Zenith retains a Recommended rating on the Perpetual Wholesale International Fund

On 30 January 2015, Perpetual Investments (Perpetual) informed Zenith of its decision to appoint its Sydney based, in-house global equities team for the ongoing management of the Perpetual Wholesale International Fund (APIR PER0050AU). Prior to this announcement, management of the Fund had been outsourced to Wellington Management Company LLP’s (Wellington) London based Global Value team.

This decision impacts the following Funds:

• Perpetual Wholesale International Share Fund (APIR: PER0050AU)

• WealthFocus Investment Funds – Perpetual International Share Fund (APIR: PER0031AU)

• WealthFocus Investment Advantage – Perpetual International Share Fund (APIR: PER0038AU)

• WealthFocus Super – Perpetual International Share Fund (APIR: PER0024AU)

• WealthFocus Pension – Perpetual International Share Fund (APIR: PER0130AU)

• Perpetual’s Pooled Superannuation Trust – International Share Option (APIR: PER0059AU)

Although Perpetual and Wellington both adopt a value-oriented, quality investment approach to manage global equities, Perpetual adopts a more concentrated investment strategy versus Wellington. As a result, all six of the funds listed above will be transitioned from Wellington’s approach where the Fund typically held between 50 to 110 stocks, to Perpetual’s approach where the Fund will typically hold between 20 to 40 stocks. The transition of the funds from the Wellington approach to the Perpetual approach is expected to occur over a four to six week period, commencing 30 January 2015. Perpetual has noted that it may pay investors in the International Share Fund a special distribution in April 2015, depending on the impact of the transition.

Additional structural changes to the Fund are as follows:

The Perpetual Wholesale International Share Fund will be closed to new investors. Existing investors can continue to build on their investment, and make applications and withdrawals as usual. Fees will also remain unchanged.

The WealthFocus International Share Fund will remain open to new and existing investors across investments, super and pensions. The Fund’s strategy will change from 30 January 2015 onwards and the Fund will be re-named the Perpetual Global Share Fund. From 17 April 2015, the fees for the WealthFocus funds will change. The management fee will be reduced to 2.05%; however, a performance fee of 15% of any post fee returns above benchmark will be introduced. Existing investors in the WealthFocus Funds therefore have the choice between now and 17 April 2015, to redeem or switch their investment into another investment option before this fee change takes effect.

Zenith’s View

Prior to this announcement, Perpetual offered two different (and competing) global equity strategies: 1) the Perpetual Wholesale International Fund, as managed by Wellington; and 2) the more recently launched Perpetual Global Share Fund – Class A, as managed by Perpetual’s Sydney based global equity team. Having two competing strategies was clearly a complicated situation, and Zenith believes the termination of Wellington and subsequent appointment of Perpetual’s in-house team to manage all of Perpetual’s global equity strategies is a logical outcome, and one that was not unexpected.

Perpetual established a Sydney based, global equities capability in January 2011, as an extension of its Australian equities capability, and the Perpetual Global Share Fund – Class A, (APIR PER0733AU) was launched in August 2014. On 27 January 2015, Zenith completed its initial review of the Perpetual Global Share Fund – Class A, as managed by Perpetual’s in-house global equities team, with a Recommended rating being applied.

As a part of our review of Perpetual’s in-house global equities team led by Garry Laurence, we noted that although Perpetual’s investment process had not historically been applied to global equities on a broader scale, we believed Perpetual’s investment process to be conceptually sound, rigorous and repeatable. In addition, we drew comfort from the oversight of the investment process provided by senior members of Perpetual’s equities team, who we rate highly.

Perpetual’s global equity funds will now be managed by the same team, in an identical manner, the primary point of difference between the funds will be fees.

The Perpetual Wholesale International Share Fund currently charges a management fee of 1.23% p.a. of the Fund’s net asset value. The Perpetual Wholesale International Share Fund will however be closed to new investors

The Perpetual Global Share Fund – Class A charges a management cost of 1.10% p.a. of the Fund’s net asset value. In addition a performance fee of 15% is payable on net returns above the MSCI World Net Total Return $A Index. The Fund has a high water mark and must have a positive return prior to payment of the performance fee.

Existing investors in the Perpetual Wholesale International Share Fund will clearly have a fee advantage over new investors into the Perpetual Global Share Fund – Class A if the strategy performs well, as the Perpetual Global Share Fund – Class A also charges a performance fee.

Given both funds were rated Recommended prior to this announcement, and the net result of these changes is the underlying investment strategy for both funds will be identical, Zenith will therefore continue to rate both the Perpetual Wholesale International Share Fund (APIR PER0050AU) and the Perpetual Global Share Fund – Class A, (APIR PER0733AU) Recommended.