Smart Investor: Earning It, November 2012

Smart Investor, October 2012

ROADTEST

BT Global Property Fund

Who runs the fund? It is offered by BT, one of the biggest investment management names in Australia, but the fund is actually managed by AEW Capital Management. AEW Global manages over $45.5 billion of real estate assets worldwide out of 13 offices around the world.

The basics: Aims to beat the UBS Global Real Estate Investors Index, net of withholding tax but before fees and taxes, over the medium to long term.

The process: Invests mainly in listed property securities in North America, European and Asian markets, ex-Australia. Chiefly it holds REITs (real estate investment trusts) and real estate-related securities, including development, ownership, construction, management or sale of real estate. As of June 30, 61.7% of the fund was in North America.

The bottom line: It really depends on the timeframe. The fund’s total return is a fabulous 24.93% a year over the last three years net of fees, and 4.86% a year since inception in 2004; on the other hand, viewed over five years, it has lost 1.91% a year. But perhaps the crucial point is that over every timeframe, the benchmark has done better.

Fees: 1.85% a year in the retail form.

Verdict: Actually one of the better-performing global property funds in Australia, according to Morningstar – but it’s a worry that the index is doing consistently better than the fund.

NEW FUND

Zurich Investments Global Equity Income Fund

What is it?

Describes itself as a global equity fund with enhanced levels of income and reduced downside risk.

What does that mean in practice?

It holds a portfolio of 40 international stocks across a range of sectors and locations, but focuses on stocks that produce income. Additionally, it uses option and currency strategies.

Why?

It’s a recurrent theme that more and more investors, burned by volatile stock markets, have sought to focus on investments that generate income – a high dividend stock, for example. Older investors either approaching retirement or already in it have been a force for the growing popularity of income investments, and they represent such a major force in Australian investment that the enthusiasm has started to spread to other investors too.

Who’s behind it?

The fund was launched in July by Zurich Investments, but the fund is actually going to be managed by PM Capital, an Australian equity fund manager launched in 1998 with a focus on absolute returns (many of its funds can go short as well as long) and ignoring market benchmarks. PM Capital had already launched the fund; Zurich has taken over as its responsible entity and is marketing it afresh.

And what exactly are these strategies to protect downside risk?

One is the buy-write strategy, a fairly common approach; the manager generates a premium by writing call options over stocks within the portfolio. The downside is that by doing this, if the stock goes through the roof, the people who bought the call options will likely exercise them and the fund will have missed out on potential gains; the benefit is that writing the options generates income. On the currency side, the manager will hedge the portfolio with currency forward contracts and an option; the idea is to minimise the impact of movements in the currency. This is important because in many recent years the Australian dollar’s strength has wiped out any gains Australian investors would otherwise have got from their international shares.

GIZMO

Atari Arcade

Oh, this took me back. It is 1979 in Liverpool and my friend Mark Ledsom is the toast of the neighbourhood, for he, and he alone, has an Atari. It is the stuff of legends. Plug it into the TV, and it plays games! Like Pong! Pacman! Asteroids!

By any reasonable measure these things had appalling graphics, but good grief they were addictive, and to people of a certain age (mine) they have an incurable nostalgia. Sensing this, Atari has built a sturdy chunk of plastic with a joystick on it, into which you can wedge your iPad and relive the good days (there’s an Atari iPad app, and iTunes sells several games in all their original authentic dreadfulness). It’s selling in the UK for the equivalent of about A$100; for more, go to www.atari.com/arcarde.

FUND WATCH

8IP Australian Small Companies

Small caps are all about potential. If you find the next Microsoft or Apple and find it early, then you can become very wealthy. The flipside, of course, is that nine out of ten of the ‘next Microsofts’ never turn into anything of the sort. Consequently, not only do gains in small caps tend to outpace bigger peers in the good times, but the falls are correspondingly worse in the bad.

8ip’s fund is on the sharp end of this trend, doing even worse than the bleak index performance over the last 12 months, though it is modestly ahead, and much better than the index, over the last three years. As these charts show, small cap funds tend to look very different to large cap ones, chiefly because financial services represent a much smaller proportion – just over 10%  – at the expense of resources-heavy basic materials and industrial stocks. The biggest holdings, though, fit none of those camps: TPG Telecom and Flight Centre rather than a budding miner.