Alex Vynokur

BetaShares, a leading Australian ETF provider, has surpassed $1 billion in funds under management (FUM), three and a half years after launching its first products in the Australian market.

BetaShares launched its first ETF in December 2010, and has since become the fastest-growing local provider of exchange traded funds, with 13 different products currently available to Australian investors, including equities, currency, commodities and cash exposures.

Managing Director Alex Vynokur said that reaching $1 billion in FUM was a milestone achievement for the company, and proof that Australian investors are increasingly adopting the low cost, transparent investment solutions that exchange traded funds provide.

“Since its inception BetaShares’ aim has been to broaden the universe of investment options available to Australian investors, creating simple to use, low-cost products that can help investors construct more diversified, robust investment portfolios” said Mr Vynokur.

“As we enter our next phase of maturity we will continue to develop new investment tools to meet the needs of Australian investors.”

The announcement comes off the back of a period of significant growth for the Australian ETF market as a whole, which has now reached over $10.5 billion in funds under management.

“In the years since the launch of BetaShares, we have seen the Australian ETF market double in size, with 90 different products now available on the ASX, covering exposures as diverse as fixed income, commodities, currency and international equities,” said Mr Vynokur.

“We are pleased that we have been able to play an instrumental role in the development of the Australian ETF landscape.”

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Peter Dymond

Colonial First State (CFS) has announced that FirstChoice Lifestage has reached $1 billion in funds under management, achieved in less than 300 days since its inception in June 2013.

FirstChoice Lifestage is CFS’s flagship MySuper product, after CFS was the first retail fund in Australia to receive APRA product authorisation for MySuper last year.

The $1 billion milestone comes as another success for the FirstChoice Investments team after the FirstChoice Multi Managerfunds (FirstChoice Moderate, Growth and High Growth) were all ranked number one in performance over five years in the recent Chant West survey, released in February 2014.

Peter Dymond, Senior Investment Manager of FirstChoice Investments at CFS, said the growth in FirstChoice Lifestage was indicative of the direction of Australian superannuation and evidence MySuper had enabled new and innovative investment approaches to be adopted by funds.

“The lifecycle investment approach is based on tailoring a member’s asset allocation based on their age, de-risking their portfolio as they get closer to retirement.  There has been much debate in the industry over whether a lifecycle approach or a ‘one size fits all’ approach is best for default funds.  In deciding on the best approach for our members, we felt that ‘one size fits all’ was inappropriate for those of our members who had not selected their superannuation investment strategy.”

“We concluded the best approach was to structure our MySuper option so younger members have higher exposure to risk assets given they have a longer period to retirement and typically lower balances.  When a member gets close to retirement, we believe their risk exposure should be reduced, particularly if they have not considered their financial circumstances. Members at this age are more susceptible to sequencing risk (i.e. the risk of a large down turn in markets just prior to retirement) and a negative market could be disastrous to their standard of living in retirement,” Mr Dymond said.

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ETF market scaling new heights.

The Australian exchange traded fund (ETF) market continued its 18^th consecutive month of growth in November, reaching a new record high of $9.6 billion in funds under management, according to BetaShares’ November ETF Review.

ETF industry assets grew 3.2% ($297 million) in November with the bulk of the growth ($210 million) attributable to new money rather than market performance.

The trend towards international equities ETFs continued this month with all four new products launched in November offering these exposures. This trend was mirrored in terms of fund inflows, with $85 million flowing into international equities ETFs over the month.

Alex Vynokur, Managing Director of BetaShares said: “With the US and European markets continuing to show signs of recovery, investors are continuing their bullish stance on international equities and this is being reflected in this month’s ETF flows.”

All of the top three products in terms of inflows during November were also international equities ETFs, further reflecting local investors’ confidence in global markets.

Meanwhile, sentiment towards the local equities market also continued to rebound, with high levels of inflows into ETFs that offered Australian share exposures. Australian equities recorded the most inflows in November ($88m), reversing a four month trend where international equities were the most popular product category.

“Inflows into Australian equities are beginning to feature strongly as we come to the end of the year, and investor confidence in the local market grows off the back of international recovery,” said Mr Vynokur.

“It’s been an extraordinary year for the ETF market as a whole, with strong ongoing growth notwithstanding lower numbers of new product launches compared to previous years. We expect to see this positive trend continue for the last month of the 2013 as we move closer towards the $10 billion milestone,” Mr Vynokur concluded.

Click here to view the BetaShares Australian ETF Review for November 2013.

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The Australian Unity Healthcare acquires a medical technology facility in St Leonards, NSW.

