NZ Fund Managers

[Jack]

Would appreciate thoughts / recommendations on NZ Fund managers. Was thinking of Milford but open to helpful comments etc.
Cheers

[Snoopy]

Would appreciate thoughts / recommendations on NZ Fund managers. Was thinking of Milford but open to helpful comments etc.
Cheers

Hi there... I am looking to put some money with a NZ or Australian based fund, but.. i refuse to put my money with some turkey who has his main interest being to ensure he sticks close to index or ensure he doesnt have portfolio position such that he wont be too far out of line with index. I am looking for someone who wants to achieve -absolute returns- for the investor... ie; actually managing it, rather than just accumulating it.. I have no time for someone who charges you for managing your money, then parks it against index, loses some of it, then justifies the losses by saying the index lost money as well -- or even worse ' we are legends because the index lost 10% and we only lost 9%'. I want a proper fund manager who has a set of nuts... If anyone knows of any funds that have a goal of achieving absolute returns I would be interested to hear....
cheers

I am doing my own investigation into NZ based fund managers and find myself thinking along the same lines as GBPNZDBASISTRADER. So I thought I would share some of my thoughts on this thread. Are Milford the answer to Jack's question? They could be.

Milford have three share based funds with a track record:

1/ 'Global Equity Fund'

Investment Theme	Almost entirely invested in non Australasian shares. From the disclosed holdings they are are heavily biased towards the NYSE and the NASDAQ. The only disclosed holding that does not fall under that umbrella is LVMH. 'Moët Hennessy Louis Vuitton', commonly known as LVMH, is a French holding multinational corporation and conglomerate specializing in luxury goods, headquartered in Paris. I have heard of those brands but know nothing about the company. So maybe it is evidence of thinking outside the index box?
Currency Hedging Policy	0%, 50%, 100% (mid figure is neutral exposure)
Principal Holdings	Three of the funds top four holdings (Microsoft, Alphabet (was Google) and Apple) also top the NASDAQ capitalisation list. But absent from a top ten holding position is NASDAQ number 3, Amazon and NASDAQ number 4 Tesla. Those were interesting omissions, I thought.
Distribution over FY2022	None
Total value of fund	@31-03-2022 was $886.0m
Base management fee	= 1.35%
Fund risk rating	'5' (where '1' (Cash) is the least risky and '7' the most risky)

2/ 'Dynamic Fund'

Investment Theme	Australian mid-cap shares
Currency Hedging Policy	-20%, 0%, 50% (mid figure is neutral exposure)
Principal holdings	Collins Foods (A YUM Brands franchisee), Credit Corp Group, Metcash, IPH Limited (deals with legalities of Intellectual Property), Contact Energy (looks like the Aussies have adopted Contact as their own), Seven Group Holdings, Carsales.com and Lifestyle Communities (retirement village owners).
Distribution over FY2022	None
Total value of fund	@31-03-2022 was $778.7m
Base management fee	= 1.35%
Fund risk rating	'6', but is now closed to new investment.

3/ 'Trans-tasman Equity Fund'

Investment Theme	Stock picking across the NZX and the ASX
Currency Hedging Policy	-10%, 0%, 60% (mid figure is neutral exposure)
Principal Holdings	F&P Healthcare, Mainfreight, Ebos, CSL Limited, Infratil, BHP, CBA, NAB, Contact Energy and Auckland International Airport
Distribution over FY2022	3.0cpu (based on a unit price of 3.7875 @05-05-2022 and a tax rate of 28%, this is a gross yield of 1.10%)
Total value of fund	@31-03-2022 was $811.5m
Base management fee	= 1.05%.
Fund risk rating	'5'

-------------------

Miford's statement on Investment Policies and Objectives is here:
https://milfordasset.com/wp-content/...Funds-SIPO.pdf

An omission from the Milford line up is that there is no purely New Zealand based share fund. What does that omission indicate I wonder? (Edit later: In the video presentation below (post 3), it was mentioned that Milford now have too large a quantum of funds to manage to allow them to operate a pure NZ market based share fund).

