Smart Investor: Earning It, September 2010

Smart Investor, September 2010: Earning It column

ROADTEST

Advance International Fixed Interest Multi-Blend Fund

Who runs the fund? Advance Asset Management, although its model is multi-blend, which means picking a group of underlying managers to do the investment and putting them together.

The basics: Straightforward in ambition: a global bond fund that aims to beat the sector’s main benchmark, the Lehman Brothers Aggregate Bond Index, in Aussie dollars over three year periods.

The process: Picks a suitable roster of esteemed fund managers in the asset class and combines them. In this case, the actual investment management is done by Franklin Templeton, Standish Mellon and Wellington International.

The bottom line: On Morningstar’s numbers, it is the best global bond fund in Australia over three or five years (11.61% and 8.19% respectively). One year returns at 14.8% are closer to the middle of the pack but beating the herd over the long run is what matters.

Fees: 0.65% per year, though this is a wholesale fund that retail investors will access through a platform, which will add on an administration fee.

Verdict: You can’t argue with the long-term returns. The managers Advance has picked are all known as being among the leaders in their class, and the outlook for the sector itself looks solid too.

NEW FUND

ING Alpha Plus Australian Share Fund and ING Extended Alpha Australian Share Fund.

What are they?

Two new equity funds. One is a heavily concentrated (15-35 stocks) but otherwise mainstream Aussie share fund; the other is what’s known as a 130/30.

What does that mean?

130/30 is a form of long-short, in which a fund manager is allowed to take positions that benefit from a decline in a stock’s value as well as an increase. Of the $100 that is put in to a fund, it gains $130 of long exposure (positions that pay off if a stock goes up) and $30 in short exposure (if it goes down). While that seems to add up to $160, the short exposure nets off part of the long so it actually adds up to $100 of long exposure.

Why launch more equity products now?

It’s partly because of a change in ING’s structure. ING’s 51% stake in ING Australia has been sold to ANZ, so ING Investment Management is now a standalone investment management firm seeking to launch and brand its own funds. But they are launching into a competitive space: there are hundreds of Australian equity funds available.

So how will these stand out?

ING is marketing them as high alpha products, which means that rather than slavishly having to follow a benchmark, they can take bigger active positions that reflect more closely what the portfolio managers think. Alpha refers to returns separate to those that are already delivered by the broader market. This approach does allow for greater performance than the herd, but it also creates the chance of it underperforming more dramatically too.

Who’s doing the managing?

Gian Pandit, who runs all INGIM’s concentrated and hedge fund strategies within Aussie equities, and David Langford, who is in charge of Australian equities research function, comprising eight analysts.

What are the fees?

The Alpha Plus fund is a relatively unusual example of a fairly mainstream equity product charging a performance fee. There’s a base fee of 0.75%, but above a hurdle of the S&P/ASX200 Accumulation Index plus 1%, there will be a 15% performance fee. So if the fund does what it’s meant to, you’re going to be paying quite heavily for that performance.

GIZMO

The Camarush Camalapse

Sometimes it’s the simplest solutions that work best. Consider this. Most digital cameras these days allow for a time lapse function so you can photograph, say, the changing sky over a period of half an hour or so. But it’s generally a static shot. What if you wanted to pan the camera in time lapse?

Camarush’s answer is to use an egg-timer. It looks like an egg, of two halves; you twist the top half, and it gradually unwinds. You can mount your camera on top and, hey presto, you have a panning time lapse system. (As an added bonus, you could time an egg while you’re at it.)

You can buy it online from Camarush for US$25 but be aware that doesn’t include a tripod mount. Also, because it’s small, it’s only really going to work with a point and shoot, not an SLR camera.

FUND WATCH

Pengana Emerging Companies

Steve Black and Ed Prendergast have been plugging away at Pengana for years, doing the simple things well: painstaking stock research founded on numerous detailed company visits. It works. The fund’s performance is a mile ahead of the benchmark over one, three and five years – a period that includes a boom, a crisis and a rebound, none of them easy to read in the volatile small-caps world.

Unlike resource and bank-heavy large-cap portfolios, this fund is dominated by business service and consumer service stocks. Top holding REA Group operates advertising sites for the property industry; CSG offers IT and print services. Fund researcher Morningstar notes that Pengana looks at smaller companies by market capitalisation than most peer funds, which raises questions about liquidity, but it is sufficiently closely monitored not to be a worry. “Our biggest gripe is the high performance fee,” says Morningstar – a 20.5% fee on top of the 1.33% base fee. But then again, you pay for success.