April research round-up

PorfolioConstruction Forum asks the major research houses about their most recent projects and appointments.

Lonsec

• Lonsec has released its updated Preset Model Portfolios, which are available on Asgard e-Wrap, BT Wrap, Macquarie Wrap, Colonial First State FirstChoice and Navigator Personal Investment Plan. Each comes with six model portfolios – one for each Lonsec Risk Profile, ranging from ‘secure’ through to ‘high growth’.
• In its review of the investment implications of Japan’s earthquake and tsunami disaster, Lonsec predicts that Japan’s economy (the world’s third largest, representing around 9 per cent of the global economy) is likely to move into recession in the first two quarters of 2011 which will detract 0.2 per cent to 0.5 per cent from global economic growth in 2011. The International Monetary Fund had expected the global economy to grow by 4.4 per cent in 2011, so in Lonsec’s view a Japan recession could reduce global growth to around 4 per cent, as most of the growth in the global economy is being driven by the US, Asia (ex Japan) and Europe.
• The best long-term returns from direct property are likely to be delivered on commercial property assets carrying a higher level of risk, according to Lonsec in its recent update on the hybrid property sector. The Australian listed property market looks to be the best value bet in terms of gaining exposure to commercial property, while global property securities appear less attractive than Australian real estate investment trusts (A-REITs) from a valuation point of view.

Mercer

• Mercer has added to its investment consulting team. Environmental, social and governance specialist Dr Richard Fuller has joined Mercer from the Hesta Super Fund. JP Crowley joins Mercer as an investment consultant from Ibbotson Associates. Mercer now has more than 100 investment consulting staff in Australia and New Zealand.
• There are new realities investors should consider in 2011, according to Mercer. The status of sovereign debt as a safe haven investment has been challenged, and “in a world where the cost of borrowing for Microsoft is cheaper than the cost of borrowing for many sovereign developed countries, the whole approach to bond investing may need to be revisited”. In addition, the “inexorable rise of China” raises fundamental questions about changing world hegemony and economic might, and the risks inherent in the reform of the US and European financial system, Mercer warns.

Morningstar

• Australia’s managed funds industry scored a below-average ‘C’ grade in the second Morningstar Global Fund Investor Experience report. The study compared investment experiences in 22 different countries based on criteria set by Morningstar, including disclosure, fees and expenses, investor protection and taxation. Australia’s C grade is unchanged from the prior study in 2009.
• Morningstar has promoted existing team members John Valtwies, Tom Whitelaw and Tim Wong to the senior research analyst positions. Alison Stauss has joined as an associate analyst from Morningstar’s graduate program.

Standard & Poor’s

• Standard & Poor’s Fund Services (S&P) has appointed Aniket Das, a CFA Level 3 candidate, to the position of research analyst. Tara Bell has rejoined S&P as associate director, while James Gunn and Andrew Yap have been promoted to associate director positions. Gunn will head Australian equities funds research and Andrew Yap takes up the position of inaugural head for multi-sector funds.
• In its latest Musical Chairs: Fund Managers on the Move report, S&P identified just three key fund manager departures in Q4 2010, significantly fewer than all prior quarters of the year. Of the 40 key departures in 2010 across 27 organisations, 90 per cent were from mainstream managers, and just 10 per cent were from boutiques, the report noted.
• Australian property securities funds are on the road to recovery, according to S&P Fund Services’ sector report. “The A-REIT sector has moved to a more conservative footing after a period of transition,” S&P noted, adding that the legacy of the global financial crisis was still apparent in the three- and five-year returns of funds in the sector.

Van Eyk

• Van Eyk has made four new appointments to its research team. Varun Venkatraman and Nimalan Govender have joined as investment analysts focused on equity fund research. Govender was previously with Investec in South Africa as lead sell-side analyst, and Venkatraman was most recently a sell-side analyst with securities firm, Linwar. Alex Dore and Victoria Yates have joined van Eyk as research associates from van Eyk’s new graduate program.
• Financial planners and fund managers remain wary of the global economy and its likely impact on their clients’ investment portfolios, according to van Eyk in a survey of delegates at its annual conference in March. A solid majority of delegates believe there remains a possibility of a hard landing for the global economy given China’s slowing economy, the aftermath of Japan’s tragic natural disaster and the sovereign credit crisis in Europe.

Zenith Investment Partners

• The median active Australian large cap fund manager underperformed both the Australian market by a “fair margin” as well as its global peers in 2010, according to Zenith. The underperformance is attributable to the strong outperformance of the materials sector and the failure of investors to differentiate between the growth prospects of companies, “as exemplified by the compression of price-to-earnings relatives in the market, making active stock picking tough”. There are reasons to be optimistic, however. The market is relatively cheap, Australian corporations are healthy and economic growth prospects remain strong, according to Zenith.