Chris Daily

Central banks could continue pumping money into the economy for decades and interest rates in the United States are set to rise but maybe not this year.

These were some of the conclusions drawn at a recent investment and portfolio construction conference.

According to financial advisers and experts at the Perfecting Investment Portfolios Conference, which was held in Auckland, New Zealand, the current cycle of quantitative easing could easily go on for another 5-10 years with some experts predicting loose monetary policy for even longer. The majority of delegates were convinced that QE had stabilised the financial system, however, they were mixed as to whether rates in the US would increase this year.

With global central bankers focused on avoiding a near-term deflationary environment at any cost, speakers Chris Daily, portfolio manager at Tribeca Investment Partners and Mark Thomas, chief executive and chief investment officer at van Eyk Research urged investors to think like a central banker and remain invested in growth assets.

“Central bankers are focused on reflating the economy to avoid deflation, in which case excessive liquidity is sustainable and investors should stay in equities for longer even though valuations may appear stretched,” Thomas said.

“QE seems to have a shelf space much longer than most are thinking. While there is talk about slowing QE in the US, it’s unlikely that they will remove it until deleveraging is more pronounced in the private sector. Europe has just started and Japan has no other option.”

The Annual Perfecting Investment Portfolios Conference, which is hosted by The Investment Store and Heathcote Investment Partners, focused on two key themes this year: “Bathing in the afterglow of central bank intervention” and “The déjà vu of emerging markets”.

These themes were developed by Shamubeel Eaqub, principal economist at the NZ Institute of Economic Research, who opened the conference. He was joined by other prominent speakers including Jonathan Ramsay, head of strategic research and consulting at van Eyk Research.Clayton Coplestone, director at Heathcote Investment Partners, said he was delighted by the high level of engagement from delegates and their openness to debate thought-provoking themes.

“We were able to stress-test conventional industry thinking, in order to deliver better outcomes for investors,” Coplestone said.

Matthew Mimms, managing director of The Investment Store, added that the conference provided investment professionals with an opportunity to hear a number of expert speakers discuss their views on key investment issues.

The post Cycle of QE indefinite, hold equities appeared first on AdviserVoice.

Information and performance data on around 80 SMA portfolios are now available on van Eyk’s online research and portfolio construction tool, iRate. Over 20 SMA portfolios have been rated by van Eyk.

According to Mark Thomas, van Eyk chief executive and chief investment officer, investors and advisers are increasingly attracted to the direct share ownership, control and transparency provided by the SMA structure.

“As investors become more sophisticated, they want greater flexibility and control of their assets. With an SMA, investment decisions are outsourced to professional managers, however, the investor retains beneficial ownership of the underlying investments,” he said.

“Unlike managed funds, there are no embedded unrealised capital gains but rather all dividends, franking credits and any capital gains or losses flow through to the end investor.

While the take up of SMAs by Australian investors has been relatively low compared to other markets such as the United States, Thomas said growth was being supported by favourable trends including demand from the self-managed superannuation fund (SMSF) sector and an openness by advisers to hold investments “off platform”.

Citing a report by the Australian Taxation Office which showed over 60 per cent of SMSF assets were held in direct shares and cash as at December 31, 2013, Thomas said SMSF trustees wanted control, customisation and transparency but they also needed quality advice.

“SMAs may overcome some of the limitations of managed accounts however, they are not for everybody,” Thomas said.

“Investors need to seek professional advice to ensure that an SMA is the right solution for them.

The availability of SMA research on iRate follows the recent launch of new SMA products by the banks and a number of boutique investment management firms.

Thomas said van Eyk had plans to expand its SMA research capabilities in the next 12 months

van Eyk is currently one of the only research houses to offer SMA ratings.

The post Launch of new SMA service on iRate appeared first on AdviserVoice.

Interest rate announcement a blow for retirees.

The Reserve Bank of Australia’s decision to keep official interest rates on hold for the ninth consecutive month was expected but still came as a blow for income-hungry retirees grappling with falling term deposit rates and volatile equity markets.