If I add Milford's 'Investment Leadership Team' to Milford's 'Investment Team' I get a total of 33 people.

SNOOPY

[Snoopy]

I am doing my own investigation into NZ based fund managers and find myself thinking along the same lines as GBPNZDBASISTRADER. So I thought I would share some of my thoughts on this thread. Are Milford the answer to Jack's question? They could be.

Interesting Q&A session video from Milford here from June 2021.

https://www.youtube.com/watch?v=jPu8RXF47gU

At 8.5minutes Felix Fok (Global Asset Manager) talks about selecting companies that go into the Active Growth Fund. The key points articulated are:

1/ Look for upside and opportunity for earnings growth.
2/ Look for companies where customers and strong and in a favourable spot in the economic cycle.
3/ Ask yourself a basic question: Why does this company exist? What is the job this company is doing for its customers?
4/ Check who are the competitors.
5/ How are the shares priced in terms of valuation, compared to other parts of the market? Then make a risk/reward judgement.
6/ Direct investments towards companies not so affected by rising interest rates (e.g. banks).
7/ Integrate ESG (Environmental, Social and Governance) into every investment decision: Consider emissions, and social responsibility across supply chains. ESG risks do not have to be eliminated, but do have to be managed well. Will not invest in tobacco manufacturers, companies involved in a broad range of weaponry or the processing of whale meat. Disclosure within companies is very important.
8/ Risk is measured by 'valuation of shares' (current value verses long run estimates) 'sentiment' (are investors getting carried away) and what are the 'catalysts on the horizon' (what will cause people to change their mind). E.G. took some money off table in January and February 2020 when the Covid-19 catalyst appeared and before the market dipped.

Other comments of note:

9/ Struggling to invest meaningful amounts in NZ companies due to growing size of Milford. Australia now thought of as a 'home market'.
10/ Overexposed (deliberately) to technology companies in Global Equities, based on expected value at a future date. Technology is 'fundamentally exciting'.
11/ Think traditional ICE vehicle makers will have a tough time. Investing in semiconductors as some of the fundamental building blocks of EVs. Also keen on autonomy. Not picking Tesla specifically, as not sure which of the car makers will come out in front. Have a minimum market cap for investment, so can't invest in very small start ups.
12/ Bitcoin and other cryptocurrencies intriguing, but Milford at the 'continue to monitor' stage. Has too many unknowns and question marks. Cryptocurrencies can also be emissions intensive, as computers mine the pure data. Invested in Paypal that allows investors to pay for items in cryptocurrency via a Paypal wallet. Also invested in 'Intercontinental Exchange' in the USA, which has a subsidiary providing futures trading and options in cryptocurrency. Invested in 'Taiwan semiconductor' which helps manufacture specific cryptocurrency mining chips.
13/ Regard the retirement sector as a proxy for investing in the NZ property market. Have reduced exposure in this sector in anticipation of a moderating property market.

SNOOPY

[Muse]

Interesting Q&A session video from Milford here from June 2021.

https://www.youtube.com/watch?v=jPu8RXF47gU

At 8.5minutes Felix Fok (Global Asset Manager) talks about selecting companies that go into the Active Growth Fund. The key points articulated are:

1/ Look for upside and opportunity for earnings growth.
2/ Customers and strong and in a favourable spot in the economic cycle.
3/ Ask yourself a basic question: Why does this company exist? What is the job this company is doing for its customers?
4/ Check who are the competitors.
5/ How are the shares priced in terms of valuation, compared to other parts of the market? Then make a risk/reward judgement.
6/ Direct investments towards companies not so affected by rising interest rates (e.g. banks).
7/ Integrate ESG (Environmental, Social and Governance) into every investment decision they make: Emissions, social responsibility across supply chains. ESG risks do not have to be eliminated but do have to be managed well. Will not invest in tobacco manufacturers, companies involved in a broad range of weaponry or the processing of whale meat. Disclosure is very important.
8/ Risk is measured by 'valuation of shares' (current value verses long run estimates) 'sentiment' (are investors getting carried away) and what are the 'catalysts on the horizon' (what will cause people to change their mind). E.G. took some money off table in January and February 2020 when the Covid-19 catalyst appeared and before the market dipped.

