Anne Fuchs

The Association of Financial Advisers (AFA) has partnered with PortfolioConstruction Forum to offer practitioner-focused investment content at the 2014 AFA National Adviser Conference to be held in Cairns, 12-14 October.

AFA Chief Commercial Officer, Anne Fuchs, said the partnership with PortfolioConstruction Forum will ensure that advisers have a clearer understanding of their obligations to clients with respect to investment recommendations. “The front-of-mind question for most advisers now is, what are my obligations as an adviser in this new world of best interests duty, where the practicalities remain largely unknown and untested? Advice being developed now around longevity risk is opening the door to innovative investment strategies that are very different to the old solutions and so we recognise a clear need to help our members protect the retirement savings of their clients.”

Ms Fuchs said many advisers are feeling uneasy about traditional strategic asset allocation and the AFA wants to encourage its members to think differently about model portfolios and their role in recommending them. “The best part about the investment content at the Adviser Conference this year is the realization of the need to live by the AFA theme for 2014, Innovate: Think. Create. Act. Advisers need to be thinking differently about how they invest their clients’ hard-earned savings so that clients have the really dignified retirement they aspire to have.”

ASIC Deputy Commissioner Peter Kell will also present at the AFA National Conference on a range of topics including putting forward ASIC’s view of the adviser role in the investment process. “Mr Kell will look at areas such as dynamic asset allocation and how advisers manage risk during an economic downturn,” Ms Fuchs said.

Technical experts from Perpetual and Australian Unity, who are the Australian market leaders in developing thinking about investment philosophy and advice strategy implications, will provide investment curriculum content. This will be moderated by Graham Rich from PortfolioConstruction Forum.

More than 80% of AFA Members include investment advice in their service solutions.

“When our delegates walk away from the 2014 AFA National Adviser Conference, they will have a much clearer idea about their Best Interests obligation, what it means to them, what it means under the law, what their investment philosophy could be and how they can best protect their clients’ money,” Ms Fuchs said. “This is market leading content and we are very pleased to make it available to our conference delegates.”

Register here for the AFA National Conference in Cairns from 12-14 October, or to view the program.

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“The winners in the Australian Morningstar Awards have all shown themselves to be first-class stewards of their investors’ capital. The quality of their people, process, philosophy, and investment style are a testament to this, and continue to enable them to provide outstanding results for their investors,” Morningstar Australasia Co-Head of Fund Research Tim Murphy said.

Australian Fund Manager of the Year 2013 – Perpetual Investments
The Morningstar Australian Fund Manager of the Year 2013 is Perpetual Investments. Perpetual’s well-established investment approach implemented by its team of experienced investors enabled the firm to deliver commendable returns across its broad business in 2012.

A penchant for quality has been key to the firm’s success, while careful management of wider corporate challenges in recent years to ensure minimal impact on managed fund investors reflects well on Perpetual’s underlying processes. Astute asset allocation calls led to the firm winning the Fund Manager of the Year Multisector 2013 award as well, and a proven ability to revamp an existing strategy also successfully delivered to Perpetual the Fund Manager of the Year Emerging Manager 2013 title.

These wins, on top of being a strong contender in the Domestic Equities category, all make Perpetual Investments more than worthy of Morningstar Australasia’s highest accolade.

Methodology
Only fund managers with managed funds available for sale in Australia qualify for inclusion in the Australian Morningstar Awards, and only their retail and wholesale unit trusts, superannuation funds, and pension funds are considered.

Winners are determined by a combination of qualitative research by Morningstar’s fund analysts; risk-adjusted returns over medium- to long-term periods; and performance in the 2012 calendar year. Morningstar’s fund analysts assess the track record for a fund based on Morningstar’s Risk-Adjusted Return measure over the one-, three-, and five-year periods. Funds with less than a three-year track record are not included.

The objective is to screen for fund managers that have provided consistently strong returns, and not just reward those with the most impressive one-year return, but which have otherwise struggled to impress. Morningstar’s fund analysts then conduct a qualitative assessment of the fund managers under consideration.

Factors considered include the relative quality of the fund manager’s people, process, philosophy, and style, along with business and investment disciplines during the 2012 calendar year and over the longer term. The qualitative assessment also captures practical issues that quantitative screens cannot. After assessing the quantitative and qualitative outcomes for each fund manager, Morningstar’s fund analysts then debate and decide on the fund managers the analysts believe are worthy winners and finalists across the various sectors.

If a verdict cannot be reached by a unanimous decision, then each analyst casts a vote to decide.

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The Fund invests in Perpetual’s highest conviction bottom-up long and short stock ideas, regardless of the stock’s size or index weighting. The Fund’s default position is to hold cash and then opportunistically invest in stocks that are likely to rise (i.e. invest long) or fall (i.e. short sell) in value. The gross and net market exposure ranges for the Fund are wide at 0% – 200% and -20% to 100% respectively (net is expected to typically be 20% to 60%). Net and gross market exposures are an outcome of the volume of long and short stock ideas the Manager sees in the market, rather than the portfolio managers making top down market calls.

