Amanda Gillespie

Lonsec Research has announced they have exchanged contracts to purchase the iRate technology and client base from the administrators of the van Eyk group of companies.

The acquisition of iRate allows Lonsec Research to fast track their technology offering to the planning and fund manager markets. Joint CEO of Lonsec Fiscal Holdings (LFH), the holding company of Lonsec Research, Amanda Gillespie, said: “Lonsec’s reputation for quality research is acknowledged and respected in the market place. The acquisition of iRate will not only allow us to showcase our research to the current iRate clients, but also to enhance and evolve the delivery of research and portfolio construction tools to our existing client base.”

The acquisition is a major stepping stone for LFH who continue to build their stable of businesses throughout the financial services industry. LFH had recruited a new IT team last year to bring to fruition a number of technology plays across the Group. General Manager of the LFH technology, Alex Watson, said the move was extremely logical: “We were recruited to bring to market a series of integrated platforms that would allow advisors, fund managers, superannuation funds and other key financial services entities, access to our vast array of data and research, in a market leading environment. The acquisition of iRate will be a key plank in the process and will save us at least eighteen months of development time and testing.”

The smooth transition of clients on iRate is the focus of Lonsec Research over the coming months. As Lonsec Research’s CEO, David Erdonmez, indicated: “The immediate priority is to ensure the existing services to iRate clients are maintained as seamlessly as possible, and that these clients have confidence in the research rigour of Lonsec that will now underpin iRate. We are also pleased to confirm our commitment to proceeding with the release of iRate Version 5, a major upgrade which will provide material technological advances in portfolio construction for all users”. This is expected to be released in the first quarter of 2015.

Lonsec will be working with the liquidators, Moore Stephens, to liaise with clients with regard to services. The expected date of transition is in three weeks’ time.

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The Triple3 Volatility Advantage Fund, which is distributed in the Australian market by Grant Samuel Funds Management, aims to generate long-term absolute returns with its volatility-focused strategy to capture alpha from highly liquid exchange-traded VIX options, which are negatively correlated to equities.

“The “Recommended” rating indicates that Lonsec has strong conviction the financial product can generate risk-adjusted returns in line with relevant objectives and that the financial product is considered an appropriate entry point to this asset class or strategy.

“The Fund is relatively simple in design and has intuitive appeal,” Lonsec says.

“It invests in exchange traded VIX options which are liquid and regularly priced. The Fund is heavily concentrated in just a few securities; VIX options, cash and cash-like securities, however given the nature of the strategy, Lonsec considers this to be an appropriate approach.

“From a broader portfolio construction perspective, the Fund is an appealing diversifier from traditional equity market risk.

“The Fund is expected to be causally negatively correlated to US equities when needed most (in times of falling equity markets),” Lonsec says.

Damien McIntyre, director and head of distribution with Grant Samuel Funds Management, says the rating is timely, and will increase the appeal of the Fund to the retail market.

“Investing in volatility is at the forefront of investor activity in the United States, and this is increasingly being reflected in the investment range available there.

“There are 22 VIX based exchange traded products that operate in the US market.  But until the launch of the Triple 3 Volatility Advantage Fund there was not one VIX based product in the Australian market.

“Investing in volatility provides the ability to diversify in ways that asset classes can’t, and Australian investors can invest in volatility through this Fund,” Mr McIntyre says

The Fund also has a AA rating from van Eyk.

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Robert da Silva

van Eyk Research has released its 2014 Australian Equities Review –as it enters the final stages in its highly-anticipated 2014 Fixed Income Review.

According to the review, value managers have significantly outperformed growth and style-neutral managers over the last three years with lower levels of risk, however, investors should brace themselves for extremely challenging economic conditions ahead.

A number of fund managers who participated in van Eyk’s latest Australian Equities Review believe there are still some pockets of value left in the market but the general consensus is that the market is fair-to-fully valued.

Robert da Silva, van Eyk’s head of manager research and deputy chief investment officer said the majority of large cap value managers, and various style-neutral managers, agreed that the valuations of the big banks had become stretched. Broadly, defensive and high yield stocks appeared to be at full, or near full, value.

