Chad Padowitz

Australian Unity Investments’ equities fund manager partners agree that while the overall outlook for markets – both domestically and internationally – looks positive, investors need to be selective.

Chad Padowitz, chief investment officer at global equities manager Wingate Asset Management, said 2014 will be a more challenging year than 2013 for investors, although there are still good opportunities around.

“There was a bit of investor complacency in 2013, as the lack of alternative investment options and low volatility enticed investors back into the equities market. Yields have been attractive and valuations have largely been an afterthought.

“This year, investors will need to pay more attention to valuations in order to pick the best opportunities.

“There will also be significant differences in how various economies perform in 2014. For instance, the US is looking very strong, with an improving labour market, oil/shale revolution, manufacturing renaissance and strengthening housing markets. However Europe is treading water, and China is making the difficult transition from investment to consumption, and may experience a credit crisis.”

Mr Padowitz said in addition to the energy sector and selected cashed up corporates, some of the best opportunities for international equities are likely to lie in healthcare, where investors can benefit from improving efficiencies.

Mr Padowitz added that the introduction of “Obamacare” in the US will create both winners and losers for investors.

“Companies with scale and low costs – such as large insurance companies and service providers – will benefit from Obamacare, while those with high profit margins and minimal product differentiation will find the new environment much more challenging. This includes hospitals and medical professionals.

Donald Williams, chief investment officer at Australian equities manager Platypus Asset Management, agreed with the opportunities in healthcare and said there are also a number of positive signs for the domestic market.

“We are now seeing the lagged impact of low domestic interest rates, which are starting to have the effect the RBA was looking for, and the declining Australian dollar is generally positive for earnings.

“Consumers are more optimistic; the property market is improving, resulting in a wider wealth effect among Australians; and the IPO market is back which is often a precursor to M&A activity.

“All these indicators lead us to be reasonably bullish for Australian equities, though the February reporting season could be tough, reflecting the ongoing weakness in the economy last year.” Mr Williams said.

In the Australian healthcare sector, Mr Williams said that there are a number of positives for companies such as Resmed, Ramsay Healthcare, Healthscope and CSL.

“The falling Australian dollar combined with the defensive earnings profile of companies such as Ramsay, Virtus, Resmed and CSL suggest a good outlook for such companies.

“We also anticipate a number of healthcare IPOs in 2014 which will create good opportunities for investors.”

Mr Williams added investors will need to pick and choose where to put their money very carefully.

Chris Smith, head of healthcare and retirement property at Australian Unity Investments, said like the rest of the world, growth in healthcare property and services in Australia is pretty much guaranteed because of the aging population.

“Our aging population and greater longevity, combined with generally increasing prosperity, will lead to greater demand for healthcare, both facilities and services.

“Both the government and the private sector will need to step in to meet this demand over the next few decades,” Mr Smith said.

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With Rio Tinto upping its payout to shareholders and JB Hi-Fi, Cochlear and OZ Minerals following suit this reporting season, it may be tempting for investors to buy up dividend paying stocks. However, according to Russell Investments’ latest paper, Dividends are the new black – Why the classics always come back in fashion, it is important for investors to consider more than just yields and know which companies are worth buying and which companies have unsustainable dividends.

The theme of income investing has experienced a surge in popularity recently owing to the attractiveness of dividends as a consistent source of positive returns and having less volatility in lower growth environments. On this, Russell’s new paper provides a ‘how to guide’ for getting the most out of dividends by indentifying companies whose dividends are likely to grow over time. This includes assessing multiple characteristics such as historical dividend yield, forward looking dividend yield, historical dividend trajectory and earnings variability over multiple time periods.

Russell’s ETF product specialist, Bronwyn Yates says the paper has given consideration to the role after-tax strategies play in the income investing theme, with the paper explaining how to make the most out of franking credits to achieve an alternative source of return for investors.

The Russell paper also looks at using different dividend strategies for different investment stages by highlighting the importance for those in the accumulation stage to think of dividends as a way to supplement growth in a volatile market. Those in decumulation should use dividends to supplement income to avoid drawing on capital.

Click here to read the full report.

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Investing for growth has long been in vogue for Australian investors, and with recent periods of long term growth, it is easy to see why. However, the often overlooked dividend may provide a more consistent source of return that can help investors tailor a portfolio to meet their needs.

While the Australian market is well known for its growth opportunities, it may be surprising to some that it is the old faithful dividend that has driven a significant component of our historical share market
return. As shown below, over the last 10 years dividends represent 4.1% of the total return of the Australian market with a further 1.4% attributed to franking credits.

