Promotions and role transitions

Matthew Gadsden: Head of Research Execution

Matthew Gadsden has been appointed to the newly created role of Head of Research Execution. This role focuses on driving efficiency and enhancing cross-functional collaboration across investment-facing areas of the business. Leveraging JANA’s deep research expertise, Matthew will optimise investment advice and performance outcomes for clients.

Justin Tay: Head of Global Equities Research

Justin Tay has stepped into the role of Head of Global Equities Research, succeeding Matthew Gadsden. With over seven years of experience within JANA’s Global Equities Research team, Justin brings a wealth of knowledge and expertise to this critical area.

Robert Moore: Head of Debt / Sub-Investment Grade Debt Lead

Robert Moore will continue leading JANA’s Debt Research team (formerly Fixed Interest Research team), overseeing the strategic direction and client advice within the sector. He will also assume the position of Research Lead for Sub-Investment Grade Debt Lead. Robert’s dedicated focus will support the rapidly growing client interest in this area. 

Martin Rea: Investment Grade Debt Lead

Martin Rea has been promoted to the role of Investment Grade Debt Lead. In this capacity, he will oversee JANA’s Cash and Diversified Fixed Interest advice and solutions, further demonstrating JANA’s dedication to providing targeted, high-quality investment solutions.

 New additions to the team

In late 2024, JANA appointed Victoria Hugh as Senior Product Manager, strengthening JANA’s leadership in Investment Trusts. Victoria will leverage her extensive experience in financial services to drive product development to meet evolving client needs.

JANA is also excited to welcome the following new team members:

• Stephanie O’Brien joins as a Senior Consultant in the Property Research team
• James Leos joins as a Senior Consultant in the Private Equity Research team
• Tina Nguyen joins as a Consultant in the Infrastructure Research team

Georgina Dudley, CEO of JANA, commented on the appointments: “These appointments highlight JANA’s commitment to building an agile and independent consulting model that prioritises the needs of our clients. By investing in our people and expanding our leadership capabilities, we’re ensuring that JANA remains at the forefront of delivering innovative, high-quality research and advice across all asset classes. This is an exciting time for JANA as we continue to grow our presence in the market and reinforce our position as trusted advisers to some of Australia’s largest institutional investors.”

JANA has consistently evolved its consulting offering to meet the growing needs of its clients. This includes expanding its proposition to serve a broader range of clients across Australia and New Zealand, including superannuation, not-for-profit, insurance, and wealth segments, while maintaining a focus on delivering tailored, strategic solutions to address the unique challenges faced by institutional investors.

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Justin Tay

Zenith Infrastructure Sector Review 2017

Global listed infrastructure continues to gain traction in client portfolios, as well as enjoying strong returns in investment markets. The aggregate funds under management (FUM) within Zenith’s rated funds increased from $A32.5 billion to $A41.8 billion over the 12 months to 30 April 2017, a growth of 28.6%.

At the same time, global listed infrastructure as represented by the FTSE Global Core Infrastructure 50/50 $A (Hedged) Composite Index generated a return of 14.2% for the 12 months ended 30 April 2017.

Justin Tay, Senior Investment Analyst, explains the drivers of this growth: “Zenith believes this growth is due to the widely accepted defensive characteristics of infrastructure assets, which continue to appeal to clients.”

“Specifically, we believe clients are attracted to infrastructure’s steadier earnings sources and stability of returns.”

From an investment performance perspective, global infrastructure securities, like broader risk assets globally, have benefited from the low interest rate environment that commenced around the Global Financial Crisis (GFC) in late 2008 to early 2009. The reduction in interest rates has had a direct impact with regards to the valuation techniques used for infrastructure assets.

“Taking the prospect of tightening monetary policy into account, Zenith believes the tailwind that infrastructure securities enjoyed could soon become a headwind,” said Tay.

“On the upside, global listed infrastructure is comprised of multiple sub-sectors, each which has different return drivers, characteristics and ultimately, different sensitivity to interest rates.”

