Smart Investor: Earning It, May 2013

Smart Investor, May 2013

Earning It

Roadtest

Colonial First State Colliers Geared Global Property Securities

Who runs the fund? Colonial First State, one of the biggest names in the country with A$152.2 billion under management by September 2012. Stephen Hayes is head of property securities for Colonial First State Global Asset Management and has a global team of five portfolio managers and five analysts. They hail from Colliers International, which signed a deal to run Colonial’s global property portfolios in 2004.

The basics: Borrows to invest in property securities worldwide. Being geared, it tends to do very well or very badly.

The process: Can go into commercial, retail and industrial property, as well as some areas that are less familiar in Australia, such as car parks, hotels and leisure properties. North America accounted for 55.49% of the fund when last disclosed at the end of 2012. The biggest holdings then were Simon Property Group, Health Care REIT, Link REIT, Public Storage and Boston Properties.

The bottom line: Over the long run, disastrous: an annualised loss of 13.84% a year over five years when the benchmark has returned plus 1.74%; and a loss since inception of 20.36% a year. $10,000 invested in April 2007 at launch would be worth about a quarter of that today. But has it finally come good? It returned 49.1% in 2012, the best in the business, and is now up 24.44% a year over three years.

Fees: A bit complicated because of the borrowing involved. Bought through the FirstChoice platform, it’s 1.84% of the gross assets, including the borrowing, or 3.9% of the net assets, excluding those borrowings.

Verdict: When it’s good, it’s very good. When it’s bad…

New fund

Goldman Sachs Growth & Emerging Markets Debt Local Fund

Sounds risky.

It does have risks. Bonds from emerging markets can be vulnerable to a host of threats: changes of government, economic problems, lack of transparency. And this is a local currency fund, leaving you exposed to currency movements around the world. It’s the first fund of its kind for a reason.

So why invest?

Several reasons. The most obvious is that yields are higher in emerging markets than in the developed world, particularly in this environment in which the world’s heavyweight economies like the USA, Japan, Germany and the UK are paying almost nothing. This fund will have a benchmark of around 5.5% and will target 2-3% outperformance of that.

Why else?

Diversification is another reason. Emerging market debt is very little correlated to Aussie stocks and bonds. On top of that, this is an unhedged fund, meaning you are not insulated against movements in the currency. That is certainly also a risk, but Goldman reckons emerging market currencies are going to increase in value against the Aussie dollar. Should that happen, you will benefit.

And there’s one other thing. Emerging market debt sounds risky, but then developed world nations are in many cases in a far worse debt position, particularly in parts of Europe. Emerging markets have better demographics and growth potential, and in theory ought to be better able to serve their debts.

What does Goldman know about all this?

Goldman Sachs Asset Management has a long track record in emerging market debt and manages about US$42 billion of it globally. This particular fund feeds into an underlying product with US$3.3 billion in it. If it makes you feel comfortable, the main fund manager is a London-based Australian, Blair Reid.

If there’s an underlying fund, what’s its performance been like?

According to GSAM, from inception in January 2010 to the end of 2012, it’s ahead of the benchmark (6.61%, or 5.93% net of fees, versus 4.75%) and beat the index net of fees in both 2010 and 2012 while lagging it in 2011.

What are the fees?

At 0.85%, low for a product like this, but there’s a catch: there’s a $50,000 minimum investment. Instead, most investors will have to access it through a platform, which will also bring a platform administration fee.

GIZMO

Orée wooden keyboard

When you find a website of exquisitely lit black and white photographs and lines like “handcrafted in France”, what do you expect to be looking at? Wine? Furniture? Nope: in this case it’s a computer keyboard.

Available in both maple and walnut, these are, despite their stoic appearance, portable wireless keyboards compatible with tablets, smartphones and PCs, provided they have Bluetooth. You can even customise the fonts on your wooden keys. Each keyboard is made from a single piece of wood “to preserve wood grain across shell and keys”, and is powered through a Bluetooth 3.0 chipset and a pair of AAA batteries.

The most obvious question: why? And the most obvious answer: because for some reason it’s just lovely. They sell for Eu125 at oreedesign.com

Fund watch: Platinum International Brands

How does one find a suitable benchmark for a fund that invests in international brands? If one is measuring it against other global equities, then Platinum’s performance has been outstanding, outperforming by more than 11 percentage points every year on average over the last five years.

Platinum has achieved this through a focus on consumer stocks, both cyclical and defensive, which give the portfolio a very different appearance to most global equity products. Banks, industrials and resources holdings are barely visible at all, and all the top holdings – including Pernod Ricard, Estee Lauder, BMW and department store Debenhams –  are those requiring consumers to choose their brand over a rival. Who says big name brands are shallow?