Dividends – always in season

Any balanced and well diversified portfolio needs an element of growth, but income as a source of return should not be overlooked and left for the bottom drawer.

In high growth periods, we can see that dividends still provide a valuable contribution to the total return of the market. Dividends can play an important complement to the growth component of a portfolio, even in high growth environments.

In negative return periods, dividends can also provide a positive source of return that can minimise the impact of the negative return on the capital component.

Why dividends are so hot right now

However, it is in times of low or slow growth that we see a greater interest in dividend opportunities. As we see increasing indicators that we will continue to have a slow growth environment at least in the short term, dividends can play an important role in getting the most out of your portfolio return.

Furthermore, by comparing the sources of return of the Russell Australia High Dividend Index (below), it demonstrates dividends provide a consistent positive return source that has a much lower volatility compared to the price returns. So while an investor may not require income in itself, income as a source of return may be attractive with its lower volatility over market cycles and greater value of total return in slow growth environments.

Picking designer dividends from cheap imitations

Dividends can be used to give an illustration of the general health of company, including its growth prospects and its predictability and stability of earnings. However, it is important to know how to tell a designer from a cheap imitation.

Dividend yield alone is not a good indication of future income. High dividend yield figures may in fact be a result of extreme falls in price that potentially reflect market concerns regarding the sustainability and stability of a company’s earnings.

For example, Telstra’s recent yield has moved around 10% p.a. If we take an investor who made a $10,000 investment in Telstra 10 years ago, they would now be receiving income of around $370 per year.

We can see from this chart that by chasing yield alone your future income opportunities can be limited if the price is not sustainable.

However, by looking beyond yield alone, a number of other strong and sustainable income opportunities can be identified.

For example, BHP is not synonymous with being a high dividend paying stock. But under the same scenario, our investor would be receiving around $750 in dividends plus franking credits. This is in addition to the capital growth opportunities an investor can benefit from.

Therefore, if an investor looks beyond yield alone, they can benefit from a growing income stream that is delivering a greater dollar value while also maintaining the potential for capital growth over time.

Therefore instead of relying on a simplistic yield metric, there are additional characteristics that can be evaluated when identifying more sustainable dividend opportunities. The Russell Australia HighDividend Index for example, assesses dividend characteristics based on four key criteria:

• Historical dividend yield
• Forward looking dividend yield
• Historical dividend trajectory
• Earnings variability

By assessing multiple characteristics, and over multiple time periods, it provides a more robust way to evaluate dividend opportunities and ensure that future dividend opportunities are sustainable. Instead
of chasing the higher yielding stocks and creating portfolio turnover to do so, the more sustainable dividend opportunities allows you to minimise transactions and also the subsequent taxation
implications.

Franking credits – the perfect portfolio accessory

As after-tax investing grows in fashion, investors are seeking ways to include tax strategies to complement their portfolios. Dividends and their associated franking credits can be an ideal way to give the after tax portfolio return some much sought after enhancement.

By receiving dividends, investors also receive the benefit of franking credits that represent a tax credit that can be used to offset tax liabilities. For low or zero tax paying investors, such as those in pension phase, franking credits can be exchanged for cash through the Australian Taxation Office. In order to quantify this benefit when evaluating income opportunities, the dividends can be grossed-up to ensure the franking credit value is considered.

Therefore, a way to consider franking credits is an alternative source of return in addition to price and income return. To illustrate this, the grossed up total return of the Russell Australia High Dividend Index
can be deconstructed to unique sources of return, demonstrating that franking credits may provide material benefits to a portfolio on an after tax return basis in addition to other return sources.

How you can get the most wear out of your Dividends

By tracking the different capital and income return of the Australian equity market, we can see that as the capital value increases over time, so does the dollar value of the income. This is in contrast to cash, where the capital value and income return does not see growth over the long term.

Source: Shares = S&P/ASX300 Price Index and S&P/ASX300 Accumulation Index, Term Deposit = Reserve Bank of Australia 12 Month Term Deposit Rate (> $10,000)

If an investor does require an income stream to grow over time the growth of capital is also important. To enhance the potential of this growing income, the capital base needs to increase also.

A way to potentially do this is to reallocate some gains from the growth part of the portfolio to the dividend paying component, this will enable an increase in the capital base of the dividend component and further enhance the dividend opportunities. In practice, this may be implemented by re-allocating realised capital gains (eg distributable CGT of an actively managed fund) to a dividend strategy.

