Zenith Investment Partners Pty Ltd (Zenith) has just announced the release of its 2010 Diversified Sector Report and also confirmed that the study was structured to address a number of specific issues raised by the national research provider’s adviser client base.
In releasing the Diversified Sector Report, Zenith Investment Analyst Graeme Miller said from an initial group of 109 Diversified products:
- 3 were rated HIGHLY RECOMMENDED and
- 22 RECOMMENDED.
The 25 Funds that were rated RECOMMENDED or above have been placed on Zenith’s Recommended List and are candidates for client model portfolios.
Of this number, 11 Funds are new additions to Zenith’s Recommended List.
Given the high threshold required to achieve a HIGHLY RECOMMENDED rating, only 2 investment managers and 3 funds have attained this rating at the completion of this sector review. These funds are:
“Additionally, this year Zenith surveyed its client advisers and sought to provide them with additional insight they in turn may utilise to address many of the questions and issues they encounter when providing wealth creation, financial and retirement strategies for their clients,” said Graeme Miller.
Specifically, the three key areas of concern were:
- Is it appropriate for investors to have a heavy ‘home-country bias’ to Australian Equities?
- Is investing in term-deposits for income a sound investment strategy?
- How does Zenith fit Emerging Markets into a strategic asset allocation?
Home Country Bias
Several industry commentators have recently pointed to Australia’s relative economic health and strong growth prospects as justification for maintaining a high weighting to Australian Shares in a diversified portfolio.
Graeme Miller responded, “Zenith however, does not agree that a having a strong homecountry bias is optimal from a risk-adjusted returns perspective. Our principal concern lies in the increasing concentration in the Australian market, which is heavily weighted in the volatile resources and financials sectors.”
Zenith contends that two key drivers of these sectors – commodity prices and household debt, are both at historically high levels, which presents risks that should be managed prudently from an overall portfolio perspective.
Term Deposits and Investing for Income
A popular strategy amongst income-focussed investors has been to invest predominately into term-deposits.
Whilst term deposits are close to ‘risk-free’ in terms of the security of the cash flow received, they can also be considered a high risk strategy for those looking to invest for income whilst maintaining their standard of living over a prolonged period of time.
“One alternative to the above approach (which Zenith advocates) is to blend a number of income sources across asset classes, maturities, and risk levels, to ensure a well diversified flow of income that incorporates some protection against inflation,” said Graeme Miller.
Emerging Markets
There has been a continued push by managers to increase their exposure to Emerging Markets, which has given rise to the issue of what International Shares benchmark is most appropriate.
Zenith believes the use of the MSCI All-Country World Index (ACWI) is much more relevant for the purposes of performance evaluation, as at present managers are able to outperform MSCI World by including Emerging Markets exposure.
Classification of Defensive Asset Classes
Within a diversified portfolio, it must be ensured that defensive allocations are truly ‘defensive’ in nature.
Graeme Miller said, “This issue is part of a broader industry problem of inconsistent naming conventions being used for managed funds.”
“In reviewing Diversified Fund offerings, Zenith obtains full underlying portfolio data, which is then reclassified according to our own internal definitions of Defensive and Growth asset classes.”
“This allows us to make more accurate comparisons between funds, and results in funds being categorised according to their Defensive/Growth asset allocation. For example, the Advance Balanced Fund is classed by Zenith as a ‘Growth’ Fund, whilst the Perennial Capital Stable Trust is classed as ‘Moderate’.”
Zenith is confident the inclusion of responses and insights to current investor issues and concerns will be well received by the national research provider’s adviser clients that it will be incorporated as a feature or addition in future Sector Survey Reports.
For further information or a copy of Zenith’s Diversified Sector Review and Report, please contact –
John Nicoll
National Sales Manager
Zenith Investment Partners Pty Ltd
Tel (Direct): +61 3 8639 1212
Email: john.nicoll@zenithpartners.com.au