Other comments of note:

9/ Struggling to invest meaningful amounts in NZ companies due to growing size of Milford. Australia now thought of as a 'home market'.
10/ Overexposed (deliberately) to technology companies in Global Equities, based on expected value at a future date. Technology is 'fundamentally exciting'.
11/ Think traditional ICE vehicle makers will have a tough time. In vesting in semiconductors as some of the fundamental building blocks of EVs. Also keen on autonomy. Not picking Tesla specifically as not sure which of the car makers will come out in front. Have a minimum market cap for investment, so can't invest in very small start ups.
12/ Bitcoin and other cryptocurrencies intriguing but Milford at the 'continue to monitor stage. Has too many unknowns and question marks. Cryptocurrencies can also be emissions intensive, as computers mine the pure data. Invested in Paypal that allows investors to pay for items in cryptocurrency via a Paypal wallet. Also invested in 'Intercontinental Exchange' in the USA, which has a subsidiary providing futures trading and options in cryptocurrency. Invested in 'Taiwan semiconductor' which helps manufacture specific cryptocurrency mining chips.
13/ Regard the retirement sector as a proxy for investing in the NZ property market. Have reduced exposure in this sector in anticipation of a moderating property market.

SNOOPY

interesting - and thanks for sumarising that.
Not with milford or any of their peers but always have regarded them fairly well.
I'd rather invest in milford itself. fund manager economics - particularly those exposed to & able to retain default kiwisaver status - are sublime.

[Snoopy]

10/ Overexposed (deliberately) to technology companies in Global Equities, based on expected value at a future date. Technology is 'fundamentally exciting'.

There is a price to pay for 'excitement'.

	Share Price 28-04-2022	PE ratio	Price Change 01-012022 to 28-04-2022
Microsoft	$282.33	30.13	-15.4%
Alphabet	$2,285.89	20.37	-21.2%
Apple	$156.57	25.99	-14.0%

These are big hits for three of the four largest investments in the Milford Global Equity Fund, representing 12.27% of the fund. as at 31-03-2021. Although I do note that the whole NASDAQ index is down 21.12% from the start of the year. I don't follow any of these shares. But those PE ratios are historical, and forward forecast PEs are likely higher. So I don't see Microsoft, Alphabet or Apple as 'cheap' - even now.

Annual return to 31-03-2022 was 5.66% after fees and taxes, down from 24.14% just 3 months earlier! Clearly the first quarter has been unkind to Milford Global Equities! Rising interest rates can deal a double blow to growth stocks, firstly due to a present day reduction of earnings, and secondly due to a rising discount rate affecting the present value of future earnings.

The fund rocketed by 37.36% over YE31-03-2021, against a long term average growth rate of 10.88% p.a.. So I don't think it is out of line to say that a correction is overdue. But is the correction finished?

SNOOPY

[Snoopy]

1/ 'The 'Global Equity Fund' which is almost entirely invested in non Australasian shares. Base management fee is 1.35%.

2/ 'Dynamic Fund' concentrates on Australian mid-cap shares. Base management fee is 1.35%.

3/ 'Trans-tasman Equity Fund'. Base management fee is 1.05%.

I am having a hard time chasing down what the performance fees are for the above three Milford funds. I found the document below, which is a few years old.

https://milfordasset.com/wp-content/...-Statement.pdf

My reference page is page 15 of the above document.

It looks like for the 'global equity fund', the hurdle is now the MCSI world index, with net dividends reinvested. Gains must be adjusted assuming the currency is 50% hedged to the New Zealand Dollar. Anything achieved above that hurdle and 15% of the over-achievement goes to the manager. There is no upper dollar limit on the size of the bonus.

For the Dynamic fund, the bonus performance hurdle is set at the ASX small industrial accumulation index, with gains hedged 100% to the New Zealand Dollar. Anything achieved above that hurdle and 15% of the over-achievement goes to the manager. There is no upper dollar limit on the size of the bonus.

For the trans Tasman Equity Fund, the hurdle is a mixture of