Smart Investor: Earning It, May 2011

Smart Investor: Earning It, May 2011

ROADTEST

Clime Australian Value Fund

Who runs the fund?

Clime Asset Management is a value investor, meaning it buys when it thinks a share price is lower than its value. It allows its managers to go into cash if it thinks that’s the best thing to do. John Abernethy, the chief investment officer, founded Clime in 1996 after 10 years as the head of equities at NRMA Investment.

The basics: Value-styled Aussie equity fund aiming to provide capital growth and income over three to five years. Top holdings include ANZ, Australand and BHP Billiton.

The process: Describes its method as acquiring stakes in listed businesses, rather than just trading shares. Looks for investments with a track record of superior economics, appropriate debt, strong pricing power, and the ability to grow revenue and profits organically rather than by acquisition. And the fund only buys when their share prices are below what Clime thinks is fair value.

The bottom line: According to Morningstar it is the best-performing Australian large-cap value fund in Australia over the year to February 28, returning 17.46%; better still, it is top over three years, at 14.25% a year, and also the three years to that date, returning 14.15%.

Fees: 1.03% for retail and 0.87% for wholesale, with a performance fee of 15.38% outperformance over a benchmark of 12% per year. That’s an unusual structure for a benchmark, which normally is based on outperformance of an index; doing it this way with an absolute number means it’s only paid if investors are making a lot of money, but potentially gives Clime plenty in a rebound year.

Verdict: Way ahead of the competition right now.

NEW FUND

Charter Hall Direct Industrial Fund

What is it?

A fund investing in unlisted industrial property.

Sounds dull.

Dull is good. Unlisted property appeals because it is uncorrelated to listed markets, and so a good diversifier. Industrial property is more predictable still, since it refers to logistics and warehouse centres that often have very long-term, stable tenants.

What’s its approach?

Properties have to be prime grade, located close to transport links, with high quality tenants, 100% occupancy and a minimum 10 year weighted average lease expiry.

Tough criteria.

So far, three properties have made the grade: a fleet and auto logistics centre sole occupied by Toll Holdings in Altona, Victoria; the Grace Worldwide Logistics Facility in Willawong, Queensland, south of Brisbane; and the Australia Post Distribution Centre in Kingsgrove, NSW.

Who runs it?

Charter Hall, a Sydney-based property group established in 1991. It manages $10.4 billion in real estate assets. You can buy it on the ASX: it listed as a stapled security in 2005.

It is any good?

It only launched in July so it is too early to talk about performance, but Lonsec, the research group, gave it a highly recommended rating at launch. It listed the strengths as a solid pre-tax yield (it aims for an internal rate of return, pre-tax, of 12.5%), low capital expenditure requirements (it has a gearing target of 45%), a performance-based fee structure (0.7% annual fee with a performance fee on top), a tight investment mandate and experienced manager. Weaknesses included poor initial fund diversification.

Who does direct property suit?

People who are patient, not in a rush for big returns, and don’t require instant liquidity in their investments.

GIZMO

Scottevest Carry-on Coat

We have all seen, and probably been guilty of, the everyday farce of attempting to get wildly unnecessary things on to a plane as hand luggage in order to avoid having to check in a bag. I’ve seen someone try it with a fridge. They are beyond help, but for everyone else, the Scottevest Carry-on Coat is just a marvellous thing: practical, and a poke in the eye of authority.

This long, beige overcoat is filled with pockets. 33 of them. It has pockets big enough to carry your shoes. It has pockets big enough to carry your entire change of clothes for the next day. It has a custom-made pocket exactly the size of an i-pad. And, being a coat, strictly speaking it doesn’t count as a bag (and so doesn’t get hit for fees on budget flights either). Roomy.

FUND WATCH

Aviva Small Companies Fund

This fund has become an exemplary performer through a bold and heavy concentration on industrial materials. There surely isn’t another fund that has more than half of its holdings in this area without calling itself an outright resources fund.

Its 51.31% weighting to the sector includes the biggest holding, Equinox Minerals, as well as several others of the top 10, including nickel and coal plays. Few other sectors get a look in, with Tower Australia the biggest exception.

For a small cap fund, many would consider this lop-sided, but it’s certainly worked, hammering the benchmark over one, three and five years – not just beating it but beating it by more than seven percentage points on all three timeframes. If the commodities story suddenly unravels, then things could turn ugly very quickly, but in the meantime, it’s hard to fault the fund’s selections.