Smart Investor: Earning It, August 2011

ROADTEST

Perpetual WFIA – Walter Scott Global Equity Hedged

Who runs the fund? It’s a Perpetual product, but the asset manager is Walter Scott & Partners, a Scotland-based global equity manager. It manages funds for many institutions, such as pension funds and governments, but several fund managers around the world have built products to give retail investors exposure to the fund – in Australia, both Macquarie and Perpetual have done so.

The basics: Global equity fund usually holding 40 to 60 stocks worldwide, and with the ability to move into cash where necessary.

The process: Portfolio is characterised by stocks with strong earnings growth, high return on equity, and high free cashflow. The methodology is bottom-up (meaning focusing on individual stocks rather than broader macroeconomics) and buy and hold. Managers are not tied to a benchmark either by country or by sector.

The bottom line: A great year, helped considerably by being hedged, so that the decline of the US dollar against the Australian dollar has not hit returns. In the year to May 31 it returned 18.64%, well ahead of any other growth-based global equity product sold in Australia, according to Morningstar. Perpetual has only been selling it since October 2009 so longer-term returns are unavailable.

Fees: Purchased through Perpetual, the annual management cost is 2.2%.

Verdict: Very good performance and an illustration of the benefits of hedging. But if the Aussie dollar starts to decline now, will we feel differently?

NEW FUND

Charter Hall Property Securities Fund

What is it?

A fund investing in Australian real estate investment trusts (A-REITs, or what used to be listed property trusts)

How is it different from other property funds?

Like other funds, it invests in a diversified portfolio of A-REITs: industrial, office and retail. Unlike some others, it is benchmark unaware, meaning it does not have to track the established benchmark. This can be good or bad: it gives a better chance to outperform its peers, but also increases the danger of it underperforming.

Haven’t A-REITs underperformed?

Yes, but that’s partly the point. Most A-REITs are trading at a discount to the value of their holdings – a discount to NTA, or net tangible assets – so the managers hope that by investing they will be able to exploit market inefficiencies and gain from both an expected narrowing of the discount, and an improvement in property values generally.

Who runs the fund in Australia?

The portfolio management is done by Reliance Investment Management, whose managers are Andrew McGrath and David Curtis. Both previously worked together as members of UBS Global Asset Management’s A-REITs team.

What are the costs?

Base fee is 1% (0.75% management fee and 0.25% ‘reimbursable fund administration costs and expenses’); there is a performance fee of 15% of outperformance over the benchmark, which is the ASX/S&P300 A-REIT Accumulation Index.

GIZMO

Livescribe SmartPen

On the face of it, the smart pen looks like a life-changing gizmo. It’s a pen with a computer in it, which you use with customized paper. Using it, you can record – and send electronically – your notes, and also make audio recordings at the same time that will be paired with your scrawl for you to ply back when you need it. As with all new-fangled stuff there are all sorts of other apps attached – playing music, poker, the usual – but that’s not really the point: it’s the ability to make sense of, and store, and act upon, your hastily taken notes that is potentially transformative.

If, like me, your handwriting is indecipherable not only to other people but to yourself, you may see a challenge ahead. But there’s no denying it’s got potential.

A 2GB Echo smartpen costs US$99.95 from www.livescribe.com.

FUND WATCH

Ausbil Australian Emerging Leaders

Although this fund lags the herd over the last 12 months, it makes up for it within consistently market-beating longer term performance. Small caps are one of the main areas that managers say they really earn their money – and do so by picking the right companies over the long run.

The fund comes with a hefty position in basic materials (resource stocks) that some may not be comfortable with: more than 40% of the fund. Most of the top 10 funds are miners or resource-related stocks, with just a glimpse for financial services (Challenger), media (Seven West) or property (Goodman). It’s notable just how different a small cap and large cap fund can look: just over 7% of this fund goes into financials, which tend to dominate large cap portfolios.