Alternatively there are strategies that combine growth and dividend objectives that support this concept.

How you can style your dividend strategy for all seasons

Dividends can play a key role in any investors’ portfolio. Dividends can deliver a more consistent source of return over the long term, while price values may be volatile in short term, but knowing that they will
continue to provide a sustainable component of the total return even in high growth environments. The added benefit of dividends is their associated franking credits and the tax benefits they can bring investors.

There are specific ways that different types of investors may wish to implement and use dividends in their portfolios throughout their investment lifecycle.

Accumulation

• Not all investors want income. However, dividends can provide a sustainable source of positive return that offsets the impact of negative price returns in volatile markets.
• Franking credits used to offset tax liabilities – useful for those with higher marginal tax rates
• Income can be used to offset or reduce expenses in gearing strategies such as margin lending interest.

Transition to Retirement (TTR)

• Income can be used in TTR strategies. Not only does the income provide a way to assist strategies such as salary sacrificing, but also the franking credits can be used to offset tax liabilities.
• By purchasing investment with dividends before retirement, using the income and deferring any sale of capital until the pension phase, capital gains tax implications can be deferred until investors are in a zero-tax environment.

Decumulation

• Use dividends to supplement income and avoid drawing on capital.
• By remaining invested in equities, sustainable dividend opportunities can provide growing income potential with capital growth opportunities.
• Use your franking credits to receive a cash payment from the ATO.

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ASSET ALLOCATION

Trevor Greetham, Director of Asset Allocation

Growth among developed economies remains tepid, with availability of credit the limiting factor. Housing markets are weak and the tailwind from the rebuilding of depleted inventories is petering out. I expect other central banks, led by the Bank of England, to follow the example set by the Fed by printing more money.

In contrast, I expect emerging market authorities to continue to tighten their monetary policies. Their growth was not credit-constrained and spare capacity is scarce. Further US dollar weakness associated with QE2 will also provide stimulus to these economies, at a time when inflationary pressures are already mounting.

A decoupling from weak developed economies should also support further strength in emerging market currencies. Stocks in emerging markets are also likely to do well as long as authorities are not forced to tighten too much.

Commodities also seem likely to do well if weak US growth leads to further Fed liquidity injections. They are also likely to perform well if US growth recovers, as demand will remain strong for some time even if emerging market governments tighten policy aggressively. In the weak US economy scenario, gold will probably continue to do best as investors use the metal to hedge both inflation risks in the emerging markets and fears of currency debasement in the developed world. Industrial metals would probably do best if global growth picks up in a synchronised way.

I think developed market stocks could surprise positively once the industrial cycle picks up but it could take three to six months to work off excess inventories and ramp up production. I am relatively cautious on the eurozone as the European Central Bank appears unwilling to print money or engage in competitive devaluation. Spain will be the key to a more positive outcome, as its economy is too big to rescue with ease. However, it is a major manufacturer whose exporters would benefit from improved global demand and a recovery in growth would provide a boost to confidence for the entire region.

Until such time as growth in the developed world becomes more tangible, bond markets could continue to fare better than equities. However, once a strong global growth trajectory is established, yields are likely to rise from low levels, exposing investors to capital losses they are not accustomed to.

With the global economic cycle likely to remain short and asset prices volatile, it will be important to maintain a well-diversified portfolio in 2011 – and to be flexible in terms of asset allocation, taking advantage of the tactical opportunities that will undoubtedly arise as policy actions announced towards the end of 2010 begin to take effect, for good or for ill.

ASIAN EQUITIES

David Urquhart – portfolio manager Fidelity Asia Fund

Asia continues to grow healthily although the pace of growth in 2011 is likely to moderate from the strong rebound in growth seen from 2009 and into 2010. Driven by solid domestic demand, the region is expected to deliver GDP growth of around 8% in 2011 (versus 9% expected for 2010). Despite the slow growth of Asia’s traditional export destinations, North America, Europe, and Japan, trade within the region has rebounded remarkably strongly after a precipitous fall in 2008. A large part of this rebound has been intra-region exports of final products. Demand from within the Asian region, and in emerging markets globally, is playing a bigger role in this upswing. In addition Asian brands (ex Japan) are continuing to take market share from US, European and Japanese brands. The advantage of lower production costs continue, allowing Asian companies to deliver to customers better value-for-money. In addition the gap in product quality continues to narrow against the more established brands. This is most notable in the consumer electronics industry. Domestic demand in Asia remains resilient, supported by increasing affluence (real wage growth is typically faster than real GDP growth in Asia), low debt levels and high savings rates. All of which are likely to support multi-year growth.

