Smart Investor: Earning It, May 2012

ROADTEST

Perpetual Wholesale Ethical SRI Fund

Who runs the fund? Perpetual Investments, one of Australia’s biggest home-grown names and long considered one of the leading teams in Australian equities.

The basics: Invests in Australian equities, seeking to beat the S&P/ASX300 Accumulation Index, through an ethical investment approach.

The process: Like all ethical funds, screens out companies that are considered ethically suspect; beyond that, uses the classic Perpetual approach of bottom-up stock picking, seeking undervalued quality companies. Uses four filters: sound management, conservative debt, quality of business and recurring earnings.

The bottom line: Impressive. In Morningstar’s large cap value category, the wholesale version of this fund ranks first over three years, with 27.75% per year over three years and 8.61% per year over seven. It gained 8.6% in the six months to February 29 alone.

Fees: 1.175% in the wholesale version, though that requires a $50,000 investment; can be accessed with lower amounts in various Perpetual investment platforms but with a higher fee.

Verdict: It seems that feelgood investing can pay off after all.

NEW FUND

iShares UBS Composite Bond ETF

What is it?

An exchange-traded fund for fixed income.

Are there many of those?

These are among the first. Until recently, these ETFs were not permitted in Australia, before ASIC and the ASX came to agreement with product manufacturers. There will probably be 10 launched in quick succession now, and BlackRock has started the ball rolling with three.

What’s the difference between them?

One – the one we’ll focus on here – is based on the UBS Australia Composite Bond Index, which tracks the performance of the most closely-tracked index for bonds in Australia. Another just tracks top-ranked Treasury bonds, and another, government inflation.

What’s in the UBS composite one?

That index combines investment grade fixed income securities from the Australian Treasury, state governments, and corporate issuers. It’s likely to appeal to investors because it combines the stability of the state-backed securities with some yield from the corporate ones.

A good time to buy Aussie bonds?

The index itself has returned 7.02% a year over the last five years, and 9.81% over the last 12 months. (Those numbers are to February 29.) That’s great money, but are we past the best? In the three months to the end of February the rise was only 0.7%, and in the month of February they actually declined. It’s a safe asset class, for sure, and over the long term does better than cash.

Why an ETF?

Bonds are tricky to buy individually, though some are listed on the ASX (including hybrid securities, which are related to bonds). You can go through mutual funds, but ETFs give you the quickest and easiest way of getting exposure, buying and selling them like a share. You do want to be sure, though, that these things will be liquid if we have anything like the GFC ever again.

What does it cost?

A very low fee of just 0.24%.

GIZMO

Withings Smart Baby Monitor

The iPhone! Is there anything it can’t do? It can make calls! It can play music! And now it can raise your offspring!

This baby monitor gizmo links with your phone. In some cases, this is practical: it means you can talk to your baby through the video screen if you are away. In some cases, it’s gimmicky: “Interact musically with your child by playing one of the four pre-recorded melodies!” (As opposed to interacting with your child by talking to it, for example). And in some cases, in the tradition of baby monitors, it is out-there paranoid: “Always keep an eye on temperature and humidity around your little one.” It even claims it will analyse your baby’s behaviour so you can “better understand his needs”.

Manufacturer Withings is a French group which says the monitor will be “available soon” and doesn’t yet quote a price for it. www.withings.com for when it appears.

FUND WATCH

Tyndall Australian Share value

It’s not a huge surprise to find that this fund has almost exactly matched the index over three and five years, because it looks an awful lot like the index. The top 10 holdings – the miners, the banks, Telstra, News – are very similar to the top 10 of the ASX 200 itself.

Nevertheless, in the last year Tyndall has managed to generate some outperformance, albeit still losing money in the 12 months to January 31 (it may well have moved into positive territory since). With one third of the fund in financial services, it will benefit from any improvement in sentiment towards the banking sector, which is often a characteristic of a rebounding market. The Tyndall fund has done its job, but it’s not obvious where the big convictions are.