Lonsec completes large cap Australian equities review
By:
Lonsec Limited
23-Nov-2005
Keywords:
Property Investment, property managers
Lonsec Limited (Lonsec) has recently completed its Large Cap Australian Equity Fund Sector Review. Lonsecs review encompassed a total of 39 large cap Australian equity funds, covering five sub-categories of funds being Mainstream, Concentrated, Geared, Income Focused, and Index. During the 2005 review Lonsec met with a number of managers that it elected not to formally rate. Some of these will likely be revisited in our next review, with a view to potentially rate them if there has been improvements to the weaknesses we believe exist. Across the 39 funds that were rated, Lonsec awarded only six Highly Recommended ratings, with the recipients being Ausbil Dexia Australian Active Equity Fund, Citigroup Australian Equity Trust, Investors Mutual Australian and Industrial Share Funds, IOOF/Perennial Value Shares Trust, and Tyndall Australian Share Wholesale Portfolio. A number of funds were upgraded as a result of the review, including Tyndall Australian Share Wholesale Portfolio (upgraded to Highly Recommended), IOOF/Perennial Growth Shares Trust (upgraded to Recommended), and Challenger Australian Share Fund (upgraded to Recommended). In addition, the AXA Australian Equity Growth Fund and ING Australian Share Fund were both upgraded to Investment Grade after rebuilding phases. Funds suffering downgrades included Deutsche Australian Equities Alpha Fund (downgraded to Recommended), AMP Equity Fund (downgraded to Investment Grade), and Portfolio Partners Australian Equities Trust (downgraded to Investment Grade). Over the past year Lonsec has proactively expanded the number of funds covered within the Concentrated and Income Focused sub-sectors, in order to provide financial advisers with a wider selection given the increasing demand for products in both of these areas. As a result Lonsec now has a very strong list of funds within both of these sub-sectors. Some of the new funds rated in the Concentrated sub-sector included Challenger Select Australian Share Fund and Lazard Select Australian Equity Fund, whilst in the Income Focused sub-sector Lonsec added Vanguard Australian Shares High Yield Fund, BT Imputation Fund, and Challenger Australian Share Income Fund said Lonsec Senior Investment Analyst Brett Chatfield. Within the Mainstream sub-sector Lonsec added three new managers, being INVESCO, Fidelity, and Hyperion. INVESCO adopts a style neutral investment approach, whilst Fidelity adopts a GARP (Growth at a Reasonable Price) style. Hyperion manages to a growth investment style, and has a strong bias towards small and mid caps. Of these three managers rated for the first time, INVESCO received a Recommended rating. According to Chatfield, INVESCOs Australian equities team is well led by head, Rohan Walsh, who has a long tenure the manager. In addition, Chatfield said INVESCO has a robust and well developed investment process. Several key themes were identified during the 2005 review, including: The year has been difficult for many of the value managers, given the more growth orientated, resources-driven, market conditions that have existed. A prime example of this was the Investor Mutual Australian and Industrial Share Funds, which experienced significant relative underperformance over the year. That said, in the case of IML, Lonsec remains confident that performance will correct over time, and sees IMLs ability to preserve investor capital during falling markets to continue to be a major strength of the manager. Without a doubt the energy and materials sectors were key sectors to be in over the year, with the energy sector rising 37.7% and the materials sector 16.9% over the one year to 31 July 2005. The strong performance of these sectors can be attributed to a range of factors, however, a key driver has been the high level of commodities demand out of emerging countries such as China and India. Lonsec believes the China story to still be sound from a long term perspective, however notes that short term corrections are likely particularly if there is a stalling of economic growth in the United States (which is a key importer of Chinese goods). Several managers have introduced (or flagged the introduction) of analysts managing a portion of the Fund. This has been the case for several years at Perpetual, and now seems to be a widely accepted concept. This can partially be attributed to the fact that such a model has been successful at Perpetual (and Capital International within International Equities) and partially as a result of fund managers wanting to drive greater accountability within the investment team. In general, Lonsec is supportive of multiple-portfolio manager structure, however, we remain cautious of the rationale behind such moves and will continue to assess them on a manager-by-manager basis. There has been a notable increase in the level of overseas research trips being undertaken, and flagged to be undertaken, by many fund managers. Lonsec is supportive of this rise in overseas research t
Keywords:
Property Investment,
property managers