Sector overview:
Despite ongoing concerns over the stability of the global economy, the Australian equities market has remained resilient, performing strongly over the past 12 months. The search for alternative ways in which to generate income has had some interesting consequences. In the Australian equity market, this has resulted in investors seeking to purchase higher-quality, dividend-paying companies. In Australia, the defensive sectors of the market, including the financials, consumer staples, telecommunications and healthcare sectors, have traditionally exhibited stable earnings streams that have been less dependent on the level of growth within the economy, and have consistently paid shareholders a dividend. Investors have found these attributes, and therefore sectors, incredibly attractive. The demand for higher yielding, defensive companies, has resulted in somewhat of a “two speed” Australian stockmarket, with the defensive sectors significantly outperforming more cyclical sectors.
Winner: Perpetual Investments
Zenith says: Perpetual has an experienced and well-resourced Australian equities team consisting of 15 investment professionals, including six portfolio managers and nine investment analysts. Zenith views Perpetual’s equities team to be one of the strongest within the Australian market. Perpetual employs a fundamentally driven, bottom-up research effort to identify investment opportunities. Perpetual’s investment process is based on the philosophy that investment markets are semi-efficient and that this provides opportunities to add value through the identification and investment in high-quality companies that are trading at attractive prices. Portfolio managers at Perpetual are afforded a large amount of latitude in constructing the portfolios; however, it is expected that the portfolios will be reflective of Perpetual’s analysts’ best ideas. Whilst no formal macroeconomic analysis is conducted, portfolio managers are cognisant of the broader economic environment. Zenith expects that over time, Perpetual’s portfolios will exhibit a value bias. Zenith retains a high regard for the key individuals within Perpetual’s Australian equities investment team, and identifies the rigorous investment process and experienced team as being the key factors contributing to the fund’s long-term outperformance.
Interview:
Sometimes what you don’t do is as important as what you do do. In the case of Perpetual Investments, avoiding a single stock, Newcrest Mining, was one of the largest contributors to its large-cap share fund performance in the year to September 30, 2013.
Matt Williams, Perpetual’s head of equities and senior portfolio manager, says it was “an unusual year, in one sense”. But it served to underline why Perpetual puts such stock – no pun intended – in assessing the quality of the companies it invests in. If they do not measure up, the manager simply avoids them.
“It highlights, and we sometimes forget, that half the game is not what you own, but what you don’t own,” Williams says.
The manager’s careful analysis of a company’s balance sheet, and the quality of the company’s underlying business, underpin a disciplined approach to stock selection. Williams says about 15 people are involved in managing Australian equities at Perpetual. The number includes some focused on small-cap stocks, but “everyone does a bit of everything”.
“It’s not a committee, in any sense, but it is collaborative,” Williams says. “People’s bonus remuneration is very much weighted towards their individual performance – 90 per cent of the bonus remuneration is on how they perform running money themselves.”
Williams says successful managers have a good balance of people and process.
“It’s a bit of both, and it has to be,” he says. “I think you can have talented people, but if they’re not 100 per cent passionate and believing in the process, you’ll get a less-than-desired outcome.
“I don’t think we are any smarter [than other managers], but neither do I think we are any less smart. I think it’s about having good people, in a good culture, following a good process. They’re the building blocks for success. Success is by no means assured – you have to back it up with a lot of hard work. And overarching all of that is a pretty healthy dose of common sense.”
– Simon Hoyle
Finalists
– Bennelong Australian Equity Partners
• Highly experienced investment team.
• Robust portfolio construction process.
• Proprietary risk tools.
– Fidelity Worldwide Investments
• Astute investor in Paul Taylor.
• Extensive research network.
• Consistent outperformance of benchmark.
