Lonsec recommends BT small caps

Lonsechas reviewed theBT Small Companies Fundand has awarded the fund a ‘recommended’ rating.

This is the second favourable rating the fund has received since its launch in early March, following research house van Eyk’s ‘A’ rating of the fund in mid-March.

Like van Eyk, Lonsec believes the investment team management of Ben Griffiths and Brian Eley, who both defected from managing small caps at ING, is one of the fund’s main strengths. Lonsec notes that the team continues to use the investment style that “previously produced solid results in this sector”.

The fund has received a favourable rating despite what Lonsec has described as concerns in the industry about BT’s risk management and performance in mainstream Australian equities, which it says resulted in staff changes and a renewed focus on the management of risk at the fund manager.

“Lonsec believes the core issues of risk management at BTFM have been addressed and it is now up to the investment team to demonstrate the advantages of their stock picking abilities and portfolio construction techniques,” the report says.

But it wasn’t all praise for the small caps fund. Lonsec was critical of the fund for not specifying a level of outperformance over the S&P/ASX Small Ordinaries Accumulation Index over five years, and believed BT’s performance objectives did not go far enough.

“Given that a high proportion of managers have been able to outperform the small companies index by considerable margins, Lonsec would prefer a more meaningful and specific target for outperformance, given that tracking error has been targeted,” Lonsec says.

The researcher concluded with its recommended rating, and noted the fund manager’s relationship with its US retirement investment specialist parent Principal would ensure that BT is “likely to have considerable resources to draw on in order to support and develop its investment management techniques over time”.