Fund facts:

• Highly regarded investment team with expertise in long/short equities.
• Flexible investment approach with ability to opportunistically invest in stocks long and short or alternatively sit in cash when opportunities are scarce.
• Fund capacity capped at $350m (soft close) to allow the flexibility to invest long and short across the market cap spectrum (Fund is market cap unaware).

Zenith’s View

While the Fund is new, Zenith has a high degree of conviction in not only Perpetual’s seasoned team and research process, but also the individual portfolio managers responsible for the Fund. As portfolio managers, Paul Skamvougeras and Anthony Aboud both have experience in managing long/short portfolios and have strong track records. We are far more comfortable endorsing a long/short fund that is run by seasoned long/short professionals, as opposed to long only managers applying their skills to long/short.
Zenith rates the Fund Recommended.

The product assessment report for the Fund can be found under the “Funds Research”/“Alternative Fund Reports” section of our website.

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Matt Williams and Charlie Lanchester are confirmed as head and deputy head of equities, respectively. They were acting in these roles during Mr. Sevior’s recent six-month leave of absence.

Our existing ratings for Perpetual’s Australian-equities funds already took into account the probability that Mr. Sevior might not return to Perpetual. Our level of comfort with Mr. Williams and Mr. Lanchester and the strength of the broader team and process provide the basis for our continued conviction.

Mr. Williams and Mr. Lanchester are experienced investors and have worked at Perpetual for 18 and 12 years, respectively. They have an extensive track record of working together, and strong familiarity with the Perpetual process.

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“We have removed the fund from ‘On Hold’ and downgraded it based on the lack of certainty that Mr Sevior will resume managing the portfolio and our lower level of conviction in Mr Skamvougeras as manager of the fund,” said S&P Fund Services analyst Tom Mills.

Mr Mills added: “While we acknowledge that Mr Sevior may resume management of the fund in January 2012, we note that Perpetual has not ruled out Mr Skamvougeras continuing to manage the fund beyond this date. Although we consider Mr Skamvougeras to be a very capable investor, we note that his portfolio management experience to date has been in long/short strategies with far lower levels of funds under management (FUM).”

Since Mr Skamvougeras began managing the CEF, its size has been significantly reduced as a result of some redemptions, and largely by institutional clients reallocating their investments to other Perpetual strategies. As a result, Mr Skamvougeras will be in charge of a more manageable level of FUM, which provides us with greater comfort in the fund in his hands and over its capacity in general.

“Despite our lowered conviction in the CEF, we remain comfortable with Perpetual’s well-proven process, and the breadth and depth of its large and experienced team, which has significant input into portfolio composition,” concluded Mr Mills.

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Many of these, however, who do not obtain specialist advice, remain unaware of the potential tax implications and penalties that may be incurred.

Analysis undertaken by Perpetual Private Clients and Capital 360 estimates that approximately 15 percent (or around $34.2 billion) of SMSF’s existing allocation to cash and shares will be redeemed to acquire property over the next few years.

With this in mind, Perpetual Private Clients and Capital 360 are holding education workshops to help investors understand the legislative requirements and portfolio considerations of gearing to invest.

Mr Chris Balalovski, senior manager strategic advice at Perpetual Private Clients, says that they have seen a noticeable rise in the number of clients seeking advice and strategic guidance on borrowing arrangements in SMSFs.

“With recent legislative changes, more SMSF trustees are considering borrowing to invest in property. However, putting the right strategy and structure in place is a complex process, so trustees need to ensure they understand the legislative and compliance requirements.

“Firstly, it must be established that the trust deed allows a borrowing. The strict rules then state that the borrowing must be in line with the fund’s investment strategy and take into account the future financial needs of all members. Failure to do so may result in a fund becoming non-complying and losing its tax concessions. It’s also important for trustees with existing arrangements to have their deed reviewed to ensure they comply.

“When people seek our guidance, we find the most commonly neglected elements are the nature of the holding trust (which has the custody over the property) and the details of the loan documentation. The result of this could mean unexpected stamp duty and capital gains tax liabilities,” Mr Balalovski said.

Mr Sean Preece, executive director of Capital 360, said that trustees should also take into account the time to retirement and income requirements of their members in order to find the right property for the fund to invest in.

“Investors in property need to take the same analytical, unemotional approach to their property purchase as they do to any other asset class, such as shares or bonds to ensure they achieve the right mix of diversification, return and capital growth in their property investment.

“It is worthwhile taking the time and effort to get it right, as historically residential property has delivered solid, reliable returns over the medium to long term, and can add significant value to an investment portfolio,” Mr Preece said.

The workshops will be held in Sydney on Saturday 30 October 2010 and Melbourne on Saturday 13 November 2010. For more information, or to register, visit www.capital360.com.au/perpetual.

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