Smart Investor: Earning It, December 2012

Smart Investor, December 2012

Roadtest

Aberdeen Inflation-Linked Bond

Who runs the fund?

Aberdeen Asset Management, an international asset manager which offers a range of funds in Australia; perhaps best-known for its Asia and China funds.

The basics: One of the handful of inflation-linked bond funds in Australia (Morningstar tracks eight). This fund invests mainly in Australian inflation-linked bonds and annuities, the idea being that these bonds provide a hedge against inflationary pressures.

The process: Aims to outperform the UBSA Government Inflation Index. It chooses securities based on relative value, by managing credit exposure across sectors, and by managing interest rate risk. Most of the holdings are highly rated: 57.77% AAA and 25.36% AA rated as of September 30.

The bottom line: Impressive. According to Morningstar, the fund returned 12.79% in the year to September 30, 12.4% over three years, 8.56% over five years and 7.6% over seven years – good money in that environment, by anyone’s standards. Few other inflation-linked bond funds have the same track record – Colonial First State is an example – but they look similarly impressive.

Fees: Management expense ratio is 0.36%, though many investors will buy it through a platform that will impose its own layer of fees.

Verdict: Oh to have put our money in this five years ago and avoided a world of pain.

New fund

The Montgomery Fund

What is it?

A new Australian equities fund.

There must be a hundred of them already. What’s special about this?

Like many funds these days, this one sets out with a priority of capital preservation with the potential for capital growth. In other words, in order to grow your money, it will try very hard not to lose it along the way.

Who’s behind it?

Roger Montgomery, a well-known boutique investment figure in Australia, best known for his Clime Capital business. The new fund comes under the boutique Montgomery Investment Management, whose other key staff are CEO David Buckland, head of research Tim Kelley and portfolio manager Russell Muldoon. It’s privately owned and independent of the big names.

What’s the style?

Montgomery is known as a value-style investor. The approach in this fund will be to invest in 20 to 40 companies that are considered undervalued. It aims to outperform the S&P/ASX300 Accumulation Index over a rolling five year period. It can go as high as 30% cash when the managers don’t see value.

What are the fees?

Management costs of 1.5%, with a performance fee of 15.38% of outperformance over the benchmark, provided that performance is positive.  That’s quite a high combination.

GIZMO

As you head into balmy summer, gloves are probably the last thing on your mind. But not in the UK, where a company called Oliver Sweeney is doing a brisk trade in gloves designed to work with a touchscreen.

In a northern hemisphere winter this is quite a brainwave, since legions of commuters use touchscreen technology on their way to work but also suffer from freezing cold hands. These lambskin gloves come with something called TouchTec technology in the leather so that your fingers and palms are conductive. The bad news? Sleek as they are, they’re selling for 99 quid in the UK. Let’s hope they come down in price before Australia’s winter.

[pic editor: http://www.oliversweeney.com/accessories/gloves/info/swipe-black/swiplablk.html

Fund watch: Fidelity Asia

It has been a good year for investing in Asia, provided your manager has steered clear of many struggling Chinese stocks. Fidelity’s Asia fund has beaten the market over the last one and three years by avoiding the duds in China and picking the winners.

The clearest example of this can be seen in the top 10 stocks. The top holding, Samsung Electronics, is in everybody’s portfolio in Asia; it’s a proven winner and a meaty bluechip. But Tencent, China’s answer to Google, is a very heavy overweight position, and it has performed well this year when numerous other Chinese stocks have struggled. Oil and gas explorer CNOOC is another shrewd Chinese holding.

Fidelity has certainly not followed the herd with its Asian stock choices; the Thai bank Kasikornbank doesn’t appear in many regional portfolios. But it seems to be working.