CMC Markets Stockbroking joins forces with theScreener

CMC Markets Stockbroking has signed a partnership agreement with theScreener, to become Australia’s first stockbroker to provide frequent traders with more detailed research, analyst reports and stock picking recommendations through a unique star-rated reports system.

theScreener is a leader in independent equity analysis. Created in Switzerland, theScreener’s powerful software computes complex calculations on over 5,000 companies and securities from both the local and international equity markets. It extracts the most critical technical and fundamental elements, to create star-rated reports, inclusive of risk profiles, for each stock.

Andy Rogers, Head of CMC Markets Stockbroking said, “As part of the investment program in our platform, we scoured the globe for a partner that could provide genuine stock-level investment insights that could be integrated with our online broking platform”.

“We chose to partner with theScreener because its software can recreate the sophisticated techniques traditionally used by professional investors. In the coming months we will provide this innovation to our self-directed retail customers, which is another compelling reason to switch provider to CMC Markets Stockbroking,” adds Rogers.

theScreener’s depth of analysis gives Australian traders visibility on the performance of all ASX-based stocks by providing fundamental, technical and projecting criteria. It also creates a star rating based on earnings revenue trend, price potential, medium term technical trend and relative performance. Complementing the upside star ranking is the risk evaluation, which takes into account both the historical bear market and bad news behaviour indicators.

Ernst Roth, Managing Director of theScreener Asia Pacific said, “We are excited to extend our services to Australian investors and expect them to benefit greatly from our clear objective analysis”.

“For over a decade theScreener has clearly shown that purchasing stocks when the star rating of the stocks move from two to three stars, and three to four stars, have provided the most favourable performance, both on an absolute and relative to the benchmark basis,” adds Roth.

“All traders with CMC Markets can now make better informed investment decisions by generating compact, detailed stock reports with the click of a mouse,” says Rogers.

Rogers adds that professional buy-side investors, those from private banking to asset and portfolio managers, use this software to sanity check investment decisions.

“Most platforms today offer standard fundamental research within aesthetically pleasing browsers but we aim to offer traders more. CMC Markets Stockbroking’s hallmark is delivering powerful tools and market leading innovations within our trading platform and theScreener is the latest example of this strategy coming to fruition,” says Rogers.

theScreener reports are re-evaluated each week and also include newly launched funds.

Rogers adds that whilst the software is very simple to use, CMC Markets award-winning Education Team will produce a series of webinars and blog posts to illustrate the software’s full range of capability and the results it can deliver.

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The majority of managers in the Lonsec small cap peer group considerably outperformed the benchmark in 2012.

The Lonsec Small Cap Australian Equity Sector Review observed that while small caps recorded a reasonable return, they again underperformed large caps for the year with the broader S&P/ASX 200 delivering a healthy rise of 20.3% for 2012.

“This trend is not unexpected given the more volatile nature of small companies compared to larger peers,” said Steven Sweeney, Lonsec Senior Investment Analyst.

“Small caps will tend to outperform larger caps in periods of more buoyant market sentiment while experiencing more downside weakness when markets are troubled.

“With risk appetite remaining relatively constrained, investors were more comfortable chasing high yield and defensive large caps during 2012 than venturing too heavily into small caps,” Mr Sweeney said.

Should risk appetite improve as appears the case in the current climate, it presents an opportunity for investors to revisit their small cap allocation.

Investment management team stability has been uncommonly positive in the past few years, a beneficial aspect of the bear market, with personnel more likely to be preoccupied with existing responsibilities versus eyeing greener pastures. The prevalence of boutique investment platforms in the sector with high alignment of interest and investment team buy-in has also improved stability.

One factor identified by the review as impacting small cap investment managers is declining market depth.

“Weak capital market conditions prevailed in 2012 with a lack of IPOs, capital raising and merger and acquisition activity limiting a traditional hunting ground for small cap managers,” Mr Sweeney said.

“The IPO market remains in drought and at cyclical lows for industrials. Indeed, 2012 was Australia’s weakest year on record for share market floats, which only totalled $876 million – down 32% from 2011, which was also a weak year.
 
“A dwindling of new opportunities suggests managers are increasingly hunting in a shrinking pool and looking for similar qualities in companies, resulting in a crowded trade scenario with the same companies being widely held.”
 
The Lonsec Review concluded the performance of the average small cap manager in the Lonsec peer groups versus the benchmark gives support to a meaningful allocation to small caps and an active investment approach.

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The Survey includes both commercial for-profit and industry superannuation options. Morningstar classifies funds according to a proprietary classification system created to facilitate meaningful peer-relative comparisons.

