It has been announced that the managers of two of our buy list funds are to leave. The clarity Investment Team has therefore reviewed the funds and their succession proposals.
Newton Asian Income Fund
This fund has been managed by Jason Pidcock since launch in 2005. Newton is not directly appointing a successor, but is looking to a more team-based approach in future. This fund has a very low turnover of stocks (around 15% over the last 12 months) and there will be no changes to the fund’s strategy at present.
Because of this lack of transparency the Investment Team has taken the decision to replace the fund on the buy list. The replacement fund is:
Investec Asia ex Japan Fund
This fund aims to achieve long term capital growth primarily through investment in equities issued by companies in the Asia ex Japan region and in derivatives, the underlying assets of which are equities issued by companies in the region. In particular, the manager will seek to invest in companies that are expected to benefit from the growth and development of the Chinese economy.
The fund has been managed by Greg Kuhnert since 2004, prior to which he was an Asian and global equity analyst with Investec from 1999. Kuhnert qualified as a chartered accountant in 1997 after a first class degree in Accountancy from the University of Witwatersrand; he is also a CFA charterholder.
At £165m this is a relatively small fund, which enables it to be nimble. The manager searches for high quality, attractively valued companies with improving operating performance that are receiving increasing investor attention. He initially screens all stocks in the region with a market capitalisation exceeding $500m, before using the Investec 4Factor process. This uses equally weighted analysis between a company's Strategy, Value, Earnings and Technicals. The screened stocks are ranked to identify high scoring 'good ideas', which are analysed in depth using a variety of metrics to identify 'best ideas'. The best ideas stocks are incorporated into a high conviction portfolio and continually monitored through active risk/reward management.
The fund has a maximum of 100 stocks, with strict stock, super-sector and country limits against the index. There is no inherent style or company size bias. Kuhnert aims to outperform the fund's benchmark by 2-3% a year.
3 Months
6 Months
1 Year
3 Years
5 Years
Fund
-2.91%
4.26%
12.05%
36.72%
52.16%
Sector
-6.70%
1.57%
7.14%
27.56%
36.76%
Relative to Sector
4.07%
2.65%
4.58%
7.18%
11.27%
Rank Within Sector
8 / 67
11 / 67
13 / 65
11 / 57
9 / 54
Quartile
1
1
1
1
1
Aviva Property Trust
Philip Nell, who has managed the Aviva Property Trust since 2007, is to leave Aviva in July. The fund will thereafter be managed by Mike Luscombe, who has managed the c.£3 bn Aviva Life & Pensions Property fund for the last 15 years. Co-manager Andrew Hook will remain in post following the transfer between managers, helping to ensure a smooth transition, as will assistant fund manager Michael Brello. Aviva has a 184-strong Real Estate team which includes 132 investment professionals managing over £23 billion* of property assets globally.
When we met with Luscombe recently he commented that his former fund was managed on a very similar ‘balanced’ strategy to that of the clarity buy list fund. He is very familiar with the fund and has sat at the next desk to Nell for some years. He said that the fund’s strategy and investment process should be ‘business as usual’ going forward. Luscombe has good experience of the Aviva processes and is familiar with many of the fund’s properties.
The Investment Team has taken the decision to retain the fund on the clarity buy list. There are relatively few ‘bricks and mortar’ property funds available, with most of the property sector populated by funds investing purely in property shares, which have different characteristics. Aviva has a range and depth of resource in the commercial property sector matched by few other fund management houses. Given that Nell and Luscombe have been key members of the Real Estate team for some years we expect to see relatively little change in the fund’s investment process.
*source: Estates Gazette, December 2013
US Smaller Companies Fund
We have decided to add a US smaller companies fund to the clarity buy list. This is a very small sector which has seen a good deal of fund manager movement over the last couple of years. The fund we have selected has one of the longest-serving managers in the sector. It is suitable for an investor with a high tolerance of investment risk who wishes for additional diversification in their US equity allocation.
Schroder US Smaller Companies Fund
The Schroder US Smaller Companies Fund's investment objective is to achieve capital appreciation through investment in US smaller companies. The fund will invest in the securities of smaller companies listed on the principal stock exchanges in North America, including Canada, together with those that are traded on the over-the-counter market. Investment will be in directly held transferable securities. The fund may also invest in collective investment schemes, warrants and money market instruments.
The fund has been managed by Jenny Jones since 2002. Jones has 35 years’ US small cap fund management experience, is based in New York and has an MBA from New York University. Jones devised the investment process and manages $2.7bn in mid-caps and $2.5bn in small caps overall. She is supported by research director Robert Kaynor (21 years’ experience), product manager Fred Schaefer (28 years’ experience) and six analysts, with average analyst experience of 18 years.
The manager uses fundamental analysis to analyse potential portfolio stocks, aiming to understand companies' business models in terms of sustainability, the potential market size, barriers to entry and competitive advantage, together with valuations, cash flows and the balance sheet.
Portfolio companies are divided between: 'mispriced growth' stocks (50-70% of the portfolio), where the current price understates growth in cash flows, profit margins or sales; 'steady Eddies' (20-50%), which are stable businesses with good balance sheets, strong free cash flow and consistent earnings; turnaround situations (0-20%, and the riskiest investments), where the 'growth engine' has broken, but there are catalysts in place with evidence that growth is returning.
3 Months
6 Months
1 Year
3 Years
5 Years
Fund
-3.04%
3.13%
18.55%
64.31%
85.97%
Sector
-2.25%
4.74%
16.01%
67.58%
103.63%
Relative to Sector
-0.82%
-1.53%
2.19%
-1.95%
-8.67%
Rank Within Sector
7 / 7
5 / 7
3 / 6
4 / 5
4 / 5
Quartile
4
3
2
3
3
Other Fund Changes
Schroder Income
Schroder Income is the latest income fund to leave the IA (formerly IMA) UK Equity Income sector for the UK All Companies sector as its yield is less than 110% of that of the FTSE All-Share Index over a rolling 3-year period, which is the requirement for inclusion in the Equity Income sector.
Schroders has appealed this decision by the IA, stating: ‘We believe that the methodology used by the IA to calculate the yield requirement is outdated and that end consumers are seeing a sector that is not a true representation of UK equity income funds’.
It remains to be seen whether the IA will change the methodology but, meanwhile, Schroder Income will join the increasing number of responsibly managed income funds in the UK All Companies sector.
As mentioned previously, there will be no change in the fund’s investment strategy, which has not varied in over 35 years. It simply reflects the fact that yields have generally fallen over recent years and follows on from a similar move from a number of other funds from a range of different fund houses, most recently in buy list terms Invesco Perpetual Income & Growth.
If you would like to discuss this further, please contact your usual clarity adviser (tel. 08702422043) or email enquiries@clarityglobal.com.
