View more on these topics

Acorns and oaks for First State fund

First State Investments&#39 global resources fund has grown to £32m since its launch in October as UK investors seek similar returns to those generated by the highly-rated version offered by its Australian parent.

The UK-registered fund&#39s unit price has shown a good rise since launch, growing from £1 in October to £1.15 at the end of December although this has retreated slightly. Investors are clearly confident that the fund can repeat the success of the Colonial First State version, which has returned 237 per cent over five years.

Dr Joanne Warner, the Sydney-based portfolio manager of both funds, says she is pleased with the new portfolio&#39s performance and its future potential, given the number of quality companies in such a huge sector.

The fund, as at launch, is comprised 80 per cent of big companies and 20 per cent of much smaller firms but Warner says the latter demands most of the time of the management team of four.

“We have a basket of oak trees and a basket of acorns,” she says. “Eighty per cent of our time is spent worrying about the acorns – the small firms – because it is most important we meet the managers running the mines and so on. You want to see that everyone is confident, smiling and happy that they are able to meet their targets.”

The smaller companies are where the fund&#39s primary growth is generated. Only those with the most growth potential are chosen and they are rigorously assessed – the team has made 456 site visits throughout almost 40 countries in six years.

Warner says this is where First State comes into its own. “I cannot think of any other fund manager or broker that can make that amount of visits. They just cannot justify them. We can and it is a huge advantage.”

Nevertheless, the management prefers a low stock turnover and has made few changes since October. The readjustments that have been made have been valuation-driven – the team has increased its exposure to oil service companies, for instance, but Warner is at pains to point out that it had nothing to do with oil prices. The whole portfolio is managed this way – Warner says the team never tries to predict commodity prices.

“We do not speculate on things we cannot control,” she says. “What we do is take profits from some sectors and allocate them somewhere else. We cut some positions back so we are selling into strength and buying into weakness.”

Smaller companies are bought when they are “very, very cheap” and sold when they are still undervalued. There is no strict sell discipline, however, Warner simply says they sell a company immediately if its management does something that First State believes goes against the reasons they bought it in the first place.

As bottom-up stockpickers, geographical allocation depends on the companies within the portfolio. Most of the fund is currently invested in China, South Africa, North and South America in sectors such as coal, energy, exploration, gold and metals. The top 10 biggest holdings, most of which are listed in Australia, Canada and the US, account for almost half of the 54-stock portfolio.

What pleases Warner most about the fund is its reaction to different market conditions. When markets are rising, the fund outperforms 50 per cent of the time but when they fall it outperforms 77 per cent of the time.

“That shows us we have a good portfolio,” Warner says. “There is a saying: If the wind blows hard enough even the turkeys fly. Let us just say we have seen a lot of flying turkeys over the last year. We are not in that game.”

Flying fowl aside, the fund will continue to target companies with good margins, strong balance sheets and quality management. Warner says the way the team invests has not been imposed on it but has evolved over a long period of time, which she believes will stand the fund in good stead for years to come.

“Are we struggling to find good companies to invest in? No. I feel we have some great companies in the portfolio and I feel very good about their prospects for making money for us.”

Recommended

ABI and actuaries split over advice in the workplace

The ABI and the Association of Consulting Actuaries have taken opposing positions on the Department for Work and Pensions&#39 Informed Choices proposals for workplace pension information. The ABI welcomes the drive to improve the knowledge of the millions of people believed to be saving nothing or to little for their retirement. But the ACA is […]

FSA finds lenders have adequate controls for self-cert

The FSA has freed mortgage lenders from the blame cast by TV and national press by releasing a review into self-certification mortgage application fraud which says lenders have adequate controls for dealing with application fraud. The research came off the back of the October 2003 screening of the BBC&#39s Money Program, in which it was […]

Kevin Duffy on mortgages

A delicious rumour has it that my ex-boss Mark Chilton may soon be back in the market with his latest venture. The mercurial architect of Savills Private Finance, where he made a lot of people financially secure, Chilton is an ex-PriceWaterhouseCoopers heavyweight who needs no lessons from me in how to build a dynamic business […]

£10bn black hole at UK life firms

Europe&#39s life insurance sector had a £68bn black hole,with the UK accounting for£27bn at the end of 2002 although this has now been cut to £10bn in the UK, says strategy consultancy firm Mercer Oliver Wyman. In its forthcoming report, Life at the End of the Tunnel? The Capital Crisis in the European Life Sector, […]

Boosting our annuity strategies

Targeting annuity purchase in lifestyle strategies isn’t anything new but we’ve just lifted the bonnet and injected an enhancement shot into the end-point of these solutions. The recent volatility has shot short-term volatility into equity markets and painted a very turbulent backdrop but we’re also equally faced with a stressed fixed interest environment. This can […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment