Smart Investor: Earning It, December 2011

Smart Investor, December 2011

ROADTEST

Platinum European Fund

Who runs the fund? Platinum Asset Management, Australia-based global investors.

The basics: Invests in European companies’ listed securities. It defines Europe as “all countries from the UK to the Ural mountains”, which means it includes Russia and the various former Soviet republics.

The process: Holds 50 to 100 securities Platinum believes to be undervalued. It can go to cash, and it can also sell short, meaning it benefits from falling share prices.

The bottom line: We looked at European equities because this asset class has been so enormously beleaguered this year, stricken by problems with eurozone sovereign debt. We wondered if any of the available European equity funds in Australia had stayed positive over three years; this is the only one that had, though like most of its peers it was down more than 13% in the six months to September 30. Over seven years, it’s up 4.79% a year. It may have performed better than the herd because of its ability to short sell and go to cash; also, not all European funds can invest in Russia as this one does.

Fees: 1.54% management expense ratio, including GST and administration costs.

Verdict: When you believe European markets have hit the bottom – a very difficult call – this will be a good option to catch the rebound.

NEW FUND

Blackrock Australian Equity Opportunities Fund

What is it?

A new Australian equities fund

Great. There’s only about 300 of them already. What’s special about this one?

It invests into units of the BlackRock Equitised Long Short Fund, which in turn puts most of its money into the BlackRock Australian Equity Market Neutral Fund, with some in swaps or futures on the Australian share market.

So when you peel all those layers off, does that all mean it’s a hedge fund?

Yes, a long-short fund, which means it can make money from declines in stocks as well as climbs. Blackrock has a bold ambition for this fund – 8% per year over the S&P/ASX200 Accumulation Index over three-year periods – and seeks to do so through an investment process that includes investor behaviour around earnings forecasts, relative value, earnings quality, market signals, and dividend reinvestment plans, among other things.

How much can it short?

The underlying hedge fund has a maximum exposure to long equity positions of one times net asset value, and the same for short positions, which means it can fully express a view on whether a stock will go up or down.

And how has that underlying fund done?

Very well. By the end of August, it was up 16.03% per year since inception, and crucially was up 12.18% a year over the volatile last five years. Normally, that’s an institutional fund; the point of this new version is that retail investors can access it.

What will the fees be?

Very heavily linked to performance. The management fee is just 0.3%, lower than some index funds, but the performance fee is 30% of outperformance over the benchmark. That is one of the highest performance fees we’ve heard of, but also the lowest base fee, and if you’re paying out a lot in fees you’ll also be receiving good performance.

GIZMO

Wacom Bamboo Stylus

What’s the one big problem with our new iPad and iPhone-fuelled lives? Battery life? No. Walking under buses while playing? OK, you can make a case for that. But what bugs me is that our fingers are wholly unsuited for touchscreen swiping. We leave dirty great fingerprints (last week I witnessed the unhappy combination of yak meat grease and an iPad 2, and believe me, it wasn’t pretty) and our screens become unsightly and somewhat unhygienic.

The best gizmos bring the absolute basics to technology, and there’s nothing more basic than a pen.  The bamboo stylus is specifically designed for iPads, and looks like a classy fountain pen with rubber on the end; it has a pen’s weighted feel too. This clearly excels using applications where you need to write or draw, but even when just playing Angry Birds, it’s an appealing difference. From www.wacom.eu

FUND WATCH

Cromwell Phoenix Property Securities

It’s relatively early days for this fund, but so far it has dodged the shoals and pitfalls for listed property to create a decent return in difficult circumstances. Where the benchmark has lost an average of almost 12% a year for three years – and worse for five – Cromwell is at least flat since September 2008 and up over 7% over the last year.

How? While the top positions are inevitably in Westfield, they are underweight positions relative to the benchmark (in fact, there is a 20% ceiling on any stock); the fund is not constrained by benchmarks and takes a value approach to stock selection. Cromwell (and underlying manager Phoenix) won an award from Lonsec for the best Australian property securities fund manager this year.