Consistency is key for Perennial

Perennial Investment Partners is the winner of the Australian fixed interest category of the Money Management Fund Manager of the Year awards.

Perennial cites an experienced team and sticking to its investment philosophy as key to its consistent performance.

The fixed-interest team has its origins in the old team of parent group IOOF and products are now jointly branded.

Perennial head of fixed interest Glenn Feben says the team has a great deal of experience. “We have seen many different market cycles which puts us in a position to understand what the markets are doing,” he says.

“When you know what you are looking for it puts you in a good position to find it in the markets.”

Feben says Perennial’s investment approach is as a long-term investor, which he admits does produce periods when they under-perform.

“There are periods when we haven’t done well because we think the market is over-valued,” he says. “But we try to withstand the pressure and look for value in the market.”

According to Feben, some managers drop the investment strategy when they come under pressure — and that does not achieve long-term consistent performance.

“We see a lot of occasions when a manager gets caught up in a particular theme.”

He adds: “Perennial is very aware that market behaviour returns to normal after a while, having been driven to extremes by forces such as hedge funds.

“We believe they contribute to fix interest markets in short-term valuations and it is our duty to exploit that.”

Assirt analyst Greg Barr says Perennial has been a strong performer, and the researcher has been impressed with the investment management team.

Traditionally, fixed-interest managers have been clustered together for returns, often with only a few basis points separating the top performer from those at the bottom.

Barr says diversity of investment styles is creating a bigger gap between the winners and the losers.

“Historically the duration [fixed-interest] manager has changed, as duration is not a great way of adding value,” he says.

“Diversity is producing the returns in high-yield products.”

The two finalists in the Australian fixed interest category are Citigroup and UBS.

According to Citigroup senior portfolio manager Anthony Kirkham, there are three main criteria which the investment team applies to obtain consistent performance from its Australian fixed interest fund.

The first is deviation, which relates to the yield curve; the second is sectors, such as being overweight and underweight; and the third is stock selection.

“During the last 12 months we have achieved half of the added value from each of the alpha categories,” he says.

“We don’t want to just rely on one category to get this added alpha value and that is why the fund has been consistently good.”

Kirkham says other managers might focus on just one category to gain extra alpha, but Citigroup is looking to gain equal return from each area.

“During the last year credit has had a good run on the deviation front, which has given strong contribution to the fund,” he says.

Fixed-interest managers have historically delivered returns that are only a few basis points different from their competitors. But Kirkham says tight clustering is spreading as managers seek different strategies to achieve higher alpha returns.

“We had a good run with credit, and interest rates made a good contribution in the past 12 months,” he says.

“It is still important to pick the right stocks to deliver consistent alpha.”

— John Wilkinson