The Australian Unity Healthcare Property Trust (HPT) will shoot through the $500 million in funds under management mark, with the acquisition of a medical technology facility at 8 Herbert Street, St Leonards, New South Wales for $38.5 million, says Chris Smith, Australian Unity’s head of healthcare and retirement property funds.

HPT is an unlisted property trust that invests in healthcare related property assets with a primary focus on delivering regular income, plus the opportunity for long-term capital growth.

“The purchase of this property will enhance the geographic, property type and tenant income diversification of HPT and will be funded by capacity within the existing debt facility. The property represents an initial yield of 9.8 per cent and as such is accretive to earnings,” Mr Smith says.

“HPT has an outstanding history of delivering stable income and capital growth to investors. We believe this property will contribute to the continued success of the trust. Since inception HPT has returned 11.44 per cent and its 10 year return stands at 11.56 per cent. Over three years it has returned 7.28 per cent and the one year return stands at 9.48 per cent,” Mr Smith says.

The Herbert Street property is a modern three storey medical technology facility, with a net lettable area of 10,556 m2 and basement security car park for 156 vehicles. It is located only seven kilometres from Sydney’s CBD and walking distance from the main hospital building of the Royal North Shore Hospital (RNSH) precinct.

The anchor tenant of the property is leading global prosthetics and medical equipment manufacturer and distributor, Stryker Australia. Other tenants include RCPA Quality Assurance Programs, an entity closely associated with the Royal College of Pathologists of Australia.

This is the second acquisition for HPT in St Leonards since the purchase of 176 Pacific Highway in 2008. This property is home to the North Shore Specialist Day Hospital and is the company headquarters of Virtus Health.

“Healthcare property continues to be attractive and highly sought after as an asset class. HPT has seenconsiderable investor support over the past year, with inflows comparable to pre-GFC levels,” Mr Smith says.

“The long-term outlook for healthcare is extremely positive. Australia’s ageing population, and the associated health and medical implications of this, mean demand for private healthcare and related services will continue to grow.

“There is already evidence of expanding demand in the sector and having built significant capacity for further acquisitions, HPT stands ready to capitalise on this demand for the benefit of its investors.

“Further to the St Leonards acquisition we are working on a number of other property acquisitions and brownfield developments that will result in further growth and accretive earnings for HPT by 30 June 2014.

“The acquisition focus is on hospitals, medical centres and other health related type assets in New South Wales and South-East Queensland valued at over $10 million,” Mr Smith says.

Australian Unity Investments (AUI) was named the winner of the 2013 Australian Property Institute NSW Excellence in Property Awards in the Property Trust Industry category, and it also was named theProfessional Planner / Zenith Investment Partners Direct Property Fund Manager of the Year for 2013.

Over the past 13 years, HPT has grown to become one of the largest and highest-rated unlisted property funds in Australia. Today, the Trust has a diversified tenant base and following the completion of this acquisition, will hold a quality direct portfolio of 25 healthcare properties across Australia, which together with its other assets, will be valued at over $520 million.

AUI manages a range of diversified property funds, covering healthcare, retail, industrial, commercial and office property and has over $1.7 billion in property assets under management (as at 31 October 2013).

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Five new funds were added to Lonsec’s Large Cap Australian Equity universe in this review, including the CFS Australian Share Core Fund, Ironbark Karara Australian Share Fund and the Perpetual Concentrated Equity Fund.

Sector observations

Market environment

The Australian sharemarket, as measured by the S&P/ASX300 Accumulation Index, delivered a modest gain of 1.9% over the 2010 calendar year. Andrew Scifo, Investment Analyst responsible for this review, commented, “The market could best be described as lacking direction in 2010, with large deviations in month to month performance.”

“In the absence of a broad sharemarket rally, individual stock picking proved to be critically important, with global macro-economic factors contributing to sharemarket volatility during the year.”

The second half of 2010 saw the re-emergence of a strongly performing resources sector. “Resources outperformed relative to industrials, and small and mid-cap stocks outperformed relative to large cap stocks,” said Scifo.

Australia is not immune to global events and uncertainty surrounding the macroeconomic environment is expected to cloud the outlook in 2011.

“The key macro factors likely to impact the Australian market this year include the recent events in Japan, impediments to US recovery, China‟s inflationary pressures, ongoing European debt issues and the high AUD (for exporters),” observed Scifo.

Fund performance

There was a large divergence between top and bottom performing funds across the peer group, with no trend of fund outperformance based on investment style alone.

“A key factor influencing fund performance during 2010 was the disparity in returns delivered by small, medium and large cap stocks,” commented Scifo.

“Some of the better performing funds for the year exhibited a bias toward smaller stocks.”

