Smart Investor, October 2010

Roadtest

Perpetual Ethical SRI Fund

Who runs the fund? Perpetual needs no introduction: one of the nation’s foremost asset managers, particularly in Aussie equities. It is also a long-standing manager in the socially responsible investment (SRI) field.

The basics: An Aussie equities fund, but with a heavy tilt towards those stocks that help society and environment, and a strict screen for those that don’t.

The process: Starts out with an ethical screen that pulls out stocks related to alcohol, gambling, tobacco, uranium and weapons. Then cuts out those with poor environmental or human rights records, and those involved in genetic modification. Then adds a positive screen, looking for companies with a good impact on society and the environment. Finally, it assesses the best investment prospects that come out of the mixer.

The bottom line: It’s long been argued that screening out stocks must mean negative performance, but on Morningstar’s numbers, the Perpetual fund is the best performing value-style Australian equities fund in the country over the last 12 months, delivering 29.88% in its wholesale form; perhaps still more impressive is its average 12.36% return over the last seven years.

Fees: Depends how you buy it: the wholesale version costs 1.175% a year; through the Perpetual WealthFocus platform, 2.25%.

Verdict: Proof that ethical investment doesn’t need to cost you returns.

New product

Certitude Asian Opportunities Fund

What is it?

A hedge fund (or an alternative fund, as the preferred industry parlance has it). Certitude invests in the MWG Fund.

And what’s that?

MWG stands for Marshall Wace GaveKal, which is an Asian joint venture between UK hedge fund manager Marshall Wace, best known for its Eureka hedge fund, and Asia-smart research/fund firm GaveKal holdings. It’s a long-only fund – meaning it invests in things it thinks are going to go up – and it combines exposure to shares, bonds and other fixed income instruments in Asia, be they from governments or companies, as well as currencies.

What’s the theory?

Equities provide the growth, bonds and cash steady the volatility. And MWG – which is hardly alone in this – believes Asia’s where the best growth stories are and will continue to be. The investment style is top-down, tactical asset allocation, combined with bottom up company analysis – in other words, a bit of everything.

If MWG does the managing, what’s Certitude?

It’s what’s known as a responsible entity – a vehicle with exclusive rights to put Australians into the MWG fund. It’s an arm of HFA Holdings, an ASX-listed fund manager known for its hedge funds. It is responsible entity for about $1.3 billion worth of assets in various alternative investment funds.

What are the nuts and bolts?

Minimum initial investment is just $5,000 – quite low for a single manager hedge fund – and fees are estimated at 2.26% a year, including a performance fee.

Who does it suit?

People with at least a five year timeframe, an interest in Asia and a trust in a single manager handling a whole load of asset classes.

Gizmo

We all know DNA has revolutionised crime detection. But what if your home contents had DNA too? It would make it much easier to trace anything stolen in a break-in. That’s the idea behind DataDotDNA, a security identification system which protects computers, external storage discs and various other devices by attaching them with a unique signature.

Unlike previous incarnations of this idea – great big hologram stickers, daubs of irremovable yellow paint – the data dots are tiny microscopic discs the size of a grain of sand and pretty much invisible to the naked eye. Since they can barely be detected they’re also very hard to remove, but can be found using a UV light and a magnifying glass. They are sprayed or brushed on to various places on a computer and carry unique information about the item, stored on a national database open to the police.

A DataDotDNA kit costs A$30.

Snapshot

Patersons 80:20 Equity

The Patersons fund does two things at once. The bulk of the fund – the 80% bit – goes into the top 200 stocks, with an allocation that looks a lot like any mainstream Aussie equity fund: BHP, Rio, the banks, Wesfarmers. The other 20% can be invested outside the top 200 in what it calls “event-driven opportunities, special situations”, and companies which Patersons as a broker is helping to list on the sharemarket. The last of these might appear a conflict, or at least an odd alignment of interests, but it’s done well in its first year, returning 17.59% compared to 10.4% for the S&P/ASX 200 Accumulation index.

It’s run by Murray McGill, who runs Patersons’ discretionary client portfolios, with Mark Simpson, who heads Patersons’ team of stock analysts, and Steve Suleski. It’s surprisingly cheap: 1.38% each year including a 0.44% adviser trail. That’s less than most retail large cap share funds, and unusually for a special situations-styled fund, there’s no performance fee.