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3 best-in-class managed funds

Glenn Freeman  |  14 Nov 2018Text size  Decrease  Increase  |  
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Fidelity, MFS and PIMCO are the gold standard when it comes to investing in their respective categories of Australian equities, global shares and fixed interest, according to Morningstar research.

These funds were singled out by Morningstar manager research analyst Matthew Wilkinson in his presentation at last month's Morningstar Individual Investor Conference 2018.

Fidelity Australian Equities fund (12292) earns a gold-medal rating for its comprehensive fundamental research, which covers a well-balanced portfolio, and the "unwavering conviction" of portfolio manager Paul Taylor.

Taylor's "through-the-cycle" investment approach, which favours companies with sustainable competitive advantages over the longer-term, gives Fidelity an edge over its rivals, says Morningstar manager research analyst, Andrew Miles.

"Paul Taylor is one of the most impressive investors in the Australian share market," Miles says.

The fund typically holds between 30 and 50 stocks, and has taken some large bets on specific stocks, including jobs website Seek (ASX: SEK) and pizza giant Domino's (ASX: DMP).

Miles also notes the fund has no "excessive exposure to individual companies" and is a "suitable core holding within an investor's allocation to Australian equities".

Commonwealth Bank (ASX: CBA), BHP Billiton (ASX: BHP), Westpac (ASX: WBC), CSL (ASX: CSL) and Australia and New Zealand Banking Group (ASX: ANZ) were the top five holdings as at 30 September, 2018.

There are however things to be wary off. Fidelity's exposure to Blue Sky Alternative Investments earlier this year is a prominent example.

Blue Sky's share price fell when financial disclosures drew regulatory scrutiny, and as a result Fidelity’s returns were affected.

But Miles believes these are the result of some recent turnover in Fidelity's analyst team, and that the positives outweigh the negatives. 

pizzaThe well-regarded Domino's Pizza Enterprises has been a substantial exposure for Fidelity

MFS

Another Morningstar gold medal selection is MFS Global Equities (4532). Like Fidelity, it has a growth tilt, but is more reserved than many other growth approaches, according to Morningstar associate director, manager research, Tim Wong.

The analyst team uses fundamental research to identify companies with "competitive edges" in their field.

As of the end of August 2018, defensive sectors comprised almost 40 per cent of its sector weighting - split relatively evenly across consumer defensive and healthcare.

Cyclicals comprise 32 per cent of its sector exposure – primarily financial services, consumer cyclical and materials; another 30 per cent comprises industrials, communications and technology.

The MFS team targets companies with "solid industry positions where substantial barriers to entry exist", along with strong management teams and well-defined business models, Wong says.

"Stocks meeting these criteria must also sell at discounts to MFS's estimates of earnings or cash flow growth, so the portfolio isn't full of stocks selling at lofty valuations," he says.

The portfolio holds about 80 to 100 stocks, drawn primarily from the Americas (58 per cent); Europe and Africa (38 per cent); and Australasia (3.5 per cent).

Its top 10 company holdings include US healthcare firm Thermo Fisher; credit card giant Visa; technology consultancy Accenture and multinational conglomerate Honeywell.

PIMCO

In the credit space, PIMCO Australian Bond Fund (11064) has a Morningstar gold-medal rating.

Morningstar's Wong says the fund has "more freedom than most of its index-aware cohort" in that it is able to allocate up to 30 per cent of its assets offshore and to take currency bets.

While it has been somewhat "index-like" over the medium-term, and may struggle to match its past performance, Wong insists this doesn't hinder PIMCO Australian Bond’s high competitive standing.

The fund invests in Australian cash and government, semi-government and corporate debt securities.

It rounds out its coverage of traditional credit sectors with some less conventional approaches such as emerging market debt and inflation-linked bonds.

Another positive for Wong is the "capable" leadership of Robert Mead and his staff on the ground in Australia, along with its ability to leverage PIMCO's extensive global resources.

 

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Glenn Freeman is senior editor at Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

 

is senior editor for Morningstar Australia

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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