Smart Investor: Earning It, February 2011

Smart Investor: Earning It, February 2011

ROADTEST

Advance Concentrated Australian Shares Fund

Who runs the fund? It’s badged as Advance, which is part of BT, which in turn is part of Westpac. But the actual fund management is done by MIR, a boutique value-style manager specialising in Australian equities.

The basics: Aussie shares fund using a value style (looking for stocks that are undervalued). Seeks to beat the S&P/ASX200 bvy more than 4.5% per year over periods of five years or longer.

The process: It’s a high conviction fund, which means it can put its money where its mouth is and invest heavily where it sees value rather than being tied to a benchmark. Most of its biggest holdings are familiar names – Westpac, BHP, ANZ, Westfield – but it also has bigger than usual positions in names like Amcor, Orica, Dexus Property Group and Coca-Cola Amatil.

The bottom line: On Morningstar’s numbers it is the third-best value Australian equities fund in the year to November 30, delivering 5.55%. Unfortunately it got battered by the financial crisis and is among the worst performers over three years, having lost 10.65% a year over that period. Over five years, it’s slightly better than flat.  

Fees: The wholesale version costs 0.8%; you’re likely accessing that through a platform, so add the platform’s fee too. The retail version is 1.99%.

Verdict: Having a decent year, but that woeful three-year number needs to climb before it can be said to have proven itself.

NEW FUND

Dexia Alpha Dynamic

What is it?

A global fund of hedge funds.

What does that mean?

Hedge funds, or absolute return funds, take a different approach to funds that simply invest in stocks or bonds in the hope that they go up. Some are set up to benefit from prices that fall, not rise; others look for inefficiencies in the market and seek to benefit from them; others look for so-called distressed securities, which are in trouble but may be trading even lower than they should be.

And what’s a fund of funds?

Since these approaches can be risky and unpredictable, many funds invest in a host of other underlying funds – in this case, 30 to 50. By pooling them together, you spread the risk.

That’s good, right?

It certainly diversifies your risk. But one issue with fund of funds is there are two layers of fees: one to the underlying managers (which you don’t really see, they just come out of returns), one to the overall manager. This second fee is 1.2% a year plus 10% of performance above the UBSA Bank Bill Index over a 1.2% hurdle. If you buy it directly the minimum investment is A$50,000, so if that’s out of reach you’ll need to find it on a platform, in which case the platform will take a fee too.

Who does it suit?

People who want to diversify away from exposure to the equity and bond markets. You also need to expect to wait a good while for your returns. In theory alternative investments do better in a stock market downturn, but to be honest the jury is still out on that: performance varies very widely from manager to manager so the key to this fund is how good the manager selection is.

Who runs it?

Dexia Asset Management, a major global player which runs over Eu5 billion in alternative investments around the world, but is best known to Australians as Ausbil Dexia.

GIZMO

Bose IE2 Headphones

Here’s my gym routine. Put ipod on and headphones in. Commence an activity. Headphones fall out. Cease activity. Replace headphones. Repeat until too furious to continue.

Hence these headphones from Bose. The headphones themselves are perfectly decent – nothing breathtaking – but they come with a bit of silicon attached which fits inside your outer ear, rather than deep into your ear canal. This is remarkably effective at keeping your headphones in place while jogging or working out.

Not cheap, though: on Bose’s Australia web site they retail for A$149, which seems steep since they’re US$99 on the US site and the currencies are pretty much at parity right now.

FUND WATCH

Maxim Property Securities Fund

This fund has a proven track record of beating the benchmark – the only problem being that the benchmark has been utterly miserable for years. Listed property got hit badly by the financial crisis – particularly anything with a lot of leverage – and it hasn’t really bounced back with the broader market. Still, hope remains that it will.

This fund holds plenty of the big obvious heavyweights like Westfield and Stockland, punctuated by less widely-held names like Cedar Woods, which builds residential communities in Perth and Melbourne, and Carindale, a Westfield-backed property trust which owns a single mall in Brisbane. Its mix of property is diversified but, like the market it represents, tilted towards retail.