Smart Investor: Earning It, July 2012

ROADTEST

FSP Australian Equities Leaders Fund

Who runs the fund? FSP Funds Management, a boutique fund manager with a specialism in Aussie equities. It started this fund in March 2006. Chief investment manager is Ronni Chalmers.

The basics: Diversified Australian equities fund; considers itself style neutral, although Morningstar puts it in the ‘growth’ category.

The process: Holds between 30 and 70 stocks, with at least 75% of the fund in the S&P/ASX200 index at any given time and up to 25% outside that index (which can include cash). Not required to follow a benchmark and aims to hold a stock for two to three years. Overweights as of March 31 included Westpac, ANZ, Mineral Resources and Flight Centre; BHP Billiton was an underweight.

The bottom line: Doing very well or very badly depending on the timeframe. According to Morningstar the fund is up 12.13% per year over the three years to April 30, which is one of the best in the business, but down 8.38% over the last 12 months, which is one of the worst.

Fees: 1.3325% plus a performance fee of 20% of excess return over the benchmark, provided that’s positive.

Verdict: Interesting medium-term numbers but a big performance fee.

NEW FUND

Vanguard Australian Government Bond Index ETF

What is it?

An exchange-traded fund giving exposure to government bonds.

These things are all the rage, aren’t they?

Following fixed income ETF launched by iShares and Russell, seven of these products have now appeared within the space of a few weeks. The rush is because until recently ETFs could not be launched for fixed income products; a change in the rules has prompted several new issues.

What’s different about this one?

This is probably the safest and dullest of the seven, since it is exposed only to the most mainstream assets available: Australian government and state government bonds. It aims to track the UBS Government Bond Index, which is made up of about 70 of these securities.

Isn’t that a bit unadventurous?

Those who want more yield can go to products like the corporate bond-related ETFs launched by iShares and Russell, but that yield comes with risk. The Vanguard product is aimed at those who want a safe-as-houses anchor to the portfolio, and to get it very cheaply.

How cheap?

A management fee of just 0.2%.

Why an ETF?

If you wanted to buy government securities directly, you could do so, but it is cumbersome and time consuming to get them individually. With this ETF, it’s just like buying any other share, but you effectively get exposure to 70 safe underlying bonds.

GIZMO

Gorillamobile and Gorillapod

The gorilla line of products from Joby are an example of how the best ideas are sometimes just exceptionally simple. The San Francisco-based company produces flexible tripods custom-designed to fit numerous different cameras, iphones and numerous other portable electronic gizmos. They are light, bendy and versatile. The original premise was to help you take photos of yourself, but there are a host of other applications too: there’s one with a torch, perfect for a roadside breakdown at night or to attach to the fuse box, and there are versions strong enough for SLR cameras or videos. Though they’re not new, a recent display of them in Beijing Airport reminded me just how widespread they’ve become.

Straightforward versions of the Gorillapod retail for about $20 in Australia.

FUND WATCH

Arrowstreet Emerging Markets fund

In its reasonably short history, Arrowstreet’s fund has comfortably beaten the markets in both the good times and the bad. A more than 3 percentage point outperformance over the MSCI Emerging Markets index over three and five years is not to be sniffed at, even if that still translates to losses over the last 12 months as capital has fled emerging markets (despite them being some of the world’s strongest economies).

One notable fact about the top holdings is that one of them is the index itself. There’s also a clear tilt towards Korean technology and manufacturing, with Samsung Electronics, Hynix Semiconductor, and car groups Hyundai and Kia in the top 10 alongside just one Chinese company, China Mobile; Russian energy groups are well represented too, with Gazprom and Lukoil favoured. It makes for a well diversified portfolio by sector, much more so than, say, the Australian stock market.