Smart Investor: Earning It, November 2010

Smart Investor, November 2010

Earning It

ROADTEST

BT Wholesale MicroCap Opportunities Fund

Who runs the fund? BT Investment Management’s small caps team. Paul Hannan, who runs the team, has spent 15 years in this area.

The basics: You know the logic of small cap investment – getting the next big thing before it takes off? Microcaps take the idea a stage further and invest in the 1,100 companies in Australia and New Zealand with a market cap between $5 million and $150 million.

The process: Aims to outperform the S&P/ASX Small Ordinaries Accumulation Index over the medium to long term. Uses a bottom up valuation process to find good, small companies with great prospects. The danger of this is that these companies are volatile and vulnerable, and involve additional risk.

The bottom line: Morningstar rates it the best-performing small or mid cap fund in Australia in its ‘blend’ category over the year to August 31, with 28.62%. BT’s own literature says that in the year to June 30 it returned a whopping 53.05%. Yet over three years, it’s made a 1.89% annual loss; and since inception in March 2006, an annual 16.56% profit. So a mix of great and bleak numbers, reflecting the volatility of the sector.

Fees: 1.2% plus a 20% performance fee above a modest hurdle fee (the benchmark plus 1.2%). In this wholesale form you need A$50,000 to invest, so you’re more likely to get it through a platform like BT’s Wrap, which will bring its own administration fee.

Verdict: Very risky but looks terrific when they get it right.

NEW FUND

SPDR MSCI Australia Select High Dividend Yield ETF

What is it?

It’s an exchange traded fund (ETF) based around high-yielding Australian shares.

What’s an ETF?

Usually, you buy an ETF as a way of getting exposure to a whole market or index. You buy and sell them like any other share but they move in tandem with the market they represent – like the S&P/ASX200, or the Dow, or the Nikkei. Since there’s no active management involved, they’re cheap.

What’s different about this one?

Instead of tracking a well-known market, this one tracks a new customised index devised by MSCI, one of the world’s major index providers. By focusing on stocks with a higher than average dividend yield, a track record of consistent dividend payments and the capacity to sustain them, it is targeted at investors who want a reliable income stream, particularly near-retirees.

Is that what ETFs normally do?

It’s a bit of a divergence because ETFs are generally passive and aren’t meant to do any thinking for you. Picking investments based on how sustainable their dividends are likely to be sounds more like an active judgement. But the fees are still very cheap: just 0.35%.

Who’s behind it?

State Street, one of the world leaders in ETFs. They have three in Australia already; the new one started trading on September 28.

How should it do?

Clearly nobody knows how it will do but State Street’s modelling suggests that over the last 10 years it would have done better than 10-year government bonds, which is the sort of income rate you should be looking to it for.

GIZMO

Mr Gadget Universal Foldable Bluetooth Keyboard

Being naturally clumsy and far too old, Earning It has always struggled with touch screens or smartphone keypads. For such luddites is this new folding keyboard designed. It folds in half to be 115 mm long and 14mm thick, but in use it feels like a full size Qwerty keyboard. It’s Bluetooth – no wires – and, according to the manufacturer, ought to work with a host of devices including iPhone, iPad, Windows Mobile and various other Mac, Windows, PS3 and Symbian operating systems. It runs off a AAA battery which Mr Gadget says is sufficient for 40 hours of use. It weighs 200 grams and is selling on the Mr Gadget website for A$99.99

FUND WATCH

Platinum European Fund

Europe hasn’t exactly rewarded the investor in recent years, but Platinum European Fund can at least claim to have been positive over the last year and five years, which is more than can be said for the broader market. If European stocks ever do rebound from their malaise, this fund appears well placed to reap the benefits.

Top holdings are not the usual European heavyweights like Total and Deutsche Bank but German megastore operator Hornbach-Baumarkt, sportswear leader adidas and the French media group Lagardere. Industrial materials and consumer goods make up almost half the fund between them, reflecting hopes of further industrial momentum and a consumption led recovery, while financials – which once might have dominated a portfolio like this – make up less than 7%.