The last movement in rates was in August last year when the RBA cut rates to 2.5 per cent. As a result, the yield on some term deposits will effectively be nil after inflation.

Given the cash rate is expected to remain at record low levels for an extended period of time, retirees and other income-focused investors should consider diversified fixed income strategies, according to leading investment research company, van Eyk Research.

van Eyk chief executive Mark Thomas said diversified fixed income funds were an increasingly attractive alternative to term deposits.

He added that skilful, active managers deliver comparable levels of income to equity income funds and real estate investment trusts but with considerably lower volatility.

“The world is still a risky place and bonds still represent a relatively low-risk source of income for retirees and other income-focused investors,” Thomas said.

“An actively-managed diversified fixed income fund can provide both income and capital preservation with the potential for some capital growth. This is important because many people will spend 20 years or so in retirement so they also need some exposure to growth assets to fight inflation and ensure they don’t run out of money.

van Eyk Research has been successfully managing its diversified fixed income strategy since 2008. The group’s investment philosophy is based on the belief that active management and the ability for managers to invest across the entire fixed interest universe is essential to managing the growing risks in bond markets.

van Eyk deputy chief investment officer Rob da Silva said challenging market conditions coupled with the surging number of baby boomers in, or nearing, retirement made it imperative for fund managers and financial advisers to help their clients build robust portfolios which provided a regular stable income

“There are warnings that bonds are too expensive and there may even be a bond bubble, which is why we select active managers who have a proven ability to add value by reducing exposure to certain parts of the bond market when valuations become stretched and increasing exposure when valuations become attractive,” da Silva said.

“The managers we have selected also have a broad mandate to look across all the opportunities in bond markets such as sovereign and corporate bonds, syndicated loans, emerging market debt and other credit opportunities.”

The van Eyk Blueprint Diversified Fixed Income Fund aims to provide a reliable, relatively stable yield over the return on term deposits with a sharp focus on capital preservation.

The Fund invests in seven underlying funds, representing the best ideas of the group’s rigorous investment research and innovative approach to portfolio construction.

About one third of the Fund is allocated to absolute return bond funds, releasing managers to use active management to pursue positive returns regardless of the overall market direction.

The van Eyk Diversified Fixed Income Fund includes Bentham, Macquarie Group and GAM as underlying strategies. 

The post Retirees face dilemma as cash rates remain on hold appeared first on AdviserVoice.

Stephen Richards

Ability Capital has demonstrated a new approach to tackling one of the most intractable problems facing superannuation investors in its white paper: The Search for El Dorado: New Strategies for Better Superannuation Outcomes.

The white paper shows how a new type of equities strategy offers an effective solution to the problem of sequencing risk, which is increasingly recognised as a major threat to super funds’ investment objectives and therefore the retirement outcomes of millions of workings Australians.

Sequencing risk is the risk that the timing and order of investment returns is unfavourable. The timing of returns can have a dramatic impact on super account balances, particularly for investors in the retirement phase who need to draw down on their savings.

Ability Capital CEO Stephen Richards said sequencing risk was overshadowed by threats like the GFC but could be much more devastating in the long term. “People approaching retirement are really facing a sequencing risk lottery,” he said.

An analysis in the paper shows that for super fund members, sequencing risk can result in a difference in account balances of up $1 million by aged 70, even though the average return for each member is very similar.

Mr Richards said it was widely recognised that investors needed to maintain a substantial exposure to equities in order to produce the kind of returns needed to fund a dignified retirement, but they also needed to be able to manage the risks.  “This is especially true if you consider that people are living longer and will increasingly need that exposure to growth assets to see them through their retirement,” he said.

The paper discusses a new variety of downside protection strategy for the Australian equities component of a portfolio that substantially reduces sequencing risk but without the prohibitive cost that undermines the effectiveness of other derivatives-based strategies.

The analysis finds that when such a strategy is appropriately implemented, a superannuation fund member would be more than four times as likely to achieve a $500,000 balance by age 70, assuming equities met their long term return assumptions. Even if equities experienced a prolonged period of low returns, the so-called “New Normal” future many believe we are facing, the investor was still more than twice as likely to reach $500,000 than if they adopted a passive equity strategy.

