Smart Investor: Earning It, January 2012

Smart Investor, January 2012

ROADTEST

Clime Australian Value Fund

Who runs the fund? Clime Asset Management, a value investor. John Abernethy is the chief investment officer and founded Clime in 1996 after 10 years as head of equities at NRMA Investments.

The basics: Looks for good value Australian stocks in order to deliver consistent capital growth and growing income over three to five years.

The process: Underpinned by three key beliefs: preservation of capital; sustainable return on equity determines value; and the value of a company will be reflected by its share price in the medium term (in other words, be patient and value will be delivered). Holds a concentrated portfolio of around 20 stocks. An easily understood business model, well funded balance sheet, absence of heavy debt, and high dividend yields are also attractive.

The bottom line: Looks truly exceptional lately. In the last three years to October 31 it is up 17.74% a year, according to Morningstar, more than 3.5 percentage points higher than its nearest value-style rival. It’s also the top performer in its field over the last 12 months (up 4.76%) and five years (6.63%).

Fees: 1.03% for retail, 0.87% for wholesale, plus a performance fee of 15.38% of outperformance above of benchmark of 12% per year. That is a much higher benchmark than many fund managers apply.

Verdict: Consistently excellent results for the last five years just can’t be argued with.

NEW FUND

Mutual Cash Terms Deposits and Bank Bills Fund

What is it?

Basically a cash fund.

Sounds boring.

In this environment, boring is good. All it aims to do is outperform the UBS Australian Bank Bill Index, and at a time when equity markets are either plunging or volatile, that will do some people very nicely, thankyou.

How does it invest?

Looks for the best term deposits offered by the major Australian banks and authorised deposit-taking institutions, including credit unions and building societies, provided they qualify for the Commonwealth Government ADI Guarantee. It can’t use gearing, or derivatives – it keeps it very simple.

How much can I expect to make from that?

When last disclosed on September 30, the weighted average yield of the portfolio was 5.84%. Almost all of the fund was invested in four deposits at that stage, through CBA, Westpac, NAB and Bank of Queensland.

And what do I get charged?

A 0.4% management fee.

What if I need to get my money out in a hurry? In the last financial crisis there were ‘enhanced cash’ products that got cash-locked.

The fund pledges access to liquidity within seven days without an interest rate penalty.

Is it a good time to be in cash?

It is exceptionally difficult to call the likely direction of stock markets at the moment, and not particularly easy to draw conclusions about bonds either. That is the sort of environment that very much favours cash. You might miss investing at the bottom of share markets but you also won’t lose money.

What do analysts think?

Zenith calls it “a very safe and high quality investment.”

GIZMO

Fujitsu Stylistic Q550

Having buckled and bought an iPad recently, I’m impressed, but couldn’t countenance it replacing a laptop on business trips yet – the biggest reason being I’m so married to Microsoft Office, for better or worse.

So I was interested to find this new product from Fujitsu which looks a lot like an iPad – it’s a slim tablet of similar size and weight – but is equipped with Windows 7 Professional and can handle all the usual Microsoft Office documents and functions. You can still use it for games apparently, and play music, but that’s not really the point of the device: it’s meant to be an iPad that you can work with on a trip. Indeed, Fujitsu even markets it as “for professionals only”.

For me, the lack of a keyboard is still a problem, but I think I’m in a minority there, so for those who want the portability of an iPad with the programs they use in the office, this is worth a look.

FUND WATCH

Trust Company Imputation Fund

Ouch. Everyone knows these are testing days for fund managers but this fund is suffering worse than the market, particularly over the last 12 months. Part of the problem is that, as an imputation fund, its strategy is chiefly around stable stocks that pay a good healthy dividend; but in recent years, dividend payouts have been under a lot of pressure, particularly at the banks.

In terms of sector breakdown and top stocks, the fund looks a lot like the broader market: almost 40% of the fund in financials, much of the rest in basic materials and consumer defensives. The fund is keeping the faith with the big four banks; they occupy four of the five biggest holdings in the fund, after BHP. A fund like this will thrive in brighter times when dividend security is restored and the steady stable heavyweights lead the way out of market problems. But those days could be some distance away.