Key Findings

• November proved to be relatively flat for Australian superannuation funds as the majority managed to tip-toe into positive territory over the month. The median fund in the Multisector Growth category (60.0 – 80.0 percent growth assets) recorded an 0.6 percent gain over the month to 30 November 2012. The calendar year to date return for the median fund is 12.5 percent. 
• Within the Multisector Growth category, the median manager returned 0.6 percent over the month of November, individual results falling between a low of -0.2 percent and a high of 1.1 percent. Longer-term annualised results for the median fund were 11.1 percent over one year, 5.0 percent over three years, -0.1 percent over five years, and 5.8 percent over the 10 years to 30 November 2012.
• Growth assets provided restrained results over the month of November 2012. Australian shares, as measured by the S&P/ASX300 Accumulation Index, rose 0.4 percent, international shares gained 0.7 percent, and global property securities 1.0 percent. Australian property securities lost ground with a return of -1.3 percent over the same period. Results for defensive assets over the month were also muted, global fixed income returning 0.7 percent, cash 0.3 percent, and Australian fixed income 0.01 percent. 
• The best-performing Growth superfunds over the three years to 30 November were REST Super Core Strategy (7.2 percent), followed by AustralianSuper Conservative Balanced (7.0 percent), Schroder (6.1 percent), and REST Super Diversified and Perpetual Balanced Growth both (5.8 percent). Over the five years to 30 November, Schroder (3.5 percent), followed by REST Super Core (3.4 percent) and AustralianSuper Conservative Balanced (2.5 percent) were the best performers.
• Among the options in the Multisector Balanced category (40.0 – 60.0 percent growth assets), the best performers over the three years to 30 November 2012 were AustralianSuper Stable (6.8 percent), followed by REST Super Balanced (6.1 percent), and Asgard Moderate Growth  (6.0 percent).

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The paper, Brave New World: Assessing Volatility Strategies for Portfolio Construction, looks at the range of asset protection strategies for volatile markets that are based on the VIX volatility index and assesses their suitability for Australian investors. 

Interest is growing in investment strategies which seek to reduce the impact of market volatility on investment returns or actually exploit that volatility to make money for investors. This is being driven by heightened market volatility in the wake of the global financial crisis, the failure of traditional volatility protection strategies to protect investors and structural changes to asset markets that are increasing volatility, like high frequency trading. 

A number of new managed funds have been launched since 2008 that seek to address these needs. 

The paper warns that simply being “long volatility” is highly likely to be a loss-making strategy because of the high cost of buying and holding VIX futures. 

Using an actively managed volatility strategy with a bias to absolute returns is a better approach to mitigating losses in falling share markets and can produce higher returns overall for equities investors. 

Simple volatility strategies tend to succeed in reducing losses when the share market falls sharply, but also reduce potential returns when markets are rising. 

Active management of volatility can overcome this problem by exploiting mispricing and relative value opportunities in the VIX options market. 

“Volatility strategies that systematically exploit the alpha inherent in VIX options markets, or those that access VIX futures exposure when holding costs are not prohibitively expensive, can be combined with absolute shares funds to produce superior returns when compared with long-only equity market exposure,” the paper concludes.  

The research tested a number of different investment portfolios, which combined varying amounts of volatility strategies and actively managed absolute return and hedge fund strategies. 

It found that a portfolio which uses a specific combination of long-volatility strategies, volatility-arbitrage strategies and absolute return strategies can produce superior returns to other approaches, including a long-only equities strategy, over the long term.

6 August 2012

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S&P International Equity Research provides independent equity investment perspectives, with both qualitative and quantitative research on selected global equities. The research incorporates a broad array of proprietary S&P data on valuation, risk, and cross-asset analytics.

In the latest Wall Street Journal Best on the Street Analyst Survey, S&P Equity Research was again ranked the number one research provider globally. “S&P is pleased to add a recognised capability to the portfolio of products and services it offers to the Australian wealth management market,” said S&P Vice President of Sales, Jose Ordonez. 

With offices in 23 countries, S&P is known to investors worldwide as a leader in financial-market intelligence. S&P’s independent equity research business is among the world’s leading providers of independent investment information, offering fundamental coverage on approximately 2,000 stocks.

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We first assigned a five-star rating to the Fidelity Australian Equities Fund in 2008. Paul Taylor and his team of analysts at Fidelity have demonstrated great skill over an extended period of time and we believe the manager’s competitive strengths remain in place for this to continue. Conversely, while we continue to regard Ausbil and Perennial Growth as two of the stronger managers in this peer group, we no longer have a five-star level of conviction.

“Ausbil has continued to attract significant inflows across its large-cap strategies, which is testament to its exceptional long-term track record. While the manager’s flagship strategy is soft closed to institutional investors, we believe that strong growth in total assets over recent years may present some additional challenges in terms of Ausbil’s particular style of growth investing. For Perennial Growth, the retirement of Ken West in 2009 and subsequent departure of his replacement earlier this year have temporarily reduced experience in the key resources sector. This, in conjunction with modest performance outcomes relative to peers, has reduced our overall conviction,” said S&P Fund Services analyst James Gunn.

