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Fund Times

Phillip Gray   |  24 Sep 2009Text size  Decrease  Increase  |  
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In recent news from the funds management industry, Aberdeen has restructured its fixed interest capability, and AMP Capital the leadership of its Capital domestic shares team; AXA has reported progress on its mortgage fund redemption process; DWS is likely to reopen its Strategic Value fund; Select Asset Management has made adjustments to the asset allocations for its Alternatives fund and extended the redemption notice period; and Zurich has launched funds offering access to US growth fund manager American Century.

Aberdeen restructures fixed-interest team

Aberdeen Asset Management has restructured its fixed-interest team following the integration of parts of the former Credit Suisse funds management business effective from April. Former chief executive and head of fixed income Bill Bovingdon and portfolio manager Gavin Goodhand have left the firm. Robert Mann, based in Singapore, will be leaving at the end of the year.

Brett Jollie, formerly chief operating officer, has replaced Bovingdon as head of Aberdeen's Australian business, while Bovingdon's role as head of fixed income has been taken by former Credit Suisse senior portfolio manager Victor Rodriguez. The firm said it had become obvious in recent months that the Credit Suisse imprint on the merged fixed-interest business had become stronger. Aberdeen appointed Paul Griffiths as global head of fixed income in March. Griffiths formerly occupied the same position at Credit Suisse.

The funds most affected by the change are Aberdeen Australian Bond (6714), Aberdeen Australian Fixed Income (3219), Aberdeen Inflation Linked Bond (5306), and Aberdeen Passive-Enhanced Australian Fixed Income (9363). The first of these funds currently has a Morningstar Recommendation of "Recommended". Our fund research analysts have met recently with Aberdeen to discuss the implications of the change and are in the process of updating our report.

AMP Capital restructures Australian Shares team

AMP Capital Investors has appointed Greg Barnes senior portfolio manager, Australian equities. Most recently executive director Asia-Pacific of private investment firm Imprimatur Capital, Barnes' 20 years' investing experience also includes stints with JP MorganChase as global portfolio manager and head of Asia ex-Japan investment, chief investment officer of Jardine Fleming Australia, and with New South Wales State Super. Barnes reports to head of Asia-Pacific equities Kerry Series.

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In related news, AMP Capital has also announced that the existing head of capital funds role is not being maintained, and that Gary Armor is transitioning out of the role. (He'd been appointed provisionally to the lead position in August 2007 and the role was made permanent in May 2008.)

In our most recent research report, we assigned the strategy a Morningstar Recommendation of "Investment Grade" (the third designation in our five-point scale). We also noted the continual change in AMP Capital's team over the past seven years, commenting that the firm "must now show some stability in personnel and bed down the changes to process before we can consider the Capital strategy on a par with tried and tested peers". Barnes' appointment and Armor's move out of the head of capital funds role is further evidence that this stability is needed.

The principal funds affected by the change are AMP FLI – AMP Australian Share (10999), AMP FLI – AMP Equity (120), AMP Capital Wholesale Australian Share (4194), AMP Capital Wholesale Australian Share A (5654), AMP Capital Equity (7643), and AMP Capital Equity A (6057).

AXA Mortgage Fund redemptions update

The third redemption window for AXA's mortgage funds has now closed, and payments will be made this month. AXA offered investors the opportunity to withdraw 7.5 per cent of their units in the affected funds, AXA – Australian Income (981), AXA – Australian Monthly Income (6799), AXA – Wholesale Australian Income (5728), AXA – Wholesale Australian Monthly Income (6800), and AXA Generations – Australian Monthly Income (11641).

The firm said that it was expecting to launch a fourth withdrawal window in October, again expected to be about 7.5 per cent of units held and that it was examining potentially changing the nature of the withdrawal arrangement from a percentage of units held to a dollar offer allocated pro rata. AXA also indicated that it expects to be able to make quarterly withdrawal offers in 2010 of at least 4 to 5 per cent of assets each quarter. The firm has also applied for relief under the Australian Securities and Investments Commission's revised hardship rules.

DWS to reopen Strategic Value later this year

Ironbark Asset Management, distributor in Australia of DWS Investments funds, has indicated that DWS expects to reopen fund-of-fund hedge fund DWS Strategic Value (5842) to investment later this year, assuming no further adverse changes in market conditions.

DWS ceased accepting applications and processing redemptions in December 2008, following Deutsche-owned Topiary Fund Management's decision to wind up the majority of its funds. Strategic Value portfolio manager Steve Bossi left the firm in January this year, replaced by his former second in command, Robert Parauda. DWS replaced Topiary as investment manager with K2 Advisors in February. (Stamford, Connecticut-headquartered K2 Advisors is unrelated to Campbell Neal and Mark Newman's Melbourne boutique K2 Asset Management.) The fund currently has indirect investments in illiquid unlisted investments, and DWS has asked K2 Advisors to execute secondary market trades to reduce these illiquid holdings. DWS expects to reopen the fund when this process has been completed.

At the time of DWS' decision to suspend applications and redemptions, we downgraded our Morningstar Recommendation from "Investment Grade" to "Avoid". We will reassess the recommendation when the fund reopens.


Select changes asset-allocation ranges, expands redemption notice period

Select Asset Management has made adjustments to the asset allocation ranges for the A$31.62 million Select Alternatives (9960), and extended the notice period for withdrawals.

In the updated product disclosure statement (16 September 2009), the fund manager has increased the notice period for withdrawals from one to five business days, arguing that the previous arrangement did not give the portfolio managers sufficient time to manage cashflow implications for remaining investors.