“The new approach in this paper gets us much closer to the investment ‘El Dorado’ of higher returns with low volatility and low sequencing risk,” Mr Richards said.

Ben Samild, Director of Alternatives and Fixed Interest at the Future Fund, said Ability Capital’s approach to downside protection was a real innovation.  “The strategy could be of be of great appeal not just to institutional superannuation portfolios but also to endowments, private ancillary funds and retail SMSFs if they can get access to it,” Mr Samild said.  “I see a lot of strategies every year and I really haven’t seen anything like it.”

This inexpensive downside protection strategy has been implemented in Ability Capital’s Turquoise Downside Protection Fund, recently awarded an “A” rating by leading investment research house van Eyk Research, which has also invested in the Fund through its Blueprint multi-manager series.

van Eyk CEO Mark Thomas said the Turquoise Fund had a compelling investment thesis – inexpensive and tax effective downside protection with an aligned fee structure. The strategy has delivered as expected and as promised.

The post An effective strategy against sequencing risk in superannuation appeared first on AdviserVoice.

van Eyk completes rebranding of NZ business purchases.

Research and investment group van Eyk Research has completed the rebranding of Perpetual Asset Management and Perpetual Portfolio Management following its purchase of the two New Zealand businesses earlier this year.

Perpetual Portfolio Management Limited is now known as van Eyk Advice NZ Limited while Perpetual Asset Management Limited has been renamed Blueprint Investment Management Limited. Both companies are wholly owned and operated by van Eyk Research Pty Ltd. They are unrelated to Australia’s Perpetual Limited.

New websites have been launched and can be found at www.vaneykadvice.co.nz and www.blueprintnz.co.nz

van Eyk CEO Mark Thomas said the rebranding marked the integration of the Perpetual companies into the van Eyk group and its proven investment process, which is based on van Eyk’s proprietary investment research.

“Our valued New Zealand clients and investors stand to benefit from van Eyk’s two decade dedication to pure research and our commitment and ability to following our ideas through all stages of the investment process: from strategy to product development to tailored, individual investment advice,” Mr Thomas said.

“In an industry that is increasingly concentrated in the hands of a few financial institutions, van Eyk stands out as one of the few non-aligned advice services in both Australia and New Zealand.”

van Eyk Advice NZ offers retail financial planning and advice that focuses on helping clients achieve their financial goals and ensuring their investments are aligned with their tolerance for risk. We are also experts at assisting clients transfer their UK pension to the New Zealand scheme.

Blueprint Investment Management is the investment manager for the Blueprint Series of managed funds, a suite of 8 sector funds covering shares, bonds, cash, property & infrastructure and alternative investments. Like its Australian counterpart, Blueprint draws on van Eyk’s expertise in research and asset allocation to deliver an optimum outcome for investors.

Blueprint is available on the Aegis platform in New Zealand.

van Eyk Research also offers services directly to New Zealand financial advisers and institutions, including investment research, fund manager ratings, asset consulting services and model portfolios.

van Eyk Research is a subscription-based research provider. It does not accept payments from fund managers for an investment rating, helping to ensure integrity in the research process.

The post van Eyk completes rebranding of New Zealand investment businesses appeared first on AdviserVoice.

Mark Thomas

van Eyk has awarded five funds its top AA rating from a strong pack in its Australian Equities Review 2013 after one third of funds failed to clear the first hurdle.

The assessment of long-only Australian equities funds considered a total of 69 strategies. Five funds were invited to take part in the review but declined (some of these received a poor rating last year) while 19 funds were screened from the review because van Eyk considered them not sufficiently competitive.

van Eyk believes it is crucial that in investment research there be transparent disclosure of the complete sample of products from which the recommended ones are eventually chosen. This assists financial planners and other research users in judging how selective the ratings process was and therefore the quality of those findings.

van Eyk chief executive Mark Thomas said he was pleased to see this issue highlighted in the recent report on “gatekeepers” in the financial system by the Federal Parliamentary Joint Committee on Corporations and Financial Services. “It’s important that planners can see the outcome for all the funds that were considered in a review” he said. “This also helps discourage ‘ratings shopping’ by fund managers.”

