Smart Investor: Earning It

Smart Investor, September 2011

ROADTEST

AMP Capital Corporate Bond Fund

Who runs the fund? AMP Capital Investors, one of Australia’s biggest fund managers. AMP has a host of fixed income products from straight Australian and international bonds to enhanced yield and structured high yield.

The basics: Invests in credit securities from Australian companies. Also has some exposure to global bonds (in June the split was 75% Australian, 13% international, 12% cash). Aims to beat the benchmark (UBS Credit Index), after costs, on a rolling three year basis.

The process: Looks for companies with strong management and balance sheets with high liquidity and low gearing. Aims to diversify across industries, including financials, utilities and telecoms.

The bottom line: This has been a good year for corporate debt, and AMP has had the best year of all Australian bond funds according to Morningstar, with a one-year return of 8.99% and 9.3% over three years. With just under 7% returns over five and seven year timeframes, it impresses with steady performance.

Fees: Bought on a platform, 0.6% (but there will be a platform admin fee); off-platform, 0.75% with a minimum initial investment of $30,000.

Verdict: Good performance, and long-term steady too. So long as the outlook for Aussie corporate debt generally remains good, AMP is a strong candidate to do a decent job within it.

NEW FUND

BetaShares hedged gold bullion ETF

What is it?

An exchange-traded fund offering exposure to gold.

Isn’t there already one of those?

Yes – with the trading code GOLD, no less. Launched by ETF Securities, it has been trading since 2003. But the BetaShares product differs in one crucial respect: it is hedged.

Why does that matter?

You’ve no doubt read that gold is at a record high. For US dollar investors in gold, they have enjoyed tremendous performance: 33% a year in the two years to April, and on track to do something similar in the year to next April too. But for Australian dollar investors, the picture has been very different, because the exceptional raise of the Aussie dollar against the greenback during that time has cancelled out gold’s gains. A hedged ETF takes the currency out of the picture, so that if gold goes up in US dollars, you still benefit no matter what the Aussie is doing.

Is there an argument against?

There is if you believe the Aussie dollar has gone as high as it is ever going to against the US dollar and is due to decline – if that happens, then a hedged gold product would actually penalise you.

Who runs the fund?

BetaShares is the newest ETF provide in Australia but has been quick to gain traction. It’s affiliated with BetaPro, a major ETF issuer in Canada.

What are the costs?

ETFs are bought and sold like any share, just incurring brokerage costs. Within the fund itself, there is a management fee of 0.49%.

GIZMO

Zaggmat iPad case

Regular readers will know your correspondent is a BlackBerry discipline, kept from the tempting embraces of the iPad and iPhone by his love of a keyboard. But a new Zaggmat gizmo is undeniably head-turning.

It’s a solid, aluminium case for an iPad, but with a keyboard built in, effectively turning your iPad into a laptop. To some, this will seem a ludicrous step backwards: if you believe the iPad freed you from unnecessary keyboards in the first place then this is hardly going to make sense. But for those who love the iPad tablet but can’t quite replicate their previous laptop because of a lack of keys, then this is a great alternative, since many people want a case for their tablet in any case. Buy it at zagg.com

FUND WATCH

Perennial Socially Responsible Shares

Does socially responsible investing come at the cost of performance? For years, the SRI lobby has claimed it does not (indeed, enhances it), but the Perennial fund won’t help the argument: it has underperformed heavily in the last 12 months and consistently over five years.

The biggest reason may well be the absence of BHP Billiton from the portfolio – likely because of uranium exposure. Rio Tinto is also missing. Without them, the fund is heavy on banks (the top three holdings in the fund) and its largest resources or energy picks are Origin Energy and Newcrest Mining. Financials account for almost one third of the fund.