Generally, those sub-sectors that have higher yields, higher leverage and are less exposed to the broader economy, such as Towers and Utilities, are more sensitive to interest rate movements. Conversely, subsectors that have lower yields, lower relative leverage and are more exposed to the broader economy, such as Railways and Ports, are less interest rate sensitive.

“Considering the different sensitivities to interest rates across infrastructure sub-sectors, we believe it is too simplistic to apply a broad-based assumption that all infrastructure investments are bond proxies,” said Tay.

The impact of inflation

For long duration assets such as infrastructure, Zenith believes inflation should also be a major consideration because it can potentially erode the value of future cashflows that are many years out. Inflation in most developed markets has been benign since the GFC as the global economy experienced its recovery period, however pro-growth policies such as those espoused by President Trump, are likely to cause inflationary pressures.

“Global inflation rates post GFC are near historical lows,” said Tay.

“Infrastructure is typically understood to possess inflation hedging characteristics, however this is not across the board in terms of the various infrastructure sub-sectors.”

For example, toll roads typically have explicit linkages to inflation as per their concession contracts; on the other hand, an oil pipeline may not have an explicit ability to pass through inflation to the end customer given that their returns are determined by the market, but may have limited linkage from rising commodity prices feeding through to inflation. Furthermore, even in a sub-sector with traditionally low linkage to inflation, a specific asset typically monopolistic in nature may deliver inflation protection through pricing power alone.

“While Zenith believes global listed infrastructure can provide some inflation protection, investors need to be cognisant that it is not a perfect hedge due to the variability of inflation protection across the sub-sectors within the asset class,” commented Tay.

The importance of active management

Given the potential challenges ahead for global infrastructure securities, Zenith believes that active management can add significant value to client portfolios.

“Through the development of well-informed views and the flexibility to deviate from traditional global listed infrastructure benchmarks, active managers can position portfolios to enhance or maintain the defensive characteristics of infrastructure strategies,” said Tay.

“Although infrastructure assets may share similar attributes, clients need to pay close attention to how assets within the sector are defined and classified – we do not believe all infrastructure exposures are equal with regards to the ability to exhibit a defensive risk/return profile when needed.”

“Going forward, given the potential for heightened macroeconomic impacts, Zenith believes that it is imperative that investors consider the case for active management within global listed infrastructure,” Tay concluded.

Summary of the Zenith 2017 Infrastructure Sector Review

From an initial universe of 22 products:

• 4 were rated “Highly Recommended”
• 10 were rated “Recommended”
• 3 were rated “Approved”
• 5 were “Not Rated”

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Zenith’s research into this growth and sustainability focused on the period between July 2004 (when LIC data was first available) and March 2017; June 2013 to March 2017 was overwhelmingly the strongest period of growth for LIC listings. There were 95 LICs listed on the ASX as at 31 March 2017, and the last 12 months produced a 10% increase in the number of listings.

Justin Tay, Senior Investment Analyst, explained the drivers of this growth: “We believe the growth and contraction in LIC listings are cyclical in nature, so we assessed whether stock market performance has played a part in the cyclicality of LIC listings.”

“Given this belief about the cyclicality of LIC listing growth, with investor and market sentiment key drivers, we expect that the current rate of growth in the sector is unlikely to be sustained over the medium to long-term.”

Market performance and the premium or discount to NTA

LICs typically trade at either a discount or premium to their net tangible assets (NTA). Zenith has observed a relationship between market sentiment and the premium/discount of LICs. That is, when there is negative market sentiment, LICs generally trade at a discount. However, the research also revealed that regardless of the sentiment towards the sector, LICs had, on average, traded at a discount to NTA up until April 2013.

“We believe this could be the result of several specific drivers,” said Tay.

“These include the rapid increase of SMSFs and amendments to the Corporations Act in 2010 that allowed dividends to be paid out based on a solvency test rather than profitability.”

As part of the 2017 review, Zenith conducted a survey across its rated LICs to determine the factors that supported a LIC to trade at a premium to its NTA. It found that fully franked sustainable dividends and high levels of shareholder engagement were equally the most important factors, followed by the underlying performance of the portfolio.

