S&P Australian Fund Ratings are no longer valid, and all S&P Australian fund ratings and reports cannot be relied upon, effective immediately.

“We have appreciated our clients’ support throughout the wind down of the Fund Services business and we’d like to thank all of our clients for their business and support over the past seven-plus years,” said S&P Head of Research, Fund Services, Leanne Milton.

This action does not affect other products or services offered by S&P Capital IQ or its sister brands, S&P Dow Jones Indices and Standard & Poor’s Ratings Services.

All three brands remain committed to the Australian market. S&P Capital IQ will concentrate local resources on serving Australian institutional clients with a suite of domestic and global multi-asset class data, research, and analytics, delivered through integrated desktop and enterprise solutions.

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From September 1, Aberdeen Capital will rename this fund the Aberdeen Multi-Asset Real Return Fund, and it will be managed to achieve an objective-based absolute return outcome equivalent to the Consumer Price Index plus a margin of 5%. 

“The fund currently adopts a more traditional multi-sector approach to portfolio construction, adhering to a predetermined asset mix in pursuit of an investment outcome that is expected to comprise largely capital growth,” said S&P Fund Services analyst Andrew Yap. 

“To achieve this revised outcome, the manager will adopt a dynamic approach to asset allocation, deviating from the existing SAA+ tactical overlay approach. As a consequence, existing portfolio positions will be subject to change,” said Mr Yap. 

If existing Aberdeen Capital Growth Fund investors take no action, they will automatically be transferred to the revised Real Return Fund. Investors should seek independent financial advice to determine whether this fund’s revised investment approach remains consistent with their existing risk/return expectations and how this change might affect their overall investment portfolio.

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The 2012 sector review is our fifth review of listed infrastructure products and covers five listed-infrastructure strategies and three investment managers.

S&P’s fund analyst Nathan Bode said: “In recent years, the global listed infrastructure sector has performed broadly in line with expectations. While global equity markets have fallen, the infrastructure sector has proven reasonably resilient; outperforming broader equities. The listed infrastructure sector has experienced lower volatility, lower drawdown, and a relatively low return correlation when compared with broader equities. These characteristics continue to make listed infrastructure an attractive proposition within a diversified investment portfolio.”

“As demand for the listed infrastructure sector grows, the number of investment offerings in the market also grows. As the number of investment offerings grows, so do opportunities for investment practitioners. To date, this has played out in a number of ways: through a heightened level of team augmentation, as well as team turnover,” said Mr Bode.

There continues to be no five-star rated managers in the peer group; of the active managers, there is only one rated four stars. The ‘On Hold’ ratings of AMP Capital’s global listed infrastructure funds have been resolved as part of this review; with the previous three-star ratings reinstated. While we believe there are benefits in bringing in-house the management of AMP Capital’s listed infrastructure capability, the team—in its current form and structure—remains unproven over a market cycle.

26 July 2012

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The Australian Value Trust, Asian Value Trust, the Value Growth Trust, and the Global Ethical offerings (hedged and unhedged) were placed on hold in April 2012 after the departure of chief executive and portfolio manager David Buckland.

Mr Buckland’s departure was followed weeks later by that of portfolio manager, Chad Slater. These departures followed the resignation of deputy chief investment officer (CIO) and portfolio manager, Jack Lowenstein, in November 2011.

“We were disappointed to see the departure of such experienced and tenured portfolio managers but we took comfort from Hunter Hall’s hiring of portfolio managers Simon Bridger and Jonathan Rabinovitz, capable investors who each have over 25 years’ experience. The team of 13 now includes seven portfolio managers and two analysts,” said Mr Mills.

“While we are reassured by Hunter Hall’s overall level of investment experience and resourcing, we feel that the resumption of a stable team environment is very important for the firm following a tumultuous six months of staff turnover,” he said.

Risk manager and ethical analyst Michael Walsh is currently interim CEO of Hunter Hall, after Mr Buckland’s departure, but from July 30, will hand over his temporary executive duties to new CEO, David Deverall. Mr Deverall will focus on leadership and growth of the business.

24 July 2012

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Peer group ratings remained relatively stable. One ‘On Hold’ rating was resolved and one fund rating outcome is pending. Five headline funds were reviewed, which included active and passive, currency hedged, and unhedged funds.  

“There were no five-star rated offerings in the rated peer group, but manager and fund quality across the rated peer group remains high, as indicated by the number of three- and four-star ratings and no funds with ratings below three stars,” said Peter Ward, analyst at S&P Fund Services. 

“The rating action taken to resolve the ‘On Hold’ rating on the AMP Global Property Securities Fund reflects a lowering of the pre-‘On Hold’ rating from four stars to three stars. The rating outcome was driven by significant investment team changes that have occurred in recent months. These changes have tempered our previous level of rating conviction associated with the capability,” said Mr Ward.

 23 July 2012

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This is one of several key findings from Standard & Poor’s Fund Services’ alternative strategies – equity sector review covering beta variable, market neutral, and market exposure strategies. S&P Fund Services analyst Jason Patton said:

“Against an uncertain background, particularly in Europe, cash remains king. In a relative sense, alternatives are gaining ground in investors’ allocations, but flows to the sector, if any, are tending to favour managed futures and global macro managers; equity in general is not in favour. Still, our view is that some equity alternatives in the Australian market offer smarter exposure to the asset class.”