“There continues to be a flight to quality and yield stocks, which can deliver growth at the micro level within the context of sub-par macroeconomic growth,” da Silva said.

Despite being underweight the financial sector, large cap value managers posted some stellar returns for the year to June 30, 2014. Growth managers, on the other hand, were comfortable being overweight banks, despite acknowledging the sector was at, or approaching, full value.

Value and growth managers in the large cap space were relatively optimistic on the materials sectors, notwithstanding the battering that mining companies have taken in the past few years. Both groups maintained overweight positions greater than 4 per cent.

In the small caps space, most managers were unwilling to rotate into the materials sector and held an underweight position due to the Small Ordinaries Index’s composition of poor quality mining and mining services companies.

In total, van Eyk considered 98 strategies across both the large cap and small cap universe with four large cap managers and four small cap managers receiving the firm’s highest rating of “AA” while 22 large cap and nine small cap managers were awarded an “A” rating.

Of the 98 strategies considered, 56 strategies participated in the review.

van Eyk’s research team, which is headed by da Silva, is currently in the middle of the 2014 Fixed income Review. The results of the Fixed Income Review are scheduled to be released in coming weeks.

Pre-screening is also underway for the 2014 International Equities Review.

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Chris Daily

Central banks could continue pumping money into the economy for decades and interest rates in the United States are set to rise but maybe not this year.

These were some of the conclusions drawn at a recent investment and portfolio construction conference.

According to financial advisers and experts at the Perfecting Investment Portfolios Conference, which was held in Auckland, New Zealand, the current cycle of quantitative easing could easily go on for another 5-10 years with some experts predicting loose monetary policy for even longer. The majority of delegates were convinced that QE had stabilised the financial system, however, they were mixed as to whether rates in the US would increase this year.

With global central bankers focused on avoiding a near-term deflationary environment at any cost, speakers Chris Daily, portfolio manager at Tribeca Investment Partners and Mark Thomas, chief executive and chief investment officer at van Eyk Research urged investors to think like a central banker and remain invested in growth assets.

“Central bankers are focused on reflating the economy to avoid deflation, in which case excessive liquidity is sustainable and investors should stay in equities for longer even though valuations may appear stretched,” Thomas said.

“QE seems to have a shelf space much longer than most are thinking. While there is talk about slowing QE in the US, it’s unlikely that they will remove it until deleveraging is more pronounced in the private sector. Europe has just started and Japan has no other option.”

The Annual Perfecting Investment Portfolios Conference, which is hosted by The Investment Store and Heathcote Investment Partners, focused on two key themes this year: “Bathing in the afterglow of central bank intervention” and “The déjà vu of emerging markets”.

These themes were developed by Shamubeel Eaqub, principal economist at the NZ Institute of Economic Research, who opened the conference. He was joined by other prominent speakers including Jonathan Ramsay, head of strategic research and consulting at van Eyk Research.Clayton Coplestone, director at Heathcote Investment Partners, said he was delighted by the high level of engagement from delegates and their openness to debate thought-provoking themes.

“We were able to stress-test conventional industry thinking, in order to deliver better outcomes for investors,” Coplestone said.

Matthew Mimms, managing director of The Investment Store, added that the conference provided investment professionals with an opportunity to hear a number of expert speakers discuss their views on key investment issues.

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Information and performance data on around 80 SMA portfolios are now available on van Eyk’s online research and portfolio construction tool, iRate. Over 20 SMA portfolios have been rated by van Eyk.

According to Mark Thomas, van Eyk chief executive and chief investment officer, investors and advisers are increasingly attracted to the direct share ownership, control and transparency provided by the SMA structure.

“As investors become more sophisticated, they want greater flexibility and control of their assets. With an SMA, investment decisions are outsourced to professional managers, however, the investor retains beneficial ownership of the underlying investments,” he said.

“Unlike managed funds, there are no embedded unrealised capital gains but rather all dividends, franking credits and any capital gains or losses flow through to the end investor.

