Zurich Investment Management

International Equities Manager Profile

PRODUCT

Zurich Investments Global Thematic Share Fund

ORGANISATION

Zurich Financial Services Australia is part of the worldwide Zurich Financial Services Group, an insurance-based financial services provider with a global network of subsidiaries and offices in North America and Europe as well as in Asia Pacific, Latin America and other markets. Founded in 1872, the Group is headquartered in Zurich, Switzerland. It employs approximately 60,000 people serving customers in more than 170 countries.

Zurich Investments is the funds management arm of Zurich Financial Services Australia. Rather than managing money in-house, Zurich Investments forms long-term strategic investment partnerships with specialist investment managers who possess a successful performance track record and adhere to a disciplined investment style.

The Zurich Investments Global Thematic Share Fund (the Fund) is managed by Lazard Asset Management Pacific Co. (Lazard). Lazard is a wholly owned subsidiary of Lazard Asset Management, LLC which originated as a partnership in 1848 and became one of the first global investment banks.

INVESTMENT PROCESS

Investment Philosophy

Based on the belief that there is one global economy, the Fund's investment approach emphasises global themes and relationships rather than geographic regions. The investment philosophy favours a research-driven blend of top-down (thematic) and bottom-up investing. The Manager believes that value can be added through superior stock selection. The Fund is not biased towards value or growth, large or small cap stocks, enabling the best available stocks to be chosen at any point in time.

Investment Strategy

The Fund is a long-only, style agnostic investment discipline that targets long-term investment returns with low absolute risk. The portfolio is structured on a series of uncorrelated global investment ideas or themes rather than any benchmark; “tracking error” is not an aspect that is managed. The portfolio normally comprises approximately 90-120 holdings, primarily of securities of companies that are listed on the major equity markets; Emerging Market investment is limited to 25% of the portfolio and investment is normally confined to companies that have market capitalisations of US$1 billion or greater.

The Fund will actively hedge up to 40% of its exposure to international currency back to Australian dollars. The currency overlay is managed by Aberdeen Asset Management Limited

Investment Process

Global Theme Identification

Global themes are investment opportunity sets inspired by global industry observations. Themes should represent favourable asymmetric investment opportunity sets. The Manager believes that asymmetry can be found in a long investment time horizon, the prevalence in markets of the benchmark mentality and conventional wisdom, regulatory distortions, and the complexity of the global system.

 All theme ideas are researched and debated within the Manager to establish their validity and value. The next step is to determine the degree to which a theme is investable, i.e. the extent to which it can be populated with attractively valued stocks. 

 Portfolio construction

The portfolio is constructed thematically, with each theme representing a distinct opportunity set with favourable asymmetric characteristics. It is also critical to determine how the theme might affect the rest of the portfolio in terms of investment and correlations.

 The portfolio typically contains 8-12 fundamentally uncorrelated themes, each represented by 8-12 stocks. Experience has shown that this construct provides the necessary degree of diversification of opportunity sets and, as residual factors only, sufficient diversification by holdings, sectors and countries, which are appropriate for our absolute risk objectives. The portfolio itself typically holds about 90-120 stocks.

Security weightings are determined by portfolio managers based on theme and stock conviction, subject to a maximum exposure to any individual stock of approximately 3% of the portfolio, with 1% as the normal position. No reference is made to index weights, or to market capitalisation ranges. The portfolios are normally fully invested and cash limits are used for operational purposes only.

Country allocation and sector weightings are residuals of thematic selection, with the result that the portfolio can be weighted significantly differently from the benchmark index. The portfolio is not managed with regard to tracking error. The discipline focuses on absolute risk, measured by the standard deviation of returns.  The Manager considers emerging markets to be part of the global economy, and invests in emerging market companies if the thematic discipline indicates that promising investments can be found in such markets, though investment in them is limited to approximately 25% of the portfolio.

PERFORMANCE to 30 June 2011 (net of fees)

* Inception: 14 October 2005

ASSESSMENT

The Fund utilises a distinctive thematic style, and has scope to invest in emerging markets if warranted. The Fund’s portfolio is therefore likely to hold quite different stocks from those of the typical core, value or growth manager. Although reasonably well diversified, with around 100 stocks normally held, the investment approach can result in significant divergence from the benchmark index, thus allowing scope for clear added value.

The Fund’s has outperformed the benchmark over the long term, and has achieved its objective of outperforming the benchmark by 2.5% p.a. over a rolling five year period. Fees are competitive relative to peers.