Inflows and funds under management

The trend towards low cost, passive alternatives in Australian equities continued in 2010, with retail fund flows towards active strategies being relatively flat.

“The increasing popularity of ETFs and availability of SMAs has created increased competition for the traditional managed fund,” said Scifo.

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LUCRF Super is Australia’s first industry super fund, with over 184,000 members and more than $2.8 billion in funds under management.

Launched in July 2009 as part of Aviva Investors absolute return range, the Aviva Investors Absolute T250 Bond Fund targets low volatility and low correlation to traditional bond and equity markets by applying a macro fixed income strategy focused on global sovereign bond markets and interest rate disparities.

Managed by Shahid Ikram, Deputy CIO – Fixed Income at Aviva Investors,the fund targets an absolute return before fees of 3 month EURIBOR plus 2.5 percent and invests on both a long and short basis, offering investors the potential to profit from falling, as well as rising, asset prices.

Craig Bingham, Chief Executive, Aviva Investors Asia Pacific, said: “We are delighted that LUCRF Super has awarded us this important mandate. The Aviva Investors Absolute T250 Bond Fund has an interesting approach in today’s challenging market conditions, as it can adapt to changing macro-economic circumstances and thus potentially outperform in falling markets. We are proud to be working with LUCRF Super and look forward to meeting the needs of their investors.”

Ben Samild, Head of Investment Strategy at LUCRF Super, commented: “We are looking forward to working with Aviva Investors, a firm which demonstrates both global strength and local market expertise. The firm’s Absolute T250 Bond Fund has impressive downside risk management and low correlation to traditional bond and equity markets, making it a good fit for our long-term investment objectives.”

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In one of the most significant moves in the superannuation industry, AustralianSuper, Australia’s largest industry fund, and fellow industry player, the 200,000-plus member WA-based Westscheme, today announced that they plan to merge.

To take effect on 30 June 2011, after the completion of the due diligence process, the merger will take AustralianSuper to over 1.7 million members, 150,000 employers and over $40bn in funds under management (FUM). One in four West Australian workers will be members of the fund.

In a joint statement, AustralianSuper Chief Executive, Ian Silk, and Westscheme CEO, Howard Rosario, said that, above all else, the merger is about securing members’ retirement futures through AustralianSuper’s size, scale and capability to lead the industry on long term investment performance, low fees and net benefit for members.

It also reflects the strong alignment between the funds’ respective philosophies and, in particular, their shared goal of better outcomes and advocacy for members.

“By merging into AustralianSuper, Westscheme members will benefit from our size and expertise which will make a real difference to their retirement outcomes,” said Mr Silk.

Mr Rosario revealed that Westscheme’s ‘member first’ focus led them to look at a merger as a way to secure the best possible long-term outcomes for their members.

“AustralianSuper is a fund that has shown the potential to deliver our members strong, long-term investment performance and low costs. Members will also benefit from  the enhanced services and products that AustralianSuper provides, including a market-leading insurance offering,” he said.  “And, in a changing landscape in which funds are facing increasing challenges, the Westscheme Trustee were attracted by the advantages of joining with Australia’s leading industry super fund.”

Mr Silk said that, fundamentally, the decision to merge with Westscheme was an easy one.

“AustralianSuper has a very strong vision about the future of superannuation in this country and we are determined to play a leading role in shaping that future in the interests of our members,” he said.

“Our vision includes expansion to enable us to deliver the best prospects for secure retirement to the greatest possible number of Australian workers. This merger offers us the chance to do both, and to demonstrate our very strong capability and commitment in this regard.”

With merger talks progressing throughout the industry, Westscheme has leapt ahead of the pack in making the decision to secure its members’ futures by joining with AustralianSuper.

The merger will see the creation of a new, separate division within AustralianSuper, servicing both Westscheme members and most AustralianSuper members in WA. The new Westscheme division will service more than 35,000 employers and 310,000 members with $5 billion in funds under management. The division will be serviced by the funds’ combined staff – West Australians providing services for West Australians, in Western Australia.

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Two new funds were added to Zenith’s Recommended List, and one fund was upgraded to Highly Recommended.

Also, this year Zenith sub-divided the sector into Mid Cap Funds and Small Cap Funds, in recognition of the different characteristics and diverse risk / return profiles these funds offer.

As part of this year’s Small Cap Funds Review, Zenith examined the issue of ‘fund capacity’.

“In the relatively small Australian equities market, capacity is an important point to consider when selecting a managed fund,” said Angela Burmeister.

“The reason this is important is simple: high levels of Funds Under Management (FUM) can limit the ability of the manager to enter or exit a stock at the desired market price, impairing performance.