Martha Wang – portfolio manager Fidelity China Fund

2011 is going to be an interesting year for China as it continues to pursue structural reform to ensure economic growth. The focus will continue to be quality of growth versus quantity.  As outlined in the preliminary twelfth five-year plan, Chinese government’s development plans are expected to centre around pro-consumption policy to continuously stimulate domestic consumption. In terms of pro consumption policies, the public spending on healthcare and social security are expected to rise. RMB appreciation and wage growth will continue to be growth catalysts, boosting domestic demand and household income.

Teera Chanpongsang – portfolio manager Fidelity India Fund

India is expected to continue to generate strong real GDP growth, driven by underlying structural growth trends such as a large labour force, growing domestic consumption and increased infrastructure spending.  These provide compelling investment opportunities and should lead to strong earnings growth in the coming years. Growing income levels in a fast growing population, together with high savings rate and low debt levels should continue to support consumption, which in turn would create more investment opportunities. Local manufacturing firms are also working close to their full capacity, which suggests that more greenfield and brownfield expansions will happen, once again creating investment opportunities.

Robert Rowland – portfolio manager Japanese equities

I maintain a cautious outlook for Japan. The country’s economy is set to slow as global growth momentum wanes, output gaps persist, capex growth remains weak and wage deflation continues. While downside risks to the economy have undoubtedly increased and deflation remains entrenched, Japan’s proximity to high-growth Asian economies such as China should provide a measure of support to exporting companies.  Furthermore, the government is in the process of formulating additional support measures and the Bank of Japan has eased monetary policy further by effectively cutting its policy rate to zero and increasing asset purchases. Meanwhile valuations of Japanese stocks remain supportive, with both asset- and earnings-based metrics at the lower end of historical ranges. I believe that the downside of the market is limited, but the market has few upside catalysts.

OVERSEAS EQUITIES

Adrian Brass – portfolio manager US equities

I expect the US economy to continue to recover from the depressed levels of last year, due to stabilisation of the major structural overhangs, such as the financial system, housing and unemployment. While, in the short-term, unprecedented levels of stimulus from quantitative easing programmes are driving asset prices higher over the longer term I remain concerned by the levels of government and consumer indebtedness and the possibility of rising taxes. However, the US is a broad market in which I am able to find plenty of attractively valued investment opportunities.

Alexander Scurlock – portfolio manager European equities

I continue to be positive on European equities, since I think market valuations are favourable, especially versus government bonds.  In particular, I continue to believe the core areas of Europe are most attractive.  In particular, Germany is the prime beneficiary of stronger growth in emerging markets and a ‘one-size-fits-all’ ECB policy. Fiscal austerity in southern and peripheral European states, however, reinforces my conviction that overall European economic growth will be sluggish, as rising taxes and cuts in spending curtail business activity. My focus is on finding sustainable growth opportunities within this challenging economic environment. The key to this is pricing power. Companies that have pricing power will attract a premium in an environment of low inflation and low economic growth.

Nick Price – portfolio manager emerging market equities

The secular drivers of emerging markets remains intact: attractive demographics, competitive advantages from low labour costs, an abundance of natural resources, increasing prosperity, productivity gains and sound fiscal management. At this stage, I do not yet subscribe to the idea of an emerging market bubble.  I continue to find attractive opportunities at reasonable valuations. Regardless of any near term volatility in equity markets, I remain extremely positive over the long term.

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According to Mr McNeill, Aviva Investors has seen strong signs that the listed property sector is recovering from its ‘self inflicted wounds’, largely driven by a return to the fundamentals that stood it in good stead prior to 2005: conservative gearing, good management, and ownership of high quality properties.

“The role of listed property as a defensive asset class offering reliable returns and high liquidity even during the tough times is one that was forgotten when many listed property trusts (also known as REITs – Real Estate Investment Trusts)  took their eye off the ball in the chase for frankly unrealistic and certainly unsustainable returns,” said Mr McNeill. “Such strategies included the use of excessive gearing, unsuccessful forays into overseas property markets and corporate structures that failed to focus on shareholder value.

However, according to Mr McNeill, many REITs have learned their lesson, cleaned up their portfolios and strategies, and refocused on the basics. And investors should be the beneficiaries.

“There’s an increasing number of REITs now able to offer investors what they should always have had from their listed property investment – that is, exposure to high quality, diversified real estate portfolios that deliver an attractive, sustainable and growing income stream,” he said. “These options may not be glamorous but they are solid, effective and reliable.