Some of the key findings from the sector review:

• The flexibility of the formats covered in our review (relaxation of the long-only constraint, freer use of options) allows skilled managers to protect to the downside while targeting reliable income streams, or remaining exposed to eventual upside participation if and when bull market conditions re-emerge. We continue to scrutinise managers’ use of options and of “the short side”.
• Beta variable managers that we perceive to be “sticking to their knitting” are rated highly—they use the short portfolio strictly defensively, if that is their heritage and skill set. Our review shows that the best managers are displaying a record of delivering downside protection, alternative income streams, and/or non-correlated sources of return that help to better diversify investors’ portfolios in a highly uncertain market.
• We continue to be impressed with equity income as a peer group, finding it to be under-appreciated as a potential core allocation for income-focused investors.
• Some Australian equities-based market-neutral trading strategies continue to punch above their weight as genuine absolute return “alternatives”. These strategies show alpha and, importantly, non-correlation, while avoiding significant draw-downs in negative equity environments and realising the portfolio diversification potential of the format.

19 July 2012

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We placed the fund ‘On Hold’ on March 27, 2012, following AMP Capital Investor’s (AMPCI’s) and Brookfield Investment Management’s decision to unwind their joint venture, AMP Capital Brookfield.

AMPCI has brought the management of its listed real estate capability in-house. While there has been a degree of team turnover within the global real estate securities capability (particularly in the US), there have been no changes to AMPCI’s well-resourced Australian-based real estate securities investment team.

“We consider senior portfolio manager Mark Ferguson a highly proficient real estate securities investor. More than that, over time we have witnessed Mr. Ferguson positively influence the development of the Australian-based analysts; analysts who are now making meaningful contributions to the domestic strategy. This underpins S&P’s four-star rating,” said S&P Fund Services analyst Nathan Bode.

AMPCI has sought to enhance its investment process. While stock-level research remains critical to the predominantly bottom-up investment approach, the work carried out and focus of the analysts has changed.

AMPCI has added flexibility in valuation, but introduced a more structured approach to portfolio construction.

“While there appears to be a higher level of engagement and ‘buy in’ by the investment team in the new process, we would expect that these changes will take some time to bed down. This is an area that S&P will monitor closely,” added Mr. Bode. The business transaction is expected to complete shortly, although the operational separation is complete.

16 July 2012

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Three funds rated four stars are Vanguard Australian Fixed Interest Index, Vanguard Australian Government Bond Index, and the Vanguard Cash Reserve Fund. The Vanguard Cash Plus Index Fund is rated three stars. 

All four strategies continue to provide a low-cost total return exposure to each of the funds’ reference benchmarks. After a review of its fee levels and due to its scale Vanguard has been able to reduce the management fee on the Vanguard Australian Fixed Interest Index Fund from 0.29% to 0.24%, effective 1 August 2012. 

Since our last review, we also note that Vanguard’s overall capability has improved with the implementation of BlackRock Solutions. “We believe that the fixed interest team is capable in successfully executing these strategies to meet their objectives due to their highly process-driven approach,” said S&P fund analyst Leader Simatupang.

10 July 2012

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The report covers a diverse number of products classified into Australian and global offerings and further by individual peer groups. These include “plain vanilla” bond funds that fall within the “fixed interest” classes and funds that differ in their make-up and therefore have a specific classification such as “credit” offerings including “high yield”. 

“For the past three years, our commentary on this asset class has incorporated discussions around the issues in peripheral European countries, and this year is no different. Performance in 2009 and 2010 was generally strong, but 2011 and the first half of 2012 proved to be a difficult time for active managers,” said S&P fund analyst David Erdonmez. 

Performance for our more core offerings has largely been dictated by duration and the ability to predict the future path of interest rates. Meanwhile, credit-focused offerings have been susceptible to widening spreads in a risk-off environment. 

Key points from the report are: 

• Bentham Asset Management and PIMCO are the only managers to receive our highest ratings in the global fixed interest sector with both managers retaining five-star ratings on their offerings.
• Tyndall Investment Management, PIMCO, Colonial First State Global Asset Management, and AMP Capital Investors received five-star ratings for their Australian fixed interest offerings.
• Two funds in our global fixed interest peer group currently remain ‘On Hold’. These are the OnePath Wholesale Diversified High Yield Trust, and the OnePath Wholesale Diversified Fixed Interest Trust.
• Turnover within investment teams was reasonable during this review cycle with the only notable change being team additions at UBS Asset Management. Former INGIM staff members Rachel O’Connor, and credit analyst Thomas Wu have permanently joined the team.

 9 July 2012

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Despite favourable views on the products, S&P has downgraded the North Protected Growth and Protected Investment Guarantee to a rating of ‘Strong’ and the North PRG to a ‘Sound’ rating. 

“Overall, we continue to believe that North offers investors an effective mechanism to help protect wealth by managing the downside risk of investment markets. However, since our last review there have been several changes to the features of these products,” said S&P fund analyst Josh Hall. 

In an important change affecting investor choice, the list of available investment options over which protection is available has been reduced significantly and now only contains diversified multi-manager products managed by AMP subsidiary, ipac. 

In addition, the costs associated with the protection mechanism have also increased by between 10 and 45 basis points per annum depending on the risk profile and investment time frame. 

“As a result of this reduced flexibility and increase in cost we have reduced our overall conviction in the North Protected Growth Guarantee, Protected Investment Guarantee and PRG products,” said Mr Hall.

6 July 2012

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