Platinum Unhedged beats Magellan Global in risk and return research

The $233.5m Platinum Unhedged fund has inched ahead of multi-billion-dollar peers like Magellan Global and Platinum International in Money Management research looking at a wide range of important return and risk metrics.

While total return is the focus for most investors, there are many other factors that need to be considered when assessing a fund’s performance. With this in mind, we used FE Analytics to review the track record of every fund in the AMI Equity Global sector with 10 years or more of history.

In this research, we looked at funds’ one, three, five, and 10-year annualised total returns to the end of July 2017. In addition, we reviewed their 10-year volatility, maximum drawdown and Sharpe ratio, as well as upside and downside capture relative to the MSCI World ex-Australia index (the most common benchmark in the sector).

The 213 global equity funds with a long enough track record were then ranked according to their average decile ranking for the nine measures examined, in order to determine which has most consistently been among the very best of their peers.

Clay Smolinski’s Platinum Unhedged fund comes out on top when analysing the sector in this way, with an average decile ranking of 2.1. It sits in the top 10 per cent of AMI Equity Global funds for one, five, and 10-year returns, Sharpe ratio and maximum drawdown.

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As the table below shows, this puts the fund just ahead of Hamish Douglass’ $9.2 billion Magellan Global and Kerr Neilson’s $9.7 billion Platinum International (on which Smolinski is a co-manager), which both have an average decile ranking of 2.2.

It’s important to note that Magellan Global has made the highest annualised total return over the last decade, while Platinum Unhedged sits in tenth place. However, a relatively lacklustre past year for Magellan Global pushed it into second place.

Platinum Unhedged aims for long-term capital growth through a portfolio of global equities that Smolinski considers to be undervalued. At the moment, its largest positions are in Austria’s Raiffeisen Bank International, Spain’s Applus Services and Korea’s KB Financial Group while financials, information technology and industrials are its biggest sector plays.

Its approach pays close attention to avoiding risk, reflected in its maximum drawdown of 25.25 per cent in the financial crisis. In contrast, the MSCI World ex-Australia index fell 37.51 per cent and the average global equity fund dropped 38.53 per cent.

Performance of Platinum Unhedged vs sector and index over 10 years

In his most recent outlook, Smolinski reiterated the value of a cautious approach at a time when stock markets are at close to record highs but struck a broadly optimistic stance.

“Our investment style is naturally risk-adverse and in the spirit of avoiding the ‘boiling frog’ problem of ignoring risks when times are good, we try to remain mindful of what can disrupt markets,” the manager said.

“Markets have large falls when earnings experience a real decline and the single largest driver of earnings is employment. On this front, the picture looks quite sanguine. The Chinese economy is recovering nicely, employment is rising across the board in Europe and if the US could continue its current pace of job additions, its unemployment rate would be less than four per cent in 2018.

“Besides high valuations in the US, what other concerns are we facing? We are at the beginning of a global rate hike cycle and, like gravity, higher rates eventually pull down growth and valuation multiples. However, with subdued inflation and absolute rate levels still low, it is hard to be too alarmed right now.

“Overall, often the best indicator of what’s to come is the ease of finding new ideas and on this measure the short-to-medium-term outlook is fairly positive as we are still seeing a number of opportunities in Asia and Europe.”

One example of this was the addition of Beijing Enterprise Holdings, which is an infrastructure and utility holding company that owns natural gas pipelines, wastewater treatment and garbage disposal operations, to the portfolio in the second quarter of 2017. Smolinski said the stock could benefit from greater environmental spending in China but is undervalued by the market as it is a state-owned enterprise and carries some debt.

Magellan Global and Platinum International are by far the largest funds sitting near the top of the table in Money Management’s research on global equity funds in the upper deciles on the nine metrics we examined.

However, some other large funds can be found in the table. MFS Global Equity Trust has assets of $7.2 billion while Macquarie Arrowstreet Global Equity runs $800 million.

Gary Jackson is editor of FE Trustnet, Financial Express’ London-based fund research website.