In addition to the five AA ratings, the review awarded 19 A ratings, 18 BB ratings and three B ratings. Ratings of BB and above are considered by van Eyk to be investment grade.

van Eyk Head of Manager Research Matthew Olsen said the key negatives for managers culled in the initial screening process were insufficient levels of active risk in the portfolio, insufficient manager skill and an investment process that was not significantly different from the majority. “A lack of active risk means managers are much less likely to generate meaningful excess return for investors,” Mr Olsen said. “These factors also featured in the reasons for downgrading a number of funds this year.”

A range of investment styles was represented among the recommended managers, with growth, neutral, value and one quantitative manager in the group. Fund details from this review are available to paid subscribers to van Eyk’s research.

van Eyk currently has a “medium” risk rating on the Australian equities asset class.

In van Eyk’s view, the Australian share market has normalised since the GFC but further risks loom on the horizon. In particular, there are risks around the potential for a further slowdown in Chinese economic growth, the weak Australian manufacturing sector and the fact that local banks are trading at a valuation premium compared to their global peers. Good risk control and risk awareness by managers continue to be highly regarded in this asset class.

Lead analyst on the review, Varun Venkatraman, said that over the next two to three years, returns in Australian equities may be lower than long run averages. “While our long term strategic asset allocation recommends 28 per cent of a balanced portfolio be allocated to this asset class we are currently recommending a lower tactical exposure,” Mr Venkatraman said.

van Eyk’s tactical allocations are updated monthly in its Investment Outlook Report.

The post van Eyk filters out one third of funds in its new Australian Equities Review appeared first on AdviserVoice.

van Eyk’s proprietary database of fund manager holdings shows only six managers were overweight value stocks by five per cent or more, compared to the benchmark.
 
This compares with 47 strategies which had a 5 per cent or greater overweight to quality stocks. The average bias towards quality was 8.3 per cent.
 
van Eyk chief executive Mark Thomas said the tilt towards the quality end of the market had been the right strategy since the GFC because the rise in the market had been driven by only a relatively small number of stocks. In fact, 80 per cent of the rise in the ASX200 index for the 12 months to February 2013 was due to just 10 stocks – including the major banks, Telstra and other defensive stocks like Woolworths.
 
“Investors who are still bruised by the bear market have naturally been crowding into stocks that have a history of good yields, strong balance sheets and solid dividends because they have been perceived as a safer exposure to shares,” Mr Thomas said.
 
Mr Thomas said there were two important conclusions to draw from these data. First, investors are still not wholly convinced of the durability of the share market rally or that we are yet in a sustainable bull phase.
 
This is also demonstrated by the US STALSTOX index, which shows the collective view on asset allocation by Wall Street firms. “This shows the allocation to stocks is only about 45 per cent,” he said.

“Remarkably, this is much lower than the 50-55 per cent during the depths of the GFC,” he said.

“This suggests there is still a wall of money waiting on the sidelines.”
 
Secondly, it implies there may be an opportunity being missed by many managers to take a contrarian stance and re-assess some of the cyclical stocks that have underperformed the market because of the strong focus by investors on quality.
 
Mr Thomas noted the ratio of the performance of cyclical stocks to defensives appeared to be at a cyclical low (see chart).

“This four year trend of quality outperforming cyclicals may have reached some sort of historical extreme, one not seen since 2003 when the Y2K bear market bottomed out and cyclical stocks started to outperform the expensive defensives,” Mr Thomas said.

The post Fund managers heavily exposed to “quality” stocks appeared first on AdviserVoice.

The sale process was first announced in January 2013 by the vendor, Pyne Gould Corporation Limited.
 
van Eyk chief executive Mark Thomas said the Perpetual companies and van Eyk were a good strategic fit and would build upon van Eyk’s experience in the New Zealand market.
 
