Smart Investor: Earning It, December 2010

Smart Investor, December 2010: Earning It

ROADTEST

FSP Australian Equities Leaders Fund

Who runs the fund? FSP Funds Management, a boutique fund manager specialising in Australian equities. The main man is Ronni Chalmers, the chief investment officer.

The basics: An active Aussie equities product that aims to have at least 75% of its holdings in the S&P/ASX 200 Index and can have up to 25% outside it.

The process: Considers itself style-neutral, although Morningstar puts it in its “growth” category. Holds 30 to 70 stocks and does not have to track a benchmark. Takes a bottom-up stock-picking approach with a top-down view (that is, buys stocks it likes, but keeps an eye on the macroeconomic conditions that might affect them). Top holdings vary include predictable names like BHP, Westpac and CBA plus big positions in Flight Centre, SMS Management and Technology, and Mineral Resources.

The bottom line: On Morningstar’s numbers it is the top-rated growth-style Aussie equities fund in the year to September 30, with 7.34%. However over 3 years Morningstar says it’s down 7.87%, which compares less favourably with its peers. Since inception in 2006, it is up 3.8% a year, compared to 2.3% for the index. Had a rollicking September: 7.8% in a month.

Fees: 1.3325% plus a 20% performance fee on excess returns over the benchmark.

Verdict: Not cheap but on a roll.

NEW FUND

Patersons Australian Resources Opportunities Fund

What is it?

It’s a fund investing in resources stocks.

BHP, Rio?

Everyone but. The remit is to buy metals and mining or energy stocks listed in Australia with a focus on mid and small cap companies – and a specific exclusion for BHP Billiton and Rio Tinto. It will generally hold 20 to 30 stocks with a maximum of 10% per stock for larger companies.

Why?

The case for Australian resources is well-known: the abundance of what’s in the ground, the quality of infrastructure, the demand for commodities in Asia. But buying BHP and Rio can be done by anybody. This fund aims to sift among the opportunities presented by the more than 800 other resource and mining companies in Australia, and add value that way. It aims to produce 3-5% per year over its benchmark (a resources index with BHP and Rio taken out) over a rolling three-year period.

Who runs it?

It’s run by Patersons Asset Management, best known for its 80:20 equity fund. Jason Chesters is the head of equities.

What’s it cost and how is it doing?

The fee is 0.95% with a minimum investment of $5,000. It has certainly shot out of the blocks: in its second month of existence, September, it delivered 10.17%, and is already more than 3% ahead of its benchmark.

What does it hold?

Top holdings are Newcrest Mining, Woodside Petroluem, Fortescue Metals, MacArthur Coal and Equinox Minerals.

GIZMO

Samsung Tango

You may have spotted these whizz-bang robotic vacuum cleaners, such as the iRobot Roomba or Samsung Navibot, which will clean your house without you having much involvement: they zip around, detecting walls and furniture and eventually covering a whole room. Some use an inbuilt digital camera in order to map the ceiling, thus ensuring they know where they’ve been and where they still need to clean.

Sensing a synergy that is not obviously apparent to Gizmo, Samsung is about to launch a version of its Tango cleaner with a twist: a compact CCTV camera.

You may be wondering just why you need a TV camera in your vacuum cleaner, and Gizmo confesses it is unsure of the answer. Text on a Samsung web site says: “As violent crimes have been on the rise [there is a need for] a variety of pre-emptive measures tapping cutting edge technology.” Perhaps when this device is rolled out, starting in Korea at a reported $600 or so, it will become clear how a vacuum cleaner can help prevent violent crime.

FUND WATCH

K2 Asian Absolute Return

For a fund with “Asian” in its name, K2’s fund has a lot of familiar holdings: NAB, Westpac, AMP, ANZ, Rio Tinto, BHP. It has an Asia Pacific ex-Japan mandate but only HongkongLand and Chinese property developer Franshion represent Asia in its top 10 positions.

The fund’s PDF says it aims to generate 15% returns after fees on a three to five year investment cycle. Performance numbers show it has not done so, which is forgivable given the recent environment, but it’s odd that it has so heavily underperformed the region in the year to September 30, despite outpacing it over five years.

The fund is unusual, too, in having such a heavy allocation to financial services: many investors have reduced their allocations to that sector, making this something of a contrarian position.