“Although these factors are highly subjective, particularly with regards to fully franked sustainable dividends and high levels of shareholder engagement, we believe these factors are the key drivers to ensure that an LIC does not trade below its NTA,” said Tay.

A closer look at dividend sustainability

Zenith believes dividend sustainability is highly topical as there have been recent instances where some LICs have been required to cut their dividends. Given the importance of dividends for LICs, such cuts are highly undesirable.

“Zenith believes the dividend coverage ratio can be an indicator of a LIC’s dividend sustainability,” said Tay.

“Ideally, a LIC should have at least two years’ worth of profit reserves to maintain current dividend payments in the event there is a downturn in the LIC’s profitability.”

“Our analysis found that most LICs on Zenith’s Approved Products List maintain adequate profit reserves to sustain a growing stream of dividends, and have profit reserves that ensure dividend payments are sustainable and in accordance with dividend objectives,” Tay concluded.

Summary of the Zenith 2017 Listed Investment Companies Sector Review

From an initial universe of 76 products:

• 2 were rated “Highly Recommended”
• 11 were rated “Recommended”
• 3 were rated “Approved”
• 59 were “Not Rated”
• 1 was rated “Redeem”

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Justin Tay

Zenith Australian Shares – Long/ Short Sector Review

Is short money the ‘smart money’? Do investors who short sell possess an information advantage or higher skill than traditional, long-only investors? Can short sellers earn superior profits?

These questions underpinned an academic study to confirm or disprove this concept within the Australian sharemarket context as part of Zenith’s 2017 review of the Australian Shares – Long/Short sector.

Justin Tay, Senior Investment Analyst, explained the rationale for the research: “The recent spate of high profile corporate failures, such as Slater and Gordon and Dick Smith, has highlighted the importance of active management.”

“Zenith believes these examples highlight that fund managers who employ short selling can better exploit the inefficiencies in the sharemarket through an explicit short sold position, rather than just maintaining an underweight or zero position.”

The study

Zenith put short selling under the microscope in its study based on publicly available ASIC records of short selling data on ASX companies, dating back to June 2010.

“From the data set, we initially ranked all companies by the level of short interest at the end of each month,” said Tay.

“Next, we conducted a performance simulation which involved constructing an equally weighted portfolio consisting of the 30 most shorted stocks.”

Although the study showed a strong positive cumulative performance outcome for the Short Portfolio over the entire period of assessment, Zenith believes it is also important to focus on the risks associated with these returns.

“The data showed that the Short Portfolio can produce material negative returns over shorter-term periods, and may also exhibit a longer tail of negative monthly return periods,” said Tay.

Short money is the smart money

Zenith believes the study shows that short sellers, for the most part, are indeed the ‘smart money’. However, there are significant considerations and limitations that must be considered to generate profitable outcomes.

“Successful short selling requires a fund manager to have a heightened level of expertise and resourcing,” said Tay.

“As with most equity related strategies, there may be periods of heightened performance volatility over the shorter-term; performance should be considered within the context of a longer-term investment horizon to maximise a strategy’s potential to meet its objectives.”

The Sector Review noted that the 2016 calendar year was particularly difficult for generating absolute returns from short selling stocks.

“Although it was a tough year for our rated managers, they have consistently added value over the longer-term from short selling.”

“As such, we maintain our belief that short selling remains an important source of returns for our rated Australian Shares – Long/Short managers,” Tay concluded.

Summary of the Zenith 2017 Australian Shares – Long/Short Sector Review

From an initial universe of 30 products:

• 1 were rated “Highly Recommended”
• 13 were rated “Recommended”
• 5 were rated “Approved”
• 11 were “Not Rated”

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Justin Tay

The number of market neutral strategies available to retail investors in Australia has historically been limited according to Justin Tay, Zenith’s lead analyst on the Market Neutral sector.

Commenting on the release of Zenith’s latest Market Neutral Sector Review Tay said: “Given the strong performance and attractive, differentiated risk attributes of these strategies through time, it has not been surprising to see a number of these longer-standing offerings reach capacity and close to new investment.”