While the take up of SMAs by Australian investors has been relatively low compared to other markets such as the United States, Thomas said growth was being supported by favourable trends including demand from the self-managed superannuation fund (SMSF) sector and an openness by advisers to hold investments “off platform”.

Citing a report by the Australian Taxation Office which showed over 60 per cent of SMSF assets were held in direct shares and cash as at December 31, 2013, Thomas said SMSF trustees wanted control, customisation and transparency but they also needed quality advice.

“SMAs may overcome some of the limitations of managed accounts however, they are not for everybody,” Thomas said.

“Investors need to seek professional advice to ensure that an SMA is the right solution for them.

The availability of SMA research on iRate follows the recent launch of new SMA products by the banks and a number of boutique investment management firms.

Thomas said van Eyk had plans to expand its SMA research capabilities in the next 12 months

van Eyk is currently one of the only research houses to offer SMA ratings.

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Robert da Silva

The environment is ripe for experienced Australian equity stockpickers and whole teams to break away from large investment houses and set up their own funds management boutiques, according to one of Australia’s leading investment research houses.

According to van Eyk Research, a number of well-established Australian small cap managers are experiencing capacity constraints and may close to new money in the near future, which will pave the way for new entrants.

Robert da Silva, van Eyk’s head of manager research and deputy chief investment officer, said the strong performance of Australian small cap managers in the past year, combined with steady inflows, had boosted the sector’s funds under management and pushed some managers closer to capacity.

“This has created an encouraging environment for new players to emerge in the small cap space,” he said. “Boutiques that have a quality team and investment process, and a consistently strong track record, should do well.”

However, there is still a disproportionately large number of core Australian equity managers given the relatively small size of the Australian market, da Silva said. He noted that only a small number of core and concentrated Australian equity strategies had been launched in the last few years while several boutiques had been shut down.

He identified a number of major headwinds for Australian equity managers including investors’ growing preference for direct shares, a reduced appetite for risk and valuations approaching fair value.

“The consensus view is that Australian shares are close to fair value but there are still opportunities for skilful active managers to add value,” da Silva said.

“The difference between the best and worst performing small cap manager in the past year was around 40 per cent which highlighted the value that can be added by choosing the right manager. By comparison, the performance differential in the large cap space was around 20 per cent.”

da Silva’s comments coincide with the release of preliminary findings from van Eyk’s 2014 Australian Equities Sector Review, which covered a universe of 56 Australian equity strategies.

van Eyk’s qualitative and quantitative evaluation began with a pool of 98 managers. This cohort was then narrowed to a group of 39 large cap and 17 small cap strategies who were invited to participate in the full due diligence process.

Of these, two large cap managers and one small cap manager refused to be included.

Only a handful of large cap managers were awarded van Eyk’s highest “AA” rating, demonstrating superior strength particularly in relation to investment research and the ability to garner unique insights and capitalise on them.

The van Eyk 2014 Australian Equities Sector Review saw four large cap strategies upgraded and three downgraded from 2013.

In the small cap space, da Silva said there was intense competition with a higher concentration of “AA” and “A” rated managers and a substantially lower number of strategies rated “BB” or “B”. Four managers were awarded the coveted “AA” rating.

Two small cap managers were upgraded but no strategies were downgraded.

“Funds managers are not automatically included in a sector review but must pass our initial screening process,” he said. “By excluding managers who are unlikely to achieve a recommended rating from process, we’re able to focus on higher quality offerings.”

A full report on the van Eyk 2014 Australian Equities Sector Review is being finalised and will be available by the end of June.

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Andrew Hunt

Deflation is a very real and mounting threat which must be aggressively combated before it completely derails a global recovery, according to a respected London-based economist.

Speaking at van Eyk’s Annual Conference in Sydney, Andrew Hunt, owner of Andrew Hunt Economics, warned delegates that rapidly falling inflation in the United States, Japan and throughout Europe was a serious problem, and demonstrated the failure of quantitative easing policies to stimulate growth.

