“The median manager in the group returned close to 5% per year, after fees, ahead of the ASX Small Ordinaries Index over the past three years. It highlights the success of active management within the sector,” said John Huynh, analyst at S&P Fund Services. 

There were 45 headline funds in the review cycle, which included micro-cap, mid-cap and traditional small-cap strategies. S&P upgraded seven funds and downgraded two. There were five new funds and three withdrawals. 

The Aviva Investors Professional Small Companies Fund was upgraded, and is the only five-star offering in the peer group. This reflects our very high conviction in the capabilities of the team and the effectiveness of its investment approach. A healthy track record, combined with a competitive fee structure, make the fund attractive to retail investors. Other funds that were upgraded include NovaPort’s Small Companies and Microcap funds, the Perennial Value Smaller Companies Trust, the Ironbark Karara Australian Small Companies Fund, the Ausbil Microcap Fund and the BT Midcap Fund. 

While there is just one five-star fund, quality across the peer group remains high, as shown by the number of four-star ratings. When rating high-quality strategies such as the BT Smaller Companies Fund, and the Eley Griffiths Group Small Companies Fund, our highest conviction was primarily tempered due to concerns about capacity, and the risks associated with managing large amounts of money within the sector.  

The Invesco Australian Smaller Companies fund was downgraded to four stars. While remaining a quality offering, our rating action reflects a number of factors including broader peer-relative assessment and an overall reduction in conviction. 

New funds rated in this review include the Glennon Capital Small Companies, Concord Discovery Fund, Grant Samuel Tribeca Australian Smaller Companies, OC Dynamic Equity and Premium Equity funds, and LSC Australian Resources Hi-Alpha.

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The three investment options (classes of unit) provide a conservatively managed exposure to the specialised health care property sector but with different fee and liquidity mechanisms. 

“We view the team responsible for the trust very highly, in particular, head of health care and retirement property funds Chris Smith. The team, led by Mr. Smith, has delivered strong risk-adjusted returns to investors over a long track record. We’re comfortable that this can continue through the cycle,” said Nathan Bode, analyst at S&P Fund Services. 

Since our last review, the trust has raised over A$20 million through a priority rights offer (PRO). Capital raised will be used for the redevelopment and expansion of three hospitals. The PRO reduces the amount required to be funded from borrowings. Importantly, it maintains the fund’s relatively conservative equity/debt structure. 

The planned works increase the weighted average lease expiry (WALE), and smooth out the fund’s lease expiry profile (lease extensions have been negotiated for the three hospitals). While expansion and redevelopment initiatives like these introduce risks, and make management of the fund slightly more complex, Australian Unity Investments has strong active-management experience. Importantly, we view the redevelopment and capital management initiatives as being consistent with the manager’s focus on delivering strong, and improving, risk-adjusted returns.

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Lorana Szeto has been appointed to the role, effective immediately. Ms Szeto has 16 years’ experience including 10 years as the team’s resources analyst when it was part of Suncorp Investment Management. She rejoined the team in October 2011 following a four-year sabbatical, and has worked closely with Mr. Hodder over recent months. Ms Szeto now assumes responsibility for stock selection within the diversified metals and mining, aluminium, and precious metals sectors. 

Ms Szeto is an experienced resources analyst with significant tenure working alongside members of the Solaris investment team. We are comfortable with her appointment in light of Mr Hodder’s resignation.

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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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 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.

The post S&P assigns Three-Star ‘New’ rating to GVI Global Industrial Share Unhedged Fund appeared first on AdviserVoice.

Standard & Poor’s Fund Services has placed 15 funds managed by ING Investment Management (Australia) Ltd. (ING IM)  ‘On Hold’ following today’s announcement that UBS Global Asset Management has entered into a binding agreement to acquire ING IM. The acquisition is expected to close in October 2011 subject to Dutch Central Bank approval.

ING IM had A$34 billion in assets under management as of March 31, most of which is managed on behalf of ANZ’s wealth management business, OnePath. ING IM has stated that it will be working with UBS Global Asset Management to ensure a smooth transition for all funds and that there will be no changes to the way these funds are managed in the short term.

There are no changes to the ratings on funds managed by UBS Global Asset Management at this time.

“In S&P’s view, the uncertainty surrounding the ongoing management of the funds managed by ING IM has led us to place these funds ‘On Hold’. We will seek to resolve the ‘On Hold’ status for these funds when we have gained further clarity on the structure following the integration,” said S&P Fund Services head of research Leanne Milton.

The OnePath OA IP-OnePath Income Plus EF/Sel and ING Wholesale-ING Global Bal Emerg Mkts funds were already ‘On Hold’ before today’s announcement and remain ‘On Hold’.

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