“We are very excited about the purchase of the Perpetual wealth management companies and the opportunities that this presents us in New Zealand,” Mr Thomas said. “van Eyk has been assisting New Zealand investors for some years and we look forward to working with the Perpetual businesses to grow the combined entity into a strong financial services group.”  
 
Perpetual Asset Management Limited, which has approximately $NZ380 million in funds under administration, was established in New Zealand in 2010 as the funds management division of the Perpetual Group. Perpetual Portfolio Management Limited is the personal wealth management division of Perpetual. These businesses will increase the van Eyk Group’s consolidated gross annual revenues by 50%.
 
Mr Thomas said the purchase follows other recent strategic initiatives by van Eyk, including the purchase of practice management consultancy The Encore Group and the launch of financial advice arm van Eyk Advice.
 
The details of the Perpetual transaction differ somewhat from those previously announced. It was initially proposed that van Eyk would also purchase trustee company Perpetual Trust Limited from Pyne Gould but this will no longer proceed.
 
The Perpetual companies are unrelated to the Australian company Perpetual Limited.

The post van Eyk completes purchase of Perpetual New Zealand companies appeared first on AdviserVoice.

This follows the completion of the establishment phase of van Eyk Advice earlier this year. 

van Eyk chief executive Mark Thomas said industry consolidation driven by the buying up of independent advice groups appeared to have emphasised to advisers the value of a research-driven advice group not tied to a big institution. 

He said the results of a recent sounding of the financial planning community had been very encouraging and van Eyk Advice would step up its efforts to attract and engage with more advisers.  

“van Eyk Advice can fill a gap in the marketplace for a non-aligned advice group that develops and follows through on its own ideas,” Mr Thomas said. “It will be an attractive proposition to like-minded planners who are not comfortable being part of a large conglomerate,” Mr Thomas said. 

Among the advisers van Eyk spoke to, the most common reasons cited for being unhappy with their current dealer group were a lack of investment expertise, poor communication and a lack of practice management and support. 

Mr Thomas said van Eyk Advice, which currently has a small number of authorised representatives within a dealer group structure, was a natural evolution of the van Eyk brand and its core values, which centre on delivering quality investment research to financial planners and their clients and helping Australians secure their financial futures. 

He said van Eyk’s advantages for the client-focused adviser were its proven commitment to independent thought and integrity in investment research, a strong brand name, freedom from institutional ownership and the comprehensive suite of products and services available to advisers to assist them in servicing their clients. 

“van Eyk Advice offers financial advisers the opportunity to work with a respected brand which is committed to pursuing its own path and has a history of putting investors first,” Mr Thomas said.  

van Eyk Advice also offers advisers professional development and practice management expertise through van Eyk’s wholly owned subsidiary, The Encore Group. Encore has been at the forefront of assisting Australian planners build sustainable businesses compliant with the Future of Financial Advice reforms. 

The development of van Eyk Advice has no impact on van Eyk’s existing clients and services. van Eyk will continue to provide the same high quality and level of service to all its valued clients in the financial planning industry, including institutionally owned dealer groups, independent dealer groups and boutique advisers.

The post van Eyk Advice looks to build adviser numbers appeared first on AdviserVoice.

The iRate platform provides planners access to research, the van Eyk fund manager ratings screen, portfolio construction tools and analytics to assist in the portfolio construction process.

AMP Advice Integration Manager Andy King said the re-signing reflected the value the AMP Group planners placed on van Eyk’s services.

“The services van Eyk provides are highly valued by our planners and we look forward to working with van Eyk to continue to provide a high level of investment support to planners and their customers,” Mr King said.

Van Eyk Research CEO Mark Thomas said he was pleased van Eyk would continue to work with AMP to assist its clients in meeting their investment goals.

“van Eyk Research is committed to conducting deep research and pursuing the results with conviction while delivering high standards of client service,” Mr Thomas said.

The post AMP Financial Services re-signs van Eyk appeared first on AdviserVoice.