S&P/ASX 200 VIX available in real-time

From 28 February, Australia’s equity market volatility benchmark, the S&P/ASX 200 VIX (VIX), will be made available in real-time.

This will provide the market with intra-day volatility information and importantly, enables ASX to create derivative products for hedging and trading the volatility asset class.

The real-time S&P/ASX 200 VIX will replace the current end-of-day VIX index by using the real-time bid/ask prices of S&P/ASX 200 index options to calculate the VIX index value.

The VIX is a tool for investors, financial media, researchers and economists to monitor the level of near-term volatility in the Australian benchmark equity index. The level of the VIX implies market expectations of volatility in the S&P/ASX 200 over the next 30 days and provides an indicator of investor sentiment.

ASX Deputy CEO Peter Hiom said: “Over the past few years of global economic uncertainty, volatility has emerged as an asset class in its own right. As a consequence, we have seen the global development of derivatives products that can hedge, trade and diversify investment portfolios against volatility.

“In Australia, customer appetite for derivative products over the VIX has grown since the launch of the end-of-day VIX index in 2010. The real-time VIX is an important pre-requisite for ASX to launch VIX futures, which we are on track to deliver towards the second half of this calendar year.”

“The real-time S&P/ASX 200 VIX constitutes an exciting step forward in the development of the Australian financial services industry,” said Guy Maguire, Head of S&P Dow Jones Indices in Australia. “The Index will allow Australian investors to gauge equity market volatility, while also serving as the basis for future investment products.”

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The number of managers is being cut from eight to three, with JCP Investment Partners (35%) the only incumbent manager to retain a mandate within the fund. Two new managers have been appointed, Antares Equities (45%) and Bennelong Australian Equity Partners (20%). Effective Aug. 31, 2012, the fund’s benchmark will also change from the S&P/ASX 300 Accumulation Index to the S&P/ASX 200 Accumulation Index. 

MLC has made these changes in an effort to address the fund’s poor performance. The manager believes these changes will improve the reliability of the fund’s alpha generation across various market conditions, while also minimising the volatility of performance outcomes consistent with the fund’s core objectives. 

These changes only affect the MLC Australian Share Fund, with no changes to the Australian shares component of the MLC Horizon funds. In late 2010, MLC separated the Australian shares strategy in the MLC Australian Shares Fund from that used in MLC’s diversified portfolios. As a result, MLC now has greater flexibility to vary the Australian equity manager mix between its single sector and diversified funds, which we believe has been the key driver in enabling it to reduce the number of managers used within this fund. 

We are comfortable with the announced changes for the fund and are pleased that there has been a reduction in the number of underlying managers, which was an area where we’d previously had concerns. The Australian equity capabilities of both new managers are also well regarded by S&P.

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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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The change was implemented in mid-June. 

Advance has stated the decision to change managers was to increase the multi-blend fund’s ability to adapt to short-term expected market volatility and to take advantage of the current investment climate. This also reflects Advance’s active management approach to protect investors’ interests and deliver its return objectives. 

As part of the changes, the Colonial First State mandate is terminated while the Perennial allocation is halved. In addition, Aberdeen Asset Management and AMP Capital Investors Ltd are added to the blend. 

11 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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