Fund Times: Updates for Adam Smith, AMP, Aust Ethical, Colonial First State, ING, UBS, Zurich
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In recent news from the funds management industry you may have missed, small-cap shop Adam Smith Asset Management has hired former MMC portfolio manager Stephen Atkinson; the portfolio manager for Australian Ethical's global share fund has resigned; there have been further departures from Colonial First State's core Australian shares and global fixed interest teams; and ING has hired new equities staff. Elsewhere, AMP has terminated a large number of funds; UBS has made adjustments to its emerging markets and global infrastructure funds; and Zurich has dropped investment manager Constellation in favour of Above the Index.
Adam Smith hires portfolio manager
Sydney small-cap boutique fund manager Adam Smith Asset Management has hired Stephen Atkinson as a Portfolio Manager/Analyst. Atkinson's background includes stints in small-cap portfolio management with Credit Suisse, Deutsche, and most recently MMC.
Adam Smith was founded by former ING and Macquarie Head of Equities Peter Mouatt in 2003. The shop offers the A$76.45 million Adam Smith Small Company as well as running mandates for the Qantas and Telstra corporate superannuation schemes, and being one of the underlying managers for Colonial First State FirstChoice Wholesale – FirstChoice Australian Smaller Companies and related funds, with a 10.0 percent allocation. (The others are Colonial First State Core, Contango, GMO, and Souls.)
In our most recent assessment, we allocated Adam Smith a Morningstar Recommendation of 'Investment Grade', commenting that "while Adam Smith does have a number of positive attributes, it's not among the most attractive choices", and noting in particular that analytical resources were thin. Atkinson's appointment goes some way towards remediating this issue.
Mouatt and his colleagues focus on long-term cashflow analysis, shying away from the more speculative sectors, and holding on to stocks for extended periods. They're also not afraid of delving down into the more illiquid micro-cap stocks, which accounted for 25.0 percent of the portfolio at 31 August 2008. The 50-stock portfolio's principal stockholdings have recently included business training provider SAI Global (3.59 percent), engineering construction and maintenance group Monadelphous (3.48 percent), and Equity Trustees (3.14 percent).
AMP terminates 57 funds
AMP terminated 57 managed funds on 13 September, one of the largest product rationalisations from an Australian fund manager in recent years.
The terminations were spread across the fund manager's superannuation fund (24 options), pension and term allocated pension (29 combined), and investment trust product ranges (four options). The oldest dated from 1993, and the most recent was an allocated pension from the SignatureSuper range launched a year ago.
The majority of the funds terminated were very small. Only four had more than A$150.0 million in assets at 31 July 2008, while 49 of the 57 (85.96 percent of the total) had less than A$40.0 million, and 33 (57.89 percent) less than A$10.0 million. In category terms, the majority were from the Multi-Sector Growth category (22) and Multi-Sector Moderate (15 funds), followed by Australian Large Value (six funds) and World Large Blend (five). The principal terminations by investment strategy were Macquarie Capital Stable (six products terminated); MIR Australian Equity (six); and BT Active Balanced, Barclays Diversified Stable, BlackRock Balanced, ING Managed Growth, and Macquarie Fixed Interest Plus (five each).
Australian Ethical loses World Share portfolio manager
Frank Zhu, portfolio manager for Australian Ethical World, has left the Canberra ethical investment specialist for an undisclosed start-up funds management business. The Trust will be managed in the interim by Portfolio Managers James Jordan and Michael O'Brien – the latter responsible for allocating stocks for the international component of Australian Ethical Large Companies, which accounted for just over a third (34.26 percent) of fund assets at 31 August – and Chief Investment Officer Martin Halloran, hired from nabCapital in August. Our fund research analysts will be meeting with Australian Ethical to discuss the implications in coming weeks.
Launched on 30 July 2007, the Australian Ethical World Trust's -10.95 percent one-year return to 31 August 2008 compared favourably with the -16.99 percent from the MSCI World Accumulation Index, assisted by the above-average cash weighting (7.51 percent) and partial currency hedging. The Trust's largest stockholdings have recently included Spanish bank Santander; Singapore Exchange; Osaka Gas; and Danish wind power producer Vestas. Australian Ethical is among the select band of international share funds managed out of Australia without global investment management input.
Staff change at Colonial First State
Colonial First State has had two recent departures. Analyst Susan Arnold is leaving Martin Littler's Australian Core Equities team on 25 September. Littler and his colleagues are responsible for funds such as Colonial First State Wholesale Australian Share Core. The firm said in a statement that Arnold was not joining a competitor, and that her responsibilities would be reallocated. Our fund research analysts are currently undertaking an updated assessment of the Colonial First State Core investment strategy which will inter alia take account of Arnold's departure. Elsewhere, Credit Analyst Mark Mitchell has left the Global Fixed Interest & Credit team, headed since November last year by Sarah Percy-Dove, for Kumar Palghat's boutique Kapstream Capital.
