storm financial

If you want to be invested in cash, you wouldn't be invested in a share fund would you? Share funds invest in shares as that is what they are employed to do, fixed interest funds invest in fixed interest securities, property funds invest in property securities, etc. That's what they get paid to do, if they aren't doing what a investor is paying for?

If you invest in the Perpetual Industrial Share fund would you want to find out that it is invested outside of it's mandate which they have promised you to follow these rules? If you found out a geared fund wasn't geared?

Hedge funds usually have more diversity in what they invest in, eg, currencies, countries, being able to short sell, arbitraging opportunities, etc.

Cheers,

Dan

PS This is general information and not a recommendation to invest in anything. Speak to your FPA registered Financial Planner.

 

This pretty much comes back to my arguement that the managed fund model is dead, it's because they generally must stay fully invested or very close to it, that makes no real investment sense does it.

Your forced to purchase securities which you know are over-valued, this is the very definition of bad investment right?

Also on the flip side, when securities are falling in price as opposed to say intrinsic value, they are forced to sell down positions, just because a particular holding has become "over-weight" or "under-weight" when compared to the all ords index. Insanity to infinity.

Now saying that, I am a big fan of the manager who runs the Perp Industrial Share Fund, I mean 20 years of positive returns, that's pretty damn impressive. Definitely exception to the rule.

In regards to what an investor is paying an investment manager for, I would assume a client is paying the "professionals" to act prudently, invest wisely not just throw money into the market no matter what the securities price just because he/she/they have some ridiculous investment mandate that forces them too.

 

Hi BigBuddha,

When will the managed fund be RIP?

The managed fund mandate allows certain amounts of cash being held, even though this would not be true to label. The Perpetual Industrial Share fund invests up to 10% in cash, the Tyndall Australian Value fund invests up to 20% in cash. This means that the fund manager doesn't have to invest in over-valued shares, eg, this is why some Perpetual Australian share funds can invest with up to 20% allowed for International as there may be better value overseas.

If securities are falling and their intrinsic (accounting) value stays the same this would make them more attractive for a value fund manager. Eg, lower PE, higher dividend yield.

Cheers,

Dan

PS This is general information and not a recommendation to invest in anything. Speak to your FPA registered Financial Planner.

 

Hi ASX,

Ok, what if at some point in time, the fund manager, no matter who they are has reached their cash limit according to mandate. Then all of a sudden, more money flows through into the fund, through lets say superannuation guarantee payments from employers, now this would technically force the fund to

1. go above their mandated amount in cash within the fund

or

2. be forced to buy assets/securities, generally according to an index weighting, no matter what the current market price and no matter whether these securities represented good "value" or not.

or

3. close the fund to any further inflows

I think we know the answer to this question, the manager has to do option 2, it's "mandated".

well they could do option 3. but they would be denying themselves extra fee income, possible, but not likely

 

Hi BigBuddha,

They aren't going to do 1 as it's against their mandate and they certainly aren't going to do 3. As for 2, they are going to buy equities based on what they believe is their stock picking, whether or not it is based on the index weighting (eg, obviously vanguard is going to be very close to the index whereas other fund managers will buy stocks based on good income yields or NTA close to price or NTA higher than price).

My question is if you want a Ford Focus you wouldn't have paid for a Ford Transit van, if you want to be invested in cash you wouldn't have paid a fund manager to invest in shares for you?

Investors and their advisers have to take responsibility for Asset Allocation whether it's tactical or strategic. I think most people in a cash fund would be very upset if they found out that their fund manager was investing in shares as it is against the cash funds mandate (but it's paying a higher yield than cash so there is value in it...). Any fund manager who is investing outside of their mandate should be telling their investors of the decision and reason why they are investing outside of the mandate as this is the rules by which the fund manager is expected to follow.

Cheers,

Dan

 

Hello ASX,

unfortunately, many fund managers are obliged to look at index weighting, once again it's a mandate, ask your friendly CFS BDM about their aus share fund, they have to stay within certain percentages of a securities weighting to the asx200 or asx50.

My answer to the Ford Focus analogy, as an adviser, i would be telling my clients there's a much better, much more tax efficient and much more transparent form of investing than managed funds, say for example SMA's although not perfect at least you know what your invested in and you can actually tell the manager to not sell or buy certain securities.

As to fund manager mandates, it surely should be to purchase and sell assets wisely, prudently and in the best interest of investors. Unfortunately, with the way mandates generally are written, this is definitely not the case, and I think you would be hard pressed to argue against this.

I must admitt ASX I am enjoying this debate.

Keep it coming

 

Hi BigBuddha,

Yes it is usually in their mandate to be "index huggers", it means when the index takes a dive they can blame it on the index. Though I don't think an SMA would help anyone if it was also holding close to the index, ie 16% BHP, 8% WBC, 7% CBA, 6% TLS, 6% NAB, 6% WOW, 5% ANZ, 4% CSL, 3% WES and 3% WDC, you'd get similar returns to the index...There are some which are "index unaware" who will take much larger licks to generate potentially larger returns (this of course can also go against them and turn into larger losses).

Not all clients are worried about tax, eg, a retiree with $200k with LITO and SATO doesn't have to worry about tax. Tax efficiency is important for those with tax issues. An SMA is just another platform, if you invest through a wrap account they behave very similiar by being able to invest in direct cash, direct term deposits, direct shares and wholesale managed funds, this is dependent on the individual wrap itself and SMAs are also dependent on the features which the marketers want it to have. I haven't heard of any term deposits on SMAs yet I'm sure it'll be there soon. I don't think any form of investing is perfect (maybe on day in the future) they all have their pros and cons and these need to be taken into account for the individual.

Most fund managers release on their websites factsheets which have the top 10 holdings for a particular fund.

I haven't met any fund managers which say that they are trying to buy and sell assets wisely and make a profit for unitholders. The same is with SMA managers, some get it right and some get it wrong.

Cheers,

Dan