Australian Equities (Broad Cap): Integrity arrives with tried and tested philosophy

Integrity Investment Management may be a relative newcomer to the Australian equities space, but its team of managers is anything but inexperienced.

In fact, a key point of its success, according to judges Lonsec — and what makes it this year’s winner in the Australian Equities (Broad Cap) category — is that its offering is led by an experienced and quality investment team utilising a tested and long-standing investment process.

“I think we have an experienced team of people who have seen it all before and who understand business as well,” said Paul Fiani, managing director and head of equities at Integrity.

His team of nine comprises some seasoned investors, many of whom are UBS alumni, including Fiani, who spent over 10 years at UBS Global Asset Management.

It’s no wonder given this depth of experience that Lonsec looked favourably on the team’s expertise in managing equities through a full market cycle, particularly relevant given recent market conditions.

Integrity’s performance since its inception in 2007 is evidence that the experienced team knows how to navigate its way through a rocky financial landscape.

“It’s about 18 months [since we launched] to clients and we now have $1.7 billion under management,” Fiani said.

“[I think] it’s a reflection of the fact that we’ve been doing it for a long time, that we have a strong track record in our previous lives.”

Fiani did point out that while it is probably correct to consider current performance in the context of a general decline in returns, the mandate of an equity fund is to be fully invested.

“The client has taken on the asset allocation decision and decided to put so much into equities, and our job is to do better than the markets.”

According to Fiani, Integrity has done exactly that.

“I think we’ve done about … 13 per cent better than the market.”

And he has the figures to back it up: in the year to the end of April, Integrity’s gross numbers were +12.06 per cent ahead of the benchmark.

Lonsec praised Integrity’s performance, saying that consistent with the manager’s investment philosophy, the Integrity Australian Share Fund “has performed relatively strongly during a period where markets have focused more closely on company valuations and certainty of earnings”.

Other factors in its favour were Integrity’s sole focus on managing Australian equities, the relatively low level of funds under management and the full ownership of the business by directors and staff.

The two other contenders in the category, BT Investment Management (BTIM) and this year’s Fund Manager of the Year, Schroders Investment Management, also have a lot to be proud of in terms of weathering the current financial storm.

“As a long-only fund with very little scope to increase cash holdings, the sharp fall in the equity market over the past year has driven poor absolute returns,” said Martin Conlon, Schroders’ head of Australian equities.

“Relative returns have been solid versus the market and, importantly, remain strong over longer-term timeframes.”

In terms of what makes Schroders stand out as a manager, Conlon identified not only a disciplined and rigorous approach to analysis and portfolio construction, but also its approach to managing risk, which “differs materially from that of [our] competitors”.

“Our aversion to volatility as a measure of risk and the resultant focus on more fundamental measures of risk are key differentiating factors,” Conlon said.

BTIM portfolio manager Jim Taylor acknowledged the difficult market conditions in which fund managers are operating but said that despite poor absolute returns, its performance has been relatively good, outperforming the benchmark by 5.4 per cent over the 12 months to the end of April this year.

“The fund has been successful because it has been true to label, being a genuine core fund without any structural bias towards growth or value stocks,” Taylor said.