We have upgraded the three CFS growth funds to four from three stars, primarily due to our conviction in the depth of the team’s industry and stock research, as well as improved stability under the leadership of Marcus Fanning. Mr. Gunn concluded: “While we only assigned one five-star rating at this review cycle, the number of four-star ratings is a strong reflection of the overall quality of offerings within this peer group.”

We have now released ratings on nine of the 12 peer groups in our 2011 Australian Equities Large-Cap sector review. We will release the remaining peer groups progressively over the next month, followed by our key findings in the sector report. Reports for all funds rated in the peer groups published today are now available on S&P’s subscriber website www.fundsinsights.com.

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“Beta 1 style funds will typically maintain a net equity exposure of close to 100%, with the proceeds from short selling reinvested in their long positions. Short selling is primarily used to enhance overall fund returns and comes with increased market risk.”

“Variable beta style funds may utilise a broad range of strategies including short selling, gearing, derivatives and cash in order to adjust their net equity position in line with the investment manager’s market outlook.”

Of the 12 funds reviewed, none attained Lonsec’s top rating, Highly Recommended.

Sector themes and observations

High quality PMs entering the sector

While the universe has not increased all that dramatically, Lonsec is of the opinion that it has evolved with the introduction of a number of competing teams with strong skill sets and experience. “Historically the retail long short sector has been dominated by successful long only managers launching active extension or long short strategies,” commented Ngin.

“Lonsec believes that the shorting element is a specialist skill set and has tried to differentiate between solid long only investors versus investors with extensive track records in shorting.”

Post the GFC, the quality of personnel within the long short space has increased, especially at the portfolio manager level.

“We have seen a number of hedge fund investment professionals gravitate to the retail space, leading to greater sophistication and greater dispersion in portfolio manager skill sets and short selling experience,” said Ngin.

Key person risk is high

Key person risk for many managers is relatively high, given the additional specialist skill set required for the effective implementation of the shorting component of a portfolio.

“While we see this as a potential risk, at Lonsec we believe that key person risk is often worth taking,” said Ngin. “That said, in the event that a key person ceased to work within an organisation, the rating of the Fund would be reviewed.”

Stop losses – stopped out

While the market only returned 3.8% for the year to May 2011, it should be noted that this was a relatively volatile period. As a result, it wasn’t unusual to see managers being ‘stopped out’ of their short positions. Managers that employed less rigid approaches to their stop losses were more likely to benefit from this volatility as they were less likely to be stopped out of positions that would later turn profitable.

“While this strategy may have worked in the favour of managers with the less rigid approaches to their stop losses over the last 12 months, Lonsec acknowledges that good risk management in long/short investing is important and that improperly managed short positions can result in significant losses,” observed Ngin.

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 We are pleased to see stability return to the team at Hunter Hall after internally led changes resulted in the departures of four portfolio managers in late 2008 and early 2009. We see clear positive aspects in the current portfolio manager structure which pairs senior portfolio managers with more junior colleagues. “This more collegial approach to stock-picking encourages debate without compromising accountability and the manager’s performance-driven culture,” said S&P Fund Services analyst Justine Gorman.

The investment process continues to be refined with the introduction of additional portfolio risk constraints and improved portfolio-construction discipline. The manager’s value, bottom-up, benchmark-unaware style, gives the fund a relatively wide mandate, allowing large biases to specific securities, countries, sectors, or market capitalisations, which may deliver a different risk/return profile to the benchmark and peer funds.

This fund is currently meeting its objective and has a long, successful track record, even when measured against international small-cap benchmarks. “The fund’s ability to hold cash up to 30%, as well as to employ active currency management, gives it a level of flexibility that peers do not have,” said Ms. Gorman. Due to the active hedging policy, fund return volatility may be higher than a similar unhedged investment.

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“The GVI team has recently experienced some staff turnover, although the manager has been proactive in its recruitment efforts. Stephen Arnold, a senior analyst and equity holder is the most recent departure. New hires are Grant Cullens in a senior role and two junior equity analysts. Mr. Cullen’s appointment helps to diversify the portfolio decision-making process while enhancing the team’s macroeconomic considerations,” said S&P Fund Services analyst John Huynh.

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However unlike the US or Europe, the growth of these investment vehicles in the local market has been largely driven by retail investors, with most institutional investors seemingly reluctant to get on board.

A research paper by Russell Investments considers whether the Australian ETF market will start to develop in line with global trends and explores current perceptions and uses of ETFs with an institutional portfolio.

Click to view a full copy of the Russell Investments paper: Research – Institutional ETF Investing in Australia

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