“Excessive FUM levels are particularly pertinent in the small cap sector, given the inherently lower liquidity of these stocks.”

With this in mind, this year Zenith undertook capacity studies for a number of funds where higher levels of FUM are a potential concern. This was considered from both a strategy  specific and a firm-wide standpoint, and national research provider examined the managers’ ability to generate excess returns against their historical levels of FUM.

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MLC acquired a minority ownership stake in Meritum as part of its acquisition of Aviva Australia in 2009 and has now increased its ownership to 100 per cent.

Richard Nunn, MLC’s Executive General Manager of Advice & Marketing said, “Bringing quality financial advice to more Australians is an important component of MLC’s overall growth strategy and we are focused on attracting advisers to our network through support and investment.

“We are very pleased to be adding Meritum to our network of aligned advice businesses.”

Stephen Trist, formerly Executive Director for Distribution and Marketing at Aviva Australia, has been appointed to the role of General Manager, Meritum and Meritum founders Brian Dau and Theo Christopolous will continue in their current roles.

Mr Trist said, “Since our initial investment in Meritum, our two businesses have worked closely together. Like MLC, Meritum provides significant support to its advisers and their clients, and favours a conservative and client centric model.

“Having Brian and Theo committed to the group for the long term is also a great outcome. They bring continuity to the business and will be instrumental in maintaining the adviser service culture that Meritum is known for.

“The support of MLC will be important over the coming years, particularly in light of the upcoming period of change facing the advice industry. MLC brings both resources and expertise to the table and will help ensure Meritum remains a force in the advice market,” added Trist

Meritum was established in 2003 and has over 110 financial advisers across the country. It has more than $3.5 billion in funds under management and in excess of $45 million in annual insurance premiums inforce.

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The models, which operate under a managed investment scheme structure, are actively managed by Zenith on behalf of clients to ensure that the funds held in the portfolios and their weightings remain optimal over time.

Each model portfolio contains 8 – 15 of Zenith’s highest rated managed funds, with five risk profiles on offer (i.e. Conservative, Moderate, Balanced, Growth and High Growth).

Announcing the launch of the Zenith model portfolios, Zenith Associate Director Glen Franklin said, “The Zenith model portfolios provide a unique one-stop solution for advisers where they can have their client portfolios managed by Zenith’s highly experienced Adviser Services team, whilst at the same time drastically reducing the typical administrative requirements associated with making changes to client portfolios.”

“In addition, the underlying Linear Managed Account platform is a cutting edge, fully functioning administration platform that provides detailed portfolio valuations, portfolio performance and tax reporting for the client, with a pricing structure that is significantly lower than the major wraps”.

Linear Asset Management’s Managing Director Chris Hipkin added, “Zenith’s model portfolios will allow the wider financial planner network to utilise Zenith’s expertise in providing quality research.”

“Zenith’s strategic alliance with the Linear Managed Account platform will enable greater efficiency and functionality for advisers by highly researched diversified, multi-manager model portfolios, this is a great value add for clients”.

Some of the key benefits of the Zenith model portfolios are:

• Zenith model portfolios operate under a managed investment scheme structure. Therefore any portfolio changes can be made in a timely and efficient manner, without the need for individual Statements of Advice (SOA) and lengthy delays.
• Combined with the Linear Managed Account structure, Zenith’s model portfolios have the potential to revolutionise an advisers business from an efficiency and compliance perspective.
• All models are actively managed by the Zenith Adviser Services team, a team of professional investment analysts dedicated to the delivery of optimum portfolio construction.
• The multi-manager structure of the Zenith models enables Zenith to select what it considers to be “best-of-breed” funds for each asset class. This contrasts with single manager diversified funds where all asset classes are managed by a single funds management organisation that may not possess strong capabilities across all of these asset classes.
• Zenith’s five separate risk profile offerings ensure there is a Zenith model portfolio on offer to suit the risk appetite of most investors.
• Unlike a traditional multi-manager unit trust, the Managed Account structure used for the Zenith model portfolios ensures that clients retain the ownership of each of the underlying managed funds held within the model portfolio. Via the Linear Managed Account platform, clients can clearly see their unit holding in each underlying managed fund, as well as each fund’s individual performance.
• Quarterly reporting is provided, highlighting which underlying funds have been the key drivers of performance and providing a useful source of information for adviser discussions with their clients.

“Zenith has established and enviable reputation and track record within the financial services industry for innovation, consistency and service – and this has provided the solid foundation for client growth / retention.”

“The launch of Zenith’s model portfolios on the Linear Managed Account Platform will provide advisers an excellent facility and service to facilitate the attainment of their clients’ wealth creation and financial goals,” concluded Glen Franklin.

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