 2009.) Zurich is commendably opting to terminate the funds fully on 1 October 2009, rather than allowing them to linger and contribute to the cluttered Australian funds management industry.


Table 1: Zurich Blended Series Funds Due for Termination on 1 October 2009

Fund Name Morningstar Category Ticker Net Assets A$m
Zurich Blended Aust Shares Retail Aust Large Blend 11604 0.4
Zurich Blended Balanced Retail Multisector - Balanced 11607 2.06
Zurich Blended International Shares Retail World Large Blend 11605 0.22
Zurich Blended Managed Growth Retail Multisector - Growth 11608 1.13
Zurich Blended Managed Stable Retail Multisector - Moderate 11606 0.56
Zurich Blended Priority Growth Retail Multisector - Aggressive 11609 0.26

Source: Morningstar. Net assets data at 30-Jun-09