“Of the Australian market neutral funds which are rated Recommended or above by Zenith, only around $1.2 billion of available capacity remains across two funds, as at 31 December 2016.

With the strong levels of FUM growth experienced by the sector in recent years, Zenith has projected that this capacity will be fully exhausted by mid-2018.”

“However” Tay added, “over the past two years, Zenith has observed a number of globally orientated market neutral strategies becoming available to Australian investors.

We have initiated new ratings on two such funds. And in addition to this, we continue to see new Australian orientated market neutral funds come to market, two of which we have initiated ratings on.

Combined, these four funds have added approximately $A 3.7 billion in additional capacity for the sector.”

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Justin Tay

Global Emerging Market equity funds are staging a comeback according to Justin Tay, Zenith’s lead analyst on the Emerging Markets and Asian Equities sector.

Zenith Investment Partners has just released its Emerging Markets and Asian Equities Sector Review, and commenting on the review, Tay said: “The past 12 months has certainly seen a turnaround in the fortunes of Emerging Market equities, with Emerging outperforming Developed Market peers by 5.2%. The reversal in several key macroeconomic factors, particularly a consolidating US Dollar, recovering commodity prices and improvement in the political environment for some economies have all contributed to the stronger performance in Emerging Markets.”

Tay added: “Given the underperformance of Emerging Markets over the past few years it is easy to forget that Emerging Market equities have in fact outperformed Developed Markets over the longer-term.”

Tay highlighted: “We believe the longer-term outlook for Emerging Market equities continues to be attractive given the higher expected growth rates for their underlying economies and favourable demographic trends.”

In summarising the results of the review, which covers the 12 months ending September 2016, Tay noted the difference in outcomes for Emerging Market managers versus managers who exclusively focus on the Asia ex-Japan region. “Zenith’s rated active Global Emerging Market equity managers produced an average return of 7.8% compared to the Emerging Market benchmark which returned 7.2%. In contrast, Zenith’s active managers who exclusively manage equities within the Asia ex-Japan region delivered an average return of 4%.”

When explaining the scope of the Zenith review, Tay noted: “In previous years, Zenith has included Emerging Market and Asian Equities funds in our overall Global Equities sector review. But this year, given the increasing importance of the region and number of strategies available, we have produced a dedicated Emerging Markets and Asian Equities sector report. In that report we introduce Emerging Markets as an asset class, as well as providing a detailed overview of its composition, the investment case and implementation options.”

Summary of the Zenith 2016 Emerging Markets and Asian Equities Sector Review

• From an initial universe of 37 products:
• 2 were rated “Highly Recommended”
• 16 were rated “Recommended”
• 2 were rated “Approved”
• 17 were “Not Rated”

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Justin Tay

Australian Shares – Long/Short funds have materially outperformed the Australian equity market for the 12 months ending 30 April 2016 according to Zenith Investment Partners’ 2016 Australian Shares – Long/Short Sector Review.

Commenting on the review, Justin Tay, Zenith’s lead analyst on the Australian Shares – Long/Short sector said, “Over the period, Zenith’s rated Australian Shares – Long/Short managers produced an average return of 4.6% compared to the S&P/ASX 300 Accumulation which returned -4.7%.”

Tay also noted: “Zenith’s rated funds also impressed from a risk-adjusted basis, exhibiting lower volatility compared with the broader Australian equity market.”

Tay went on to highlight: “Most managers within the Australian Long/Short space demonstrated an ability to preserve capital in what was a challenging and volatile period for the Australian equity market.”

“In this year’s sector report, Zenith explores in detail the concept of short selling and looks to clarify frequently asked questions and potential misconceptions relating to the topic. Specifically, we address what short selling is used for, its benefits and risks, the types of short selling, factors used to assess a short opportunity, and the process of how to implement short selling”, concluded Tay.

All details can be found in the Zenith 2016 Australian Shares – Long/Short Sector Report.