“If the world wants to avoid a deflationary event and raise both global liquidity growth and global economic growth, it needs monetised fiscal expansion similar to that witnessed in 2010 and 2011,” Hunt said.

“Currently this approach appears to be out of fashion and so the threat of deflation will remain high in the first half of 2014.”

Hunt said QE employed by the United States Federal Reserve and other Western central banks had unintentionally created the wrong form of money. It had flooded the economy with “base money” which circulated within the banking system rather than putting more “broad money” in the hands of everyday people.

As a result QE had not increased the wealth of the average household or lifted consumer price inflation.

“In the real world, which economists don’t always live in, people and companies use broad money to settle transactions, pay their bills and save. They do not, and cannot, use base money but unfortunately QE policies have effectively only created several trillions of dollars of base money,” Hunt said.

“While the quantity of base money within Western financial systems has exploded over recent years, broad money growth has been minimal to negative.

A lot of the base money created by Western central banks has ended up within the financial systems of emerging markets.

While the emerging market bond market has quadrupled in size since the Global Financial Crisis to become one of the world’s largest asset classes, there have been detrimental side effects.

“The West’s decision to flood the emerging markets with credit via their own aggressive QE regimes and hyper-active financial systems set in motion a chain of events which has led to the creation of even more excess capacity in the World economy and a series of quasi-competitive devaluations by the world’s new producer economies,” Hunt said.

“Both of these effects are of course inherently deflationary for the global economy. This deflationary pulse emanating from the emerging worlds is all the more dangerous in the context of Japan’s adoption of competitive depreciation policy and the political upheaval within Europe.”

Andrew Hunt was a keynote speaker at van Eyk’s Annual Conference. He is director of London-based Andrew Hunt Economics and a consultant to van Eyk Research.

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Robert da Silva

The current economic landscape is full of major economic and political threats which have the power to devalue assets and destroy wealth, according to investment research firm van Eyk Research.

Speaking at van Eyk’s Annual Conference in Sydney yesterday, Robert da Silva, van Eyk deputy chief investment officer and head of manager research said the five biggest challenges facing investors were the unwinding of monetary stimulus by central banks, deflation across Europe and in the US, a further slowdown of China’s growth, and political instability and rising debt levels in the emerging markets.

“Unfortunately 2014 is unlikely to be as clear cut as 2013 which was an exceptional year for risky assets and a tale of woe for fixed income markets,” he said.

“The volatile economic environment and the change in valuations, with global equity markets delivering returns in the range of 20 per cent to 50 per cent last year, have made assessing the markets a very difficult task.”

Mr. da Silva told delegates to get comfortable with Fed tapering and the jittery markets that often followed any mention of it by central bankers and financial commentators.

He urged investors not to get caught up in the mania and panic that ensued after the release of vital economic data and to avoid costly buying and selling.

Instead he cited data which showed the benefits of sticking to long-term objectives and investment strategies.

“Tapering is here and the Fed has the difficult task of withdrawing its buying support of US Treasuries without upsetting the progress of a consistent but fragile economic recovery,” Mr. da Silva said.

“At the same time, core inflation in the US has been in a downward trend while unemployment remains higher than acceptable.  This must be reversed to avoid the possibility of inflation. Europe is grappling with similar issues and may require further easing.

Mr. da Silva said the emerging markets were being hit hard by the impact of tapering as well as political unrest, resurgent inflation, current account deficits, currency volatility and return on equity compression relative to developed markets.

“The long term view would look to the favourable demographics, productivity dividend, growing middle class and relative cost advantages that have attracted investors to emerging markets for decades, however, emerging market stocks have not performed as well as their developed market counterparts in the last 18 months,” he said.

“Furthermore, there is a laundry list of issues bedevilling emerging markets at the moment and volatility is likely to persist in the short term.”

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Interest rate announcement a blow for retirees.

The Reserve Bank of Australia’s decision to keep official interest rates on hold for the ninth consecutive month was expected but still came as a blow for income-hungry retirees grappling with falling term deposit rates and volatile equity markets.

The last movement in rates was in August last year when the RBA cut rates to 2.5 per cent. As a result, the yield on some term deposits will effectively be nil after inflation.