“Investor interest in the sector has definitely increased. We’re meeting and briefing an increasing number of advisers and they are very pleased to hear our current views on how the listed property sector has improved, as it enables them to offer their clients a relatively low risk investment with the income returns they want,” he said. “Even advisers who’ve been burnt in the past are now revisiting the sector and looking for a managed fund that has a simple structure, full liquidity and offers exposure to a diversified portfolio of good quality REITs.”

According to Mr McNeill, three REITs that illustrate Aviva Investors’ current view on listed property are:

• Bunnings Warehouse Property Trust. “This has been a good performer over the last five years, with growing income distributions, quality management and conservative gearing,” he said. “It is an example of how a simple, old fashioned property trust can meet the risk and return objectives of REIT investors.”
• GPT Group. “GPT is probably the best example of the sector’s back to basics approach, having fixed its balance sheet, simplified its strategy and returned to its position as an owner of some of Australia’s best commercial property assets,” said Mr McNeill.
• Westfield Retail Trust. “This spin off of 50% of Westfield’s Australian and New Zealand shopping centre portfolio has been designed as a simple old-fashioned REIT, focused on owning quality property and paying out the majority of its net income as a distribution to investors,” said Mr McNeill.”

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This is the view of leading wealth management strategy and product specialists Tria Investment Partners (Tria), which today released a research report investigating the trends in yield investments.
[to download the full Dimensions Wall of Money report, click here: Report: Wall of Money]

Tria said traditional yield managers face an uncertain future, and that a range of expected measures would include these players: Updating existing product lines Manufacturing new and innovative product solutions Closing down illiquid products caught short by the recent financial crisis.

Tria partner Andrew Baker says the so-called flight to safety and subsequent “wall of money” phenomenon is no urban myth.

“It exists. Our estimates suggest some $70 billion in additional new cash was stockpiled in bank term deposits at the height of the GFC. This is cash that might otherwise have been invested in traditional yield investments such as mortgage trusts, income funds, and the like,” he said.

“The question is: ‘will the wall crack and release cash back to the managed investments industry, and if so, when might this occur?’” Mr Baker said.

The good news for the asset management industry is that the flow of new money into term deposits has eased, despite the rollover rate for existing funds being maintained.

“This suggests some relief in sight with cash being released. But, the next catch for the industry is to devise new means to capture service and retain these funds with products that heed the lessons of immediate history.

In other words, players in the managed mortgage, cash and fixed income fund space must re-cast their strategies to take advantage of new opportunities for second generation yield investments, he said.

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Defensive stocks have proved to be the best choice for dividend yields in the Russell Australia High Dividend Index reconstitution, while old favourites such as Fosters, Qantas and Telstra were down-weighted. The reconstitution has added eight new high-yield stocks mainly in consumer discretionary, energy, materials and processing sectors, but financial stocks (including REITs) dominate its top ten exposures.

The Russell Australia High Dividend Index (RAHDI) comprises Australian blue-chip companies with a bias towards those that have a high expected dividend yield. The companies within the index also meet other characteristics including: a history of paying dividends; dividend growth and consistent earnings. This was the first annual reconstitution of the RAHDI, since it was launched earlier this year by Russell Investments, one of the world’s largest index providers. The index forms the basis of Russell’s High Dividend Australian Shares ETF (RDV), listed on the ASX.

Defensive stocks like Metcash, Goodman Fielder, Transurban, QBE and Tab Corporation rated well. “Overall RAHDI has a 10% higher exposure to defensive names than the broader market1, so it’s not surprising that these defensive favourites figure highly,” said Scott Bennett, portfolio manager at Russell Investments. “Goodman Fielder for example increased its weighting due to its high forecast yield (over 8% after franking credits) and more defensive qualities.”

Meanwhile the index reduced exposure to Fosters and Qantas following dividend cuts in the August reporting season. “While they are expected to resume dividends in 2011, there are other companies that carry a higher weight in the index,” said Mr Bennett.

Telstra was also not favoured despite its high yield. “Telstra continues to trade on an extreme yield of 14.5%2 after franking credits have been included. It is likely to experience reduced margins in its mobile phone, which the market is anticipating will put pressure on its dividend going forward. RAHDI is specifically designed not to chase companies that are trading on extreme yields and, as a result, Telstra continues to be held only at market weight,” Mr Bennett said.