The firm has also changed the fund's asset allocation ranges (Table 1 below). Select has shifted the allocation to alternative investment strategies from 35-75 per cent to 30-75 per cent, by increasing the potential hedge funds exposure from 25-45 per cent to 20-45 per cent. Similarly, in the alternative asset classes sleeve, the "Other Alternatives" allocation has been increased from 0-15 per cent to 0-20 per cent. Finally, Select has increased the cash allocation from 0-20 per cent to 0-25 per cent.

Table 1: Changes to Select Alternatives Portfolio Asset Allocation Ranges, September 2009

Substrategy Name

 Previous Range

 New Range

Alternative Strategies

35.0 - 75.0

30.0 - 75.0

Hedge Funds

25.0 - 45.0

20.0 - 45.0

Trading Funds/Managed Futures

10.0 - 30.0

10.0 - 30.0

Alternative Assets

25.0 - 65.0

25.0 - 70.0

Private Equity

0.0 - 20.0

0.0 - 20.0


0.0 - 20.0

0.0 - 20.0

Precious Metals/Gold

0.0 - 20.0

0.0 - 20.0


0.0 - 20.0

0.0 - 20.0

Other Alternatives

0.0 - 15.0

0.0 - 20.0


0.0 - 20.0

0.0 - 25.0


Zurich Offers American Century Funds

Zurich Investments has partnered with American Century Investments to offer Zurich Investments Global Growth Share (up to 40 per cent hedged) and Zurich Investments Unhedged Global Growth Share.

American Century is a Kansas City-based privately owned firm founded in 1958. The strategy invests in 90 to 110 global companies whose earnings and revenues are growing at an accelerating and sustainable rate. The hedged and unhedged wholesale funds have minimum investments of A$25,000 and peer-competitive ongoing fees of 0.98 per cent per annum, while for retail investors, there's an accessible A$1,000 investment minimum and a reasonable 2.05 per cent annual fee. Zurich is not charging performance fees.

Zurich has also added American Century as investment manager for the international shares assets of its diversified funds, alongside thematic manager Lazard. These funds include Zurich Investments Managed Growth (2734), Zurich Investments Managed Growth Retail (4573), Zurich Super – Managed Growth (4843), Zurich Super – Priority Growth (5326), and Zurich Wholesale Super – Managed Growth (6378).

Recent noteworthy fund launches

Finally, there have been several interesting fund launches in recent months.
It's been some time since we've seen the HSBC brand associated with funds management in Australia, the company having sold its funds management business in this country to Challenger in 2005. However, the firm has returned to this market with HSBC Global Emerging Markets Equity (17366).

This 80-120-stock portfolio has been run by former Foreign & Colonial manager Nick Timberlake since April 2005. The investment process combines top-down assessment of broader macroeconomic themes with bottom-up analysis and selection of individual companies. Recent major stockholdings have included many of the staples of emerging markets funds, among them Petrobras, Samsung Electronics, China Mobile, Israel's Teva Pharmaceuticals, Russian gas giant Gazprom, and Vale (the former CVRD, and BHP Billiton's principal competitor). The upfront investment minimum is pretty high at A$1,000,000, and the 1.65 per cent annual pricetag is on the higher side for wholesale emerging markets funds.

Schroders has launched Schroder Global Quality (17399), an Australian vehicle investing into its global quality investment strategy, launched in the United Kingdom in October 2007. The characteristics Schroders uses to define "quality" companies include stocks which are profitable, financially strong, have low debt levels, and have shown stable growth. The firm uses quantitative screens to identify such companies, stating that it attempts to avoid "over-hyped, glamorous stocks that can lead to the disappointing returns associated with traditional growth investing".

The European-offered version of the fund had a portfolio of more than 400 companies at 30 June 2009, principal stockholdings including medical products company Terumo; pharmaceutical Roche; Essilor, a leading spectacle lens manufacturer; Colgate-Palmolive, Johnson & Johnson, and Swedish fashion house H&M. Global Quality's principal stock sectors were industrial materials, financial services, consumer staples, and healthcare. The Australian version of the fund has a reasonably accessible investment minimum of A$50,000, and Schroders is charging investors a competitive 0.82 per cent each year.

Another of the crop of boutique fund managers which have emerged in recent years, WaveStone is the investment business of former Colonial First State staffers Ian Harding, Graeme Burke, and Catherine Allfrey, who founded the firm in 2006. (Challenger also owns 27.5 per cent.) Wavestone has launched WaveStone Australian Equity Long/Short (17364), distributed through Challenger.

The fund invests in 25-50 Australian and New Zealand listed companies and in companies expected to list within the next 12 months. The firm undertakes proprietary research including company visits to determine stock weightings on the basis of its "Corporate DNA" approach. This aims to identify companies which are prudently financed and well-managed, and possess sustainable competitive advantages, operate in an industry with favourable dynamics and have a track record of success. As its name suggests, the fund also takes short positions in companies WaveStone believes to be overvalued.

The Australian Equity Long/Short fund has a minimum investment of A$100,000 or A$25,000 with the establishment of a regular savings plan, and will pay distributions annually at 30 June. The 1.5 per cent ongoing fee is cheap for a retail fund but expensive for a wholesale one. The firm is also charging a performance fee of 15 per cent of any outperformance above the Reserve Bank of Australia cash rate plus the 1.5 per cent annual fee. This isn't ideal – when it comes to performance fees, we prefer hurdles related to the sharemarket, in recognition of the equity risk premium.

Phillip Gray is Morningstar's editorial and communications manager.


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