Research fund house update

PortfolioConstruction Forum asks: What’s the latest for the major research fund houses?

Lonsec

Lonsec is developing a model portfolio of direct stocks focused on emerging leaders to supplement its long-standing Australian equity core model portfolio.

The emerging leaders portfolio focuses on stocks outside the ASX100 but with a minimum market cap of $150 million.

The portfolio will be available to Lonsec’s MDA division and through external managers.

Equity exchange-traded funds (ETFs) have flourished in Australia, but a bond or fixed income ETF is yet to be launched, Lonsec notes.

Any release of a fixed income ETF in Australia is contingent on a change to the ASX’s AQUA Rules, anticipated to occur later this year.

Lonsec believes it is not unreasonable to assume any fixed income ETF would seek to replicate the returns of the UBS Composite Bond Index, however the house warns that there are characteristics unique to fixed interest markets that provide additional challenges not prevalent in equity markets.

These include the range of securities in the UBS Composite Bond Index and seeding of the ETF given each security has minimum denominations.

It is likely that a fixed income ETF would be less liquid than its equity counterparts.

Lonsec defended the cost of active management fees.

Speaking at its annual roadshow, head of investment consulting Amanda Gillespie said that the net outcome after costs for an investor is typically superior using a higher cost, active approach.

She added that criticisms that using an active manager just gave you a ‘glorified index outcome’ were only valid if planners chose the wrong manager.

Mercer

Mercer has added a senior associate to its Asia Pacific real estate boutique based in Sydney, and a client management leader for Australia/NZ.

Kirstin Irvine will work in the real estate boutique in an advisory role as the European manager research specialist, and will also undertake research of capital markets issues.

Steve Shubert joins Mercer from Russell Investments and will be responsible for managing Mercer’s largest clients across its consulting, outsourcing and investments businesses.

Mercer has been reappointed by Macquarie Banking and Financial Services Group, to provide investment research and consulting for the next three years.

Morningstar

Morningstar has been selected to provide fund research, economic and investment commentaries, and asset allocation, model portfolio and Approved Product List recommendations to the Colonial First State Advice Business.

The group includes Commonwealth Financial Planning, Financial Wisdom, Whittaker Macnaught, Advice Essentials, and BW Financial Advice, collectively representing approximately A$35 billion under advice.

Morningstar believes that fund managers need to start measuring the success of their funds by investor experience instead of annual total returns.

US head of fund research, Don Phillips, said measuring funds by total annual returns was a flawed approach because it assumed that investors placed all of their money into the fund at the beginning of a year and held it in the fund through to the end of the year.

Standard & Poor’s

Standard & Poor’s Funds Services research is now available through financial planning software, Coin Software. Coin users can access S&P’s qualitative research on 2,100 managed funds and 7,500 fund profiles.

S&P fund research is also available via Xplan, Adviser NETgain and Navigator N-link, or directly from S&P.

Van Eyk

Van Eyk is expanding its coverage of Australian equities strategies implemented through separately managed accounts (SMAs).

SMAs are an area in which the research house expects to see continued growth, driven by investor demand for more transparent and targeted investment programs, greater perceived control over their investments, and the development of new platform providers.

Heightened Middle Eastern tensions will increase the focus on the Chicago Board Options Exchange Market Volatility Index (VIX), van Eyk predicts.

In rising market environments, the VIX typically falls.

In recent times, the VIX had been falling, as equity markets priced in more favourable US economic data, to a level nearly as low as before the global financial crisis commenced in earnest, however the VIX moved higher on 22 February, in response to recent civil unrest in the Middle East.

Upward moves in the index are suggestive of an environment where the market will fall.