New appointments at ING
ING Investment Management has made a number of appointments to its Australian shares team, following the departures in June of former joint Directors of Equities Paul Cuddy and Mark East and analysts Michael Chun and Michael Malseed, who left to establish an Australian equities funds management business for Bennelong.
The firm has appointed Gian Pandit as a Senior Portfolio Manager; David Langford as Senior Equity Analyst; and Mason Willoughby-Thomas as Equity Analyst. Pandit has 17 years' experience in equities and fixed interest trading, research, and portfolio management for Deutsche Bank and the Packer family funds management business Ellerston Capital, and will be responsible for ING's concentrated portfolios. Langford worked previously at Lehman Brothers, Morgan Stanley, and ABN AMRO, and will cover the telecommunications, media, and technology sectors. Willoughby-Thomas will work with Vik Pitrans on metals, mining, gold, and resources stocks, and was previously an analyst at ABN AMRO and AMP Capital. Guy Uding and Tycho van Wijk, the senior portfolio managers from the firm's Asia Pacific investment team summoned to Australia as temporary replacements for Cuddy and East, have now returned to Europe.
Pandit, Langford, and Willoughby-Thomas will contribute to the management of funds including ING Wholesale – Australian Share, ING OneAnswer Investment Portfolio – Australian Share, and ING Wholesale – Blue Chip Imputation.
At the time of the departures in June, we moved our Morningstar Recommendation for ING's large-caps strategy from 'Investment Grade' to 'Hold', commenting that ING needed to take a closer look at its remuneration policies, and had yet to demonstrate an ability to retain its senior investment talent. Our fund research analysts are in the process of revisiting ING's large-cap strategy, and an updated research report will be published in coming months.
UBS adjusts emerging markets, infrastructure fund mandates
UBS has adjusted the investment mandates for UBS Emerging Markets Equity and UBS Global Infrastructure Securities. The former has been changed from a style-neutral core approach to a growth-oriented one, investing in companies undergoing positive and sustainable fundamental change driving a period of above-average earnings growth. This is a sensible move given the nature of many developing market stocks. Other key characteristics, including the 1.25 percent ongoing fee, remain unchanged. The mandate for the Infrastructure Securities fund now includes infrastructure and utility-related debt instruments, derivatives, and the ability to underwrite both equity and bond issues.
Zurich drops Constellation for Above the Index
Finally, Zurich has replaced long-time Australian shares investment manager Constellation Capital Management with another boutique, Above the Index Asset Management. Table 1 below shows the funds directly affected by the change.
Established in September 2004, Above the Index is owned by senior management and funds management incubator Ascalon, and is also investment manager for the Direct Portfolio and ShareInvest separately management account schemes, which combined accounted for A$195.0 million of the shop's A$197.50 million total assets under management in July 2008.
The five-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, analysts Peter Meichelboeck and Andrew Davidson, and dealer Richard Kosmac.
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. The four-stage investment process involves firstly data collection from industry databases and broker research, and then filtering the initial universe of the S&P/ASX300 Accumulation Index by liquidity, market-cap (removing stocks with market-caps below A$100.0 million), and earnings, in which companies with two or more years of negative earnings out of the last four are removed. The third stage is a ranking list, produced from fundamental research analysing financial history, balance sheet strength, earnings prospects and drivers, and management ability. This ranking is used as the basis for portfolio construction.
As an indication of the starting point for the new Zurich mandate, the largest stockholdings in Above the Index's portfolio at 31 August 2008 were BHP Billiton (15.20 percent), National Australia Bank (6.20 percent), Westpac (six percent), and Commonwealth Bank (5.90 percent). The principal sector weightings were to Financial Services (40.40 percent, seven percent above the S&P/ASX300 Accumulation Index sector weight), Industrial Materials (24.20 percent, three percent below), and Consumer Discretionary stocks (8.90 percent, more than twice the sector's index weighting).
Our fund research analysts have met with both Above the Index and Constellation, and will be publishing an updated assessment as part of our review of large-cap domestic share fund managers in the near future.
Table 1: Zurich Australian Share Funds – Assets Now Managed by Above the Index
|Fund Name|| |
Net Assets A$m
|Zurich A Pension (FIP) - Aust Value Share NEF||6106||2.88|
|Zurich A Pension (FIP) - Australian Value Share||6564||3.63|
|Zurich Investments Australian Value Retail Share||4575||4.51|
|Zurich Investments Australian Value Share Fund||5082||10.96|
|Zurich Super Australian Value Share||6338||27.01|
|Zurich Super Australian Value Share Fund NEF||8652||4.93|
|Zurich Term Allocated Pension Aust Value Share||11860||0.07|
|Zurich Term Allocated Pension NEF Aust Value Share||11878||0.02|
|Zurich Wholesale Pension Australian Value Share||6389||2.63|
|Zurich Wholesale Super Australian Value Share||6381||1.29|
Data at 31 August 2008