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3 up-and-coming investment funds to watch

Emma Rapaport  |  30 Jan 2019Text size  Decrease  Increase  |  
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A knack for identifying companies capable of doubling sales over five years, forensic fundamental analysis, and a trailblazing approach to bonds have put this trio of funds on Morningstar's radar.  

Ballie Gifford Long Term Global Growth, BetaShares Legg Mason Australian Bond ETF, and Intermede Global Equities were selected from a universe of thousands to join the Morningstar Australia Prospects in January 2019 – a list of promising investment strategies that analysts believe may be worthy of greater investor attention but are not yet covered by research analysts.

Report author Tim Murphy, director of manager research, said funds were chosen because of their unique process or strategy – either existing with new transformative management, new with established management, or yet to be discovered.

"Morningstar Prospects allows us to share what we believe are the most promising members of our research bench," he says. "Prospect strategies are likely to have enduring competitive advantages and long-term appeal, but have so far not met our coverage criteria."

Funds are also are evaluated for inclusion via Morningstar's five-pillar framework: process, people, parent, performance and price.

Large cap stock pickers

Within the large cap global equity segment, Intermede Global Equities and Baillie Gifford Long Term Global Growth are two new additions.

The first is a global growth strategy run by UK-based boutique Intermede Investment Partners, launched in March 2015 by chief executive and portfolio manager Barry Dargan.

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His leadership of the small team – with a track record dating back to at least 2001 – is a key reason for the fund's inclusion on the list, says Morningstar analyst Sarah Fox.

"The team members seek to identify and build a concentrated portfolio of companies they believe are best positioned to generate robust and sustained growth," she says.

"Though this pursuit may seem trite, what we think sets this strategy apart is the sensible, considered, and detailed approach to fundamental stock analysis."

Intermede delivered a 1.59 per cent return to investors in the year to 31 December 2018, and 7.1 per cent over three years.

Fox describes as "reasonable" the 0.99 per cent fee, which has no additional performance fee.

Tesla Car

Tesla is among Baillie Gifford's current holdings, alongside Netflex and Spotify 

Selecting structural winners

Baillie Gifford Long Term Global Growth is a concentrated global growth strategy with a long-term investment time horizon. Though the unit trust launched in October 2018, the strategy has been in operation since 2004 and has more than $60 billion in assets globally.

The portfolio team of four managers have between 18 and 35 years' experience, and are supported by four analysts. They seek to invest in long-term structural winners that can at least double sales over the next five years and beyond, says Morningstar research analyst Michael Malseed.

"They are less concerned about lofty near-term valuations [and] aren't afraid to back loss-making early stage start-ups either, if the addressable market is large enough," he says.

Online retail and social media behemoths Amazon and Facebook rank among some of its notable stock picks since 2004, alongside Chinese mobile gaming company Tencent. Tesla,

Netflix and Spotify are some of its current holdings, as of November 2018.

The fund charges a management fee of 1.13 per cent.

A pioneering bond strategy

As the first active bond exchange-traded product listed on the ASX, BetaShares Legg Mason Australian Bond ETF is on Morningstar's radar. The fund's underlying strategy, Legg Mason Western Asset Australian Bond (5471) is already highly regarded, holding a Morningstar silver medal and five-star ranking. 

Morningstar research analyst Anshula Venkataraman notes that the ETP applies the same investment process as the unlisted fund, helping it achieve a place on the list.

However, she says there may be some slight discrepancy in the portfolio holdings – particularly those less-liquid names – until the listed product reaches a healthy asset size.

On the management side, Venkataraman says portfolio manager Anthony Kirkham "capably" leads the Western Asset team that runs this strategy, "applying a relative value approach to security selection."

"Western Asset applies a conscientious and risk-aware investment process that has delivered over the long run. While the exchange-traded fund is new, Kirkham has successfully led the unlisted version of this strategy for over 15 years."

The team is supported by the firm's investment strategy committee, which sets the firm's macro outlook, and global investment teams.

A fee of 0.42 per cent applies, the same as for the unlisted fund, which Venkataraman regards as reasonable.

is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

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