Smart Investor: Earning It, August 2012

ROADTEST

Bentham Wholesale High Yield Fund

Who runs the fund? Bentham Asset Management, a specialist global credit investment manager. It was founded by a team from Credit Suisse and its main men are Richard Quin (head portfolio manager), Nik Persic and Mark Fabry.

The basics: High yield fund, meaning it invests in fixed income but seeks a higher return (with higher risk) than mainstream government bonds and other highly-rated fixed income securities.

The process: Selection is based on relative value, with an emphasis on preservation of capital and protection against downside risk, with diversification across industry and issuer. (In truth, it’s all well and good to say ‘emphasis on preservation of capital’, but there’s no denying high yield is riskier than other forms of debt.) In particular, it holds US corporate debt securities rated below investment grade, with some exposure to syndicated loans and (cover your ears) collateralised debt obligations.

The bottom line: Impressive in recent years. Morningstar ranks it second among high yield products over the last three years, with an outstanding 18.01% a year over that period to May 31. And it’s not just the three-year return that looks good: 5.47% over the last year is decent, and 8.41% over the last five years excellent.

Fees: In wholesale form, 0.79%, but with a hefty 0.45% buy/sell spread. For retail investors who can’t or those who can’t access it through a platform, go to Challenger Investor Services.

Verdict: A risky area but delivering results.

NEW FUND

UBS Tactical Beta Fund

What is it?

Two funds actually – the UBS Tactical Beta Fund conservative, and growth.

What do they do?

The idea is to combine passive index investment with active asset allocation.

What does that mean?

They invest in passive exchange-traded funds (ETFs), at home and overseas, as building blocks. Then a team at UBS decides on the tactical asset allocation between them. So the underlying securities are passive but there’s an active decision on how to mix them.

How will they decide?

UBS Global Asset Management has a global investment solutions team running multi-asset strategies. They make the decisions. So, for example, in the growth fund, a neutral allocation will look like this: 30% Aussie equities, 35% international equities, 5% property securities; 30% income assets (including cash, local and foreign government bonds, investment grade credits, high yield credit and emerging market debt); and zero in alternative assets or foreign currency. But the strategy ranges for each of these classes is far broader: it can go up to 20% in alternatives, for example, and can go as low as 15% or as high as 70% in international shares.

Why launch this now?

It’s partly ahead of MySuper, and the new range of low-fee, heavily passive, simple products that are expected to be launched as potential default super options. This fits the bill by being mainly passive and diversified but with an active twist.

What are the fees?

0.35% of the fund’s net asset value.

GIZMO

Huria bone conduction headphones

Oh you’ve got to try these, the latest thing from Korea. Imagine earphones that don’t go in your ears. This is the idea of bone conduction – and if you’ve tried the Sydney Harbour Bridge climb, you will have a sense of how it works. By putting the pads of the earphones onto some other part of your skull, typically above the ear (or in the bridge climb somewhere on the jaw), you can actually hear music or words just as well as if you had earphones plugged in. Don’t ask me why this works (though Huria.co.kr offers a detailed explanation), but it does.

But why? Why dispense with generations of perfectly good earwear? Because in theory it means you can be listening to your music without blocking out everything else – you can still engage in a conversation and hear what’s going on in your office. There’s also a safety element if you use them jogging, since you can hear traffic and other people. They’re selling for the equivalent of about A$80 in Korea – look out for them in local shops.

FUND WATCH

Magellan Infrastructure Fund

The appeal of infrastructure is that it offers stable, steady long-term returns. And if they stay steady at the 19.32% per year this fund has delivered over the last three years, there will be no shortage of takers.

That won’t happen, of course, but the early signs are certainly promising, dramatically outpacing the index. The fund is entirely in utilities and industrials, with a range of international holdings from Australia’s own Transurban to Zurich and Auckland’s airports and a host of North American energy and water utilities. Stocks like these tend to pay out a healthy yield while also offering the prospect of capital growth, and in a market like this, that’s an alluring combination. But have the easiest gains been made already?