Investors Mutual Australian Share Fund
Australian Shares Manager Review
PRODUCT
The Investors Mutual Australian Share Fund is a core diversified portfolio. The investable universe comprises listed securities on the ASX and includes equity derivatives and hybrid securities such as preference shares.
ORGANISATION
Established in 1998, Investors Mutual Limited (IML) is an Australian equities specialist manager exhibiting a conservative investment style with a long-term focus, and aims to deliver consistent returns via a fundamental and value-based investment approach. IML is owned by Anton Tagliaferro (Director), the IML investment team and Treasury Group (an ASX listed funds management company). IML had approximately $3.5 billion in funds under management at 31 March 2010.
In June 1998, IML launched two wholesale funds; the Australian Share Fund and Australian Smaller Companies Fund. Currently IML manages six wholesale funds available through various Master Trusts and Wrap Services. IML has contracted RBC Dexia Investor Services Australia Pty Limited to provide custody and administration services.
Investment Philosophy and Style
IML’s investment philosophy is based on the belief that markets are not fully efficient and there will be times that a company’s share price will not reflect what it believes to be the true underlying value. Such situations provide the investment team with the opportunity to build long term portfolio positions in quality companies at attractive valuations.
When considering the quality of a company, IML seek companies with a competitive advantage, recurring earnings, which are managed by capable people and which can grow over time. IML believes the underlying value of a company is best determined by quantifying and valuing the sustainability, quality and growth potential of its’ future earnings stream.
The IML investment style incorporates in-house detailed research in order to determine which stocks are appropriate for the portfolio. As a product of its research function, IML believes the biggest differences between a company's inherent value and its stock price occur in the small to mid-market capitalisation portion of the market. As a result, it is not unusual to have a strong bias towards these stocks.
Investment Strategy
IML utilises an active, ‘bottom-up’ approach to identifying, researching and valuing quality companies. The approach is systematic, disciplined and focuses on finding companies which meet the investment criteria, and determining an appropriate valuation for those companies.
The investable universe of companies comprises all ASX listed securities. IML’s investment grade universe is generated internally using various screens based on IML value and quality characteristics.
IML seeks to construct portfolios with lower risk characteristics than the market by ensuring each stock in the portfolio meets IML’s conservative investment quality and valuation requirements.
Quality Scoring
Stocks are ranked based on the analyst’s assessment of competitive position, management, and financial position, and hence the confidence in the delivery of cash flows and sustainable dividends over time. Quality scores are used as an indicator for portfolio managers of the analyst’s long term assessment of the company while target prices indicate a level of over or undervaluation. A high quality score would indicate the earnings of the company are more likely to be recurring and sustainable over a long period and stocks that exhibit both undervaluation and a high quality score are likely to be core positions.
Portfolio Construction
Portfolio Construction Guidelines (PCG) aim to minimise risk through proper diversification without negatively impacting on the delivery of consistent performance returns. IML’s investment management system contains a compliance module that ensures that the PCG are applied. PCG incorporates two layers of risk control, namely portfolio limits and tracking error.
Compliance and Derivatives
IML has a comprehensive compliance framework incorporating a range of internal compliance related policies and procedures and operational management and report processes. These include risk management and processes for dealing with compliance breaches. IML’s investment management system is used to allocate trades and monitor compliance. The investment management system provides alerts to the Portfolio Managers and Operations Manager as positions (including the cash position) near their limits.
PERFORMANCE
|
As at 31 May 2011
|
1 year
% |
3 year
% p.a. |
5 year
% p.a. |
Since Inception
% p.a. |
|
Fund (Net)
|
12.5
|
5.1
|
3.5
|
10.8
|
|
Benchmark*
|
11.9
|
0.3
|
2.4
|
8.7
|
|
Value Add
|
0.6
|
4.8
|
1.1
|
2.1
|
* S&P/ASX 300 Accumulation Index
Established in July 1998, the Fund has outperformed its benchmark over all periods to June 2011, including a 2.1% p.a. outperformance since inception.
COMMENT
Since being established in 1998, IML has grown positively with a demonstrated track record across its Australian shares portfolio. The portfolio is managed by Hugh Giddy and Anton Tagliaferro with support from a team of 9 analysts. The team experienced turnover of 3 analysts in the time leading up to January 2010. Since then, under the renewed leadership of Hugh Giddy the staff team has remained stable without turnover. Increased staff equity ownership and various other leadership disciplines have resulted in a more balanced stakeholder outcome. The organisation has adequate capacity and is scalable to accommodate future growth.