Aviva Investors High Growth Shares Fund
Australian Shares Manager Review
FUND
The Aviva Investors High Growth Shares Fund is a long / short Australian shares product whose investable universe comprises companies within the S&P/ASX 200.
ORGANISATION
Aviva Investors is a global asset management company with over $450 billion in funds under management as at June 2011. Launched in September 2008, Aviva Investors combines the asset management capabilities of the international investments and insurance group, Aviva plc.
Aviva Investors Australia Limited (Aviva) is an Australian funds management company whose business targets are to grow its retail and institutional business by providing clients with Australian equity, listed property and fixed income capabilities. Aviva Investors is 100% owned by Aviva Investors Holdings Limited a wholly owned subsidiary of Aviva plc. Aviva plc is listed on the London Stock Exchange and has a current market capitalisation of approximately £8.8billion. It is the world’s fifth largest insurance group and one of the largest asset managers in the world.
Investment Philosophy and Style
Aviva seeks to add value by exploiting market inefficiencies. The investment philosophy is based on the belief that the pricing of individual stocks and sectors on the Australian share market is at times inefficient. Mispricing is attributed to the following:
• Investors take a short-term view;
• Investors do not have a systematic process for assessing environmental, social and corporate governance (ESG) issues despite these issues often being a significant source of business risk facing companies;
• Investors over or under react to changes in a company’s operating environment;
• Sell-side analysis can be conflicted, leading to ill-informed stock recommendations
As a consequence, stocks may trade away from their underlying valuation for a period of time. Aviva believes it is possible to exploit these inefficiencies to deliver superior investment returns by identifying these stocks. This is performed through:
• Taking a longer term view;
• Detailed systematic research, including the analysis of financial, environmental, social and corporate governance issues; and
• Ensuring that risk is commensurate with the expected return.
The Fund’s investment style reflects a bottom-up approach via systematic research. The valuation approach is based on extensive company research involving financial and ESG analysis. Aviva seeks to exploit the mispricing opportunities which have been identified through research. Aviva believe that adherence to the approach should lead to consistent outperformance of the benchmark over the medium to long term in all but extreme market conditions.
Investment Strategy
The Fund invests in a diversified portfolio of Australian shares, using a range of investment techniques (including short selling, enhanced long positions and active trading) aimed at providing investors with the opportunity to enhance returns.
The Fund is able to hold short positions in shares totalling up to 25% by value of the fund’s net assets. Proceeds from short selling may be used to make additional investments in other shares up to 25% by value of the fund’s net assets (enhanced long positions). This enables a gross market exposure up to a maximum of 150%. Using these techniques the fund is also known as a 125/25 long/short fund.
PERFORMANCE
|
As at 31 May 2011
|
1 year
% |
3 year
% p.a. |
5 year
% p.a. |
Since Inception
% p.a. |
|
Fund (Gross)
|
15.4
|
2.7
|
7.6
|
14.1
|
|
Benchmark
|
10.8
|
(1.6)
|
3.2
|
8.1
|
|
Value Add
|
4.6
|
4.3
|
4.4
|
6.0
|
Established in December 1999, the Fund has outperformed the S&P/ASX 200 Accumulation Index by 6.0% p.a. since inception to 31 May 2011.
COMMENT
The fund has a sound investment philosophy to underpin its investment strategy. The investment team is suitably experienced, and draws on the resources of the Aviva small caps team in order to generate ideas for stocks outside of the S&P/ASX 100. Research and valuation is highly disciplined. A larger share of responsibility for portfolio construction and risk management is concentrated on the two portfolio managers.
The fund is actively managed as a trading fund with high turnover and returns may be volatile relative to benchmark. This product suits investors who are willing to accept higher risk in exchange for the potential opportunity to earn greater returns.
Lquidity is facilitated through the absence of institutional mandates within the fund’s investor profile.