Millinium’s “Avoid the Losers” Strategy Puts it First in Aussie Shares Yet Again

Millinium Capital Managers has once again come top of the rankings in Australian Shares strategies in the latest Morningstar survey.

Millinium was the top performing strategy in Morningstar’s Institutional Sector Survey for the 12 months to December 31 2014, returning 15.1%, well ahead of the market return of 5.3% (S&P/ASX300 TR index).

The next best strategy returned 12.8%.

Millinium’s is now the top performing strategy in the survey over 1, 3 and 5 years, showing a consistency of performance that other managers often fail to achieve. Over 5 years it has returned an average 17.6% annually, versus 6.5% for the market.

Millinium Head of Equities Neill Colledge says that avoiding losing stocks was the critical factor in Millinium’s performance, which saw it stay away from China-related mining and mining services stocks during the year.

“It’s not what you own, it’s what you don’t own,” says Colledge, a 35-year veteran of the investment industry and former senior portfolio manager at Queensland Investment Corporation.

That negative view on China and the Australian resources sector is based on an appreciation of history. “We think the recent rallies in the resources sector have been a dead cat bounce,” Colledge says. “The aftermath of every mining boom since the gold rush of the 1850s has been worse than anyone expected and we think this one will be no different.”

Other sectors Millinium is currently negative on include almost all traditional retailers and other sectors under attack from internet competitors, such as media stocks.

Morningstar categorises Millinium’s Australian Shares strategy as a “value” strategy but Colledge says it is more accurately described as “risk averse”. “While we try to own stocks that have relatively little downside risk, unlike traditional value strategies we put a greater emphasis on preserving our investors’ capital, so we don’t try to pick `turnaround’ stocks which often get worse before they get better,” he says.

Colledge happily acknowledges that the Australian Shares strategy will not participate in speculative booms, such as the early 2000s dotcom rush, and will therefore tend to underperform during such periods. “We will still achieve our objective of producing consistent positive returns and not losing people’s money,” he says.

The Strategy screens out stocks that are too risky because they have unsustainable dividends, too much debt or unstable cash flow, before looking more deeply at the companies that survive the process to determine whether their financial numbers are soundly based. “We tend to own boring, preferably regulated businesses with little downside risk such as banks and property trusts,” Colledge says.

The Strategy can use derivatives for downside protection but does not short stocks and holds only 2% in cash on average.

Most investors get exposure to the Millinium Australian Shares Strategy through platforms like HUB24 and increasingly via separately and individually managed accounts, but can also invest directly via Millinium’s own funds.

The Morningstar survey also showed that Millinium continues its leading performance in managing Cash and Fixed Income. It is the top manager in Australian Cash over 1, 3 and 5 years, returning 4.8%, 5.1% and 5.5% per cent respectively. It also has the best performing strategy in Australian Fixed Income over 3 years, with an annualised return of 13.8%