Financials dominate but shift towards real estate

Sector-wise, financials still have the largest overall exposure, making up 48.3% of the index, based on that sector’s high dividend yields. However, at the September reconstitution there was a shift away from banks and into real estate investment trusts (REITs), with increased exposure in Stockland, Mirvac and CFS Retail Property Trust.

“Yields on REITs are beginning to look more attractive as they restore their balance sheets and reduce gearing, allowing them to focus on returning income to shareholders,” said Mr Bennett.

Materials had the biggest turnover with three companies added: Incitec Pivot, Newcrest Mining and Sims Metal Manangement while two were removed: Aquarius Platinum and Oz Minerals. “Within the metals and mining sector, the steel companies, Bluescope and Onesteel, are rating the best with both companies expected to grow their dividends significantly over the next three years,” said Mr Bennett.

The one-year forward yield on the Russell Australia High Dividend Index after the reconstitution is 7.2%, (gross with franking credits). After taking into account franking credits the Russell Australia High Dividend Index is currently trading at a 1.5% premium over the broader Australian sharemarket yield.
 
The Russell High Dividend Australian Shares ETF (RDV) has now added $69 million under management as at 18 October 2010.

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This allows All Star Funds to provide greater transparency plus cost savings on fees, which are being passed onto investors with a total ICR of 0.85% (plus performance fee).

According to Mulligan, “the anticipated operational and investor reporting efficiencies, as well as enhanced control of the investment mandate parameters and practices, are the key benefits of this move.”

The All Star KFM Income Fund fared well through the volatility of the GFC, delivering “a high yield, with full liquidity,” which according to Mulligan is due in part to the Fund’s strong sector diversity. Buywrite options provide capital downside protection.

“Feedback from advisers is that the Fund delivers strong income results for clients, and that this is the type of product they really need in their clients’ portfolios” said Mulligan. She continued, “Advisers are keen to provide their clients with a good deal on price; passing on the cost savings from the restructure makes the Fund even more attractive.”

As at the end of July, the Fund’s running yield is 7.3% inclusive of franking credits, which compares favourably with official interest rates of 4.5%.

The Fund is managed by Kaplan Funds Management Pty Ltd, an absolute return manager focussed on income producing strategies which was established in 1998.

“We selected Kaplan due to the team’s solid experience in income strategies, as well as for their ability for consistent income generation across challenging market conditions. Management of risk is
a strong part of their investment process,” said Mulligan.

The Fund’s stable-mate, the flagship All Star IAM Australian Share Fund has delivered 2.6% above benchmark on an annualised basis since inception (July 2007).

The latest Fund to join the All Star ranks, the All Star Nomura China Fund, presents a risk-controlled opportunity for investment in China. It is managed by Nomura Asset Management, a conservative
manager with proven expertise in this market.

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“Hitting the three year mark is an important milestone for All Star and for this Fund, as it provides financial advisers with a track record to support them in recommending the Fund to investors,” said Mulligan.

“This, our flagship fund has been running since July 2007, and like our other core offerings provides access to premium managers not previously accessible to the Australian retail market.” All Star Funds was conceived to provide high alpha capabilities, which would otherwise not be available to the retail market.

Portfolio manager for the All Star IAM Australian Share Fund, Greg Matthews (Independent Asset Management Pty Ltd (IAM) established in 2001), has extensive industry experience at the highest levels. Mulligan credits Matthews’ success partly in being across all aspects of the market, in order to make informed decisions.

“When we select a manager, we look for consistent out-performance, irrespective of market cycle. IAM has proven that it can do this. Managing downside risk is also important so that you can lock in the gains. Greg’s team looks at the portfolio holistically, and manages the risk as well as the return. Advisers have told us that they are delighted with the experience their clients have had as investors in the Fund.”

Matthews and his team have long-standing experience together; some of them having worked together for 20 years.

The Fund has delivered 2.6% above benchmark on an annualised basis since inception.

The Fund’s stable-mate, the All Star Income Fund fared well through the volatility of the GFC, delivering “a high yield and a strong dividend stream with complete liquidity,” said Mulligan.

As at the end of July, the Fund’s running yield is 7.3% inclusive of franking credits, which compares favourably with official interest rates of 4.5%.

This Fund is managed by Kaplan Funds Management, an absolute return manager focussed on income producing strategies, which was established in 1998.

The latest Fund to join the All Star ranks, the All Star Nomura China Fund presents a risk-controlled opportunity for investment in China. It is managed by Nomura Asset Management, a conservative manager with proven expertise in this market.

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