Smart Investor: Earning It, September 2012

Smart Investor, September 2012

ROADTEST

Mercer Income Plus Fund

Who runs the fund? Mercer is one of the world’s biggest asset consultants, among other things; its funds bring together a blend of other managers.

The basics: A diversified, multi-strategy fund with a strong bias towards defensive investments.

The process: The portfolio is built to generate at least 2.5% per year over the bank bills rate. In practice, this means a benchmark of 21% growth assets (6% Australian shares, 6% Australian listed property, 9% Australian direct property), and 79% defensive (9% infrastructure, 15% alternatives, 30% high yield debt, 20% fixed interest, 5% cash). When last disclosed in March, it was pretty close to these benchmarks. The high yield debt figure is particularly high, and that probably explains its strong performance in recent years as that has been a stand-out asset class.

The bottom line: Morningstar puts this fund in a category called multi-strategy – balanced, and within that group, it ranks first over the year to June 30 with a 7.39% return. It’s also good over three years (8.78%) though weaker over five (2.6%), a period which includes the global financial crisis.

Fees: 0.89%

Verdict: Playing it safe has been lucrative in recent years.

NEW FUND

T Rowe Price Australian Equities Fund

What is it?

An Aussie equities fund.

Another one? Do we need more?

It’s a crowded field. The appeal is that globally T Rowe Price is an admired fund manager, and its decision to enter Australian fund management is interesting.

Who’s going to be running it?

Randal Tenneke, who joined from Schroders in 2010. There’s a five-person team, much of it with a background at Alliance Bernstein.

What’s their approach?

Bottom-up – meaning you start with the company fundamentals, and then work upwards to more macro issues like the sector and the economy. The fund will hold 30 to 50 companies, attractively priced, with strong competitive positions, good management quality, and free cashflow, among other things.

What do they know about Australia?

They have argued that, increasingly, top Australian companies earn their money overseas – that more 50% of the revenue of the country’s top 50 companies comes from offshore. Therefore, a global manager is well placed to assess the best stocks.

What are the fees?

0.9% and no performance fee, which is great, but there’s a catch – since the minimum investment directly is A$500,000, you’ll need to wait until it appears on investment platforms that will offer a lower entry level.

GIZMO

BilLite camping stove.

It’s a camping stove with a USB port. No, really. I’m serious. For geeks in the wilderness – a troubling combination – comes this gadget. Simply light a fire, put the stove above it, and it will transform the heat into electricity which can be used to charge your devices through a USB.

Several thoughts occur. One: don’t set your laptop on fire. Two: is it right to call something clean energy when it requires you to burn wood in order to power the thing? Three: you’ve got to carry it. But on the positive side, the stove does allow you to boil water and cook – in the time-honoured manner of stoves since time immemorial – and, if you’re going to have a campfire already, you might as well use it to stop you being deprived of your iPhone in the great outdoors.

FUND WATCH

DWS Global Thematic

Ouch. This fund, well-known internationally, has an engaging premise: looking for the big themes that shape our world, such as scarcity or automation, and picking stocks that will benefit over the long-term. The ideas are sound and interesting but the stocks are really suffering –  ducking the world benchmark by almost 10 percentage points in the year to the end of May. Three and five year returns are also below benchmark.

Why should this be? One reason may be that the DWS approach tends to create a big overweight in technology, which is an industry whose stocks tend to suffer in poor economic climates. The top stocks list is dominated by pharma and consumer goods companies – Unilever, Laboratory Corporation of America, Roche, Abbott – with phosphate and potash company Mosaic also a top holding. Companies like this look very well placed for the future (potash fertilizers are in enormous demand in the developing world, for example) but they don’t seem to be doing so well in the here and now.