Summary of the Zenith 2016 Australian Shares – Long/Short Sector Review

From an initial universe of 15 products:

• 3 were rated “Highly Recommended”
• 9 were rated “Recommended”
• 3 was rated “Approved”
• 1 was rated “Redeem”
• 13 were “Not Rated”

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Justin Tay

Equity market neutral funds significantly outperformed the Australian equity market for the 12 months ending February 2016 according to Zenith Investment Partners latest Market Neutral Sector Review.

Commenting on the review, Justin Tay, Zenith’s lead analyst on the Market Neutral sector said, “Although there was a wide level of dispersion in the performance of the peer group the median return for Zenith rated funds was 9.5%, comparing favourably to both the sector benchmark (Bloomberg AusBond Bank Bill Index) and the Australian equity market (S&P/ASX 300 Accumulation Index), which returned +2.3% and -13.5% respectively”.

Tay noted: “The volatility of fund returns, as measured by Standard Deviation, was approximately half of the Australian equity market’s volatility at 6.2% compared to the S&P/ASX 300 Accumulation Index of 12.7%.”

Tay went on to explain: “The past year represented a return to form for market neutral strategies, which contrasts against 2014 where a number of managers struggled to generate returns commensurate with previous historical averages. This was due to a challenging investment environment, largely driven by low levels of performance dispersion within the investable universe.”

Tay added: “Zenith’s expectation at the time was that the challenging investment environment would be transient and would normalise over the short to medium-term, which has indeed been the case over the past 12 months.”

“In this year’s report, Zenith analyses the long-term risk/return characteristics of equity market neutral strategies. Specifically, we assess the performance, drawdown and correlation of equity market neutral strategies against all the major asset classes at both a global and Australian level. We then build on this analysis by exploring the impact of an allocation to an equity market neutral strategy on investor portfolios”, concluded Tay.

Summary of the Zenith 2016 Market Neutral Sector Review:

From an initial universe of 11 products:

• 4 were rated “Highly Recommended”
• 4 were rated “Recommended”
• 1 was rated “Redeem”
• 2 were “Not Rated”

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The 12 months to 30 September 2015 has been another strong year for the sector says Zenith (including Asian, Global and Specialist Long/Short), supported by a positive backdrop for global equities more broadly. Global Long/Short funds delivered an average return of 16.3% compared to 18.3% for the MSCI World Index ($A).

Although generating a lower return than the Index in absolute terms, Global Long/Short funds have demonstrated materially stronger risk-adjusted returns.

According to Justin Tay, Zenith’s lead analyst on the sector, the market environment within global equities has been conducive for long/short managers. “It has been refreshing to see a departure from the predominantly macro driven markets over the past few years. The last 12 months in particular has exhibited high levels of performance dispersion within both geographies and sectors, providing greater opportunities for active managers to express their stock selection skills. This is of even greater significance for Long/Short managers given the added flexibility available to them.”

Tay went on to add “By way of example, the Consumer Discretionary and Consumer Staples sectors returned 7% and 4% respectively over the last twelve months, versus Energy and Materials, which returned -33% and -22%, respectively in US Dollar terms. Given the magnitude of negative returns within Resources more broadly, driven by weak commodity and energy prices, there has been scope for managers to add value through shorting. Despite this, we observed that most managers opted to maintain relatively high net equity exposures, with some managers holding little to no short positions at all.”

In this year’s report, Zenith explores the investment case for Global Long/Short strategies, outlining the benefits of their increased flexibility, in addition to analysing performance through time and under different market regimes.

2015 saw the addition of five new International Shares – Long/Short strategies to Zenith’s Approved Product List (APL). Tay noted “These additions provide increased depth within a sector of the Zenith APL that has traditionally been more limited with regards to available investment options.”

Summary of the Zenith 2015 International Shares – Long/Short Sector Review

From an initial investment universe of 29 International Shares – Long/Short products, the ratings outcome for Zenith’s APL for the sector was as follows:

• Highly Recommended – no funds
• Recommended – 14 funds
• Approved – 6 funds

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