Given the cash rate is expected to remain at record low levels for an extended period of time, retirees and other income-focused investors should consider diversified fixed income strategies, according to leading investment research company, van Eyk Research.

van Eyk chief executive Mark Thomas said diversified fixed income funds were an increasingly attractive alternative to term deposits.

He added that skilful, active managers deliver comparable levels of income to equity income funds and real estate investment trusts but with considerably lower volatility.

“The world is still a risky place and bonds still represent a relatively low-risk source of income for retirees and other income-focused investors,” Thomas said.

“An actively-managed diversified fixed income fund can provide both income and capital preservation with the potential for some capital growth. This is important because many people will spend 20 years or so in retirement so they also need some exposure to growth assets to fight inflation and ensure they don’t run out of money.

van Eyk Research has been successfully managing its diversified fixed income strategy since 2008. The group’s investment philosophy is based on the belief that active management and the ability for managers to invest across the entire fixed interest universe is essential to managing the growing risks in bond markets.

van Eyk deputy chief investment officer Rob da Silva said challenging market conditions coupled with the surging number of baby boomers in, or nearing, retirement made it imperative for fund managers and financial advisers to help their clients build robust portfolios which provided a regular stable income

“There are warnings that bonds are too expensive and there may even be a bond bubble, which is why we select active managers who have a proven ability to add value by reducing exposure to certain parts of the bond market when valuations become stretched and increasing exposure when valuations become attractive,” da Silva said.

“The managers we have selected also have a broad mandate to look across all the opportunities in bond markets such as sovereign and corporate bonds, syndicated loans, emerging market debt and other credit opportunities.”

The van Eyk Blueprint Diversified Fixed Income Fund aims to provide a reliable, relatively stable yield over the return on term deposits with a sharp focus on capital preservation.

The Fund invests in seven underlying funds, representing the best ideas of the group’s rigorous investment research and innovative approach to portfolio construction.

About one third of the Fund is allocated to absolute return bond funds, releasing managers to use active management to pursue positive returns regardless of the overall market direction.

The van Eyk Diversified Fixed Income Fund includes Bentham, Macquarie Group and GAM as underlying strategies. 

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Naomi Acton

Leading investment research company, van Eyk Research has bolstered its manager research team with the appointment of three new analysts, as it prepares to host its 11th Annual Conference in Sydney on April 9.

Murray Asken has joined van Eyk from UK-based fund manager Broadstone Pensions & Investments, where he advised institutional, wholesale and retail investors. Prior to that, Mr. Asken was a portfolio analyst at Perpetual.

Naomi Acton has joined van Eyk from NAB Wealth & MLC, where she held a variety of roles. Ms. Acton was most recently with MLC Private Equity. Graduate Adam Congiusta has also joined the group’s manager research team.

All three analysts report to van Eyk’s head of manager research and deputy chief investment officer, Rob da Silva.

“We’re extremely pleased to have such capable, talented and motivated individuals on board,” Mr. da Silva said.

“As a team we’re committed to the delivery of rigorous, thoughtful research that will add value to our clients.”

Mr. da Silva joined van Eyk in November 2013 following 12 years with Principal Global Investors, where he was formerly managing director, Asia Pacific Fixed Income.  Prior to that, he spent 11 years at BT Financial Group as an executive vice president and fixed income portfolio manager.

van Eyk chief executive Mark Thomas said the strengthened manager research team would ensure financial advisers continued receiving thorough research, expert analysis and thought leadership.

“Rob has done a fantastic job building up the team. We were impressed by the number and quality of the candidates who applied, and the successful candidates display the drive and skills we require,” he said.

Mr. Thomas said the company had also experienced a surge in enquiries and registrations for its 11th Annual Conference, with Hollywood film producer and author G. Edward Griffin and economist Andrew Hunt now confirmed as plenary speakers.

This year’s conference will analyse the uncertain global macro-economic landscape and implications for the Australian economy as well as explore themes including the search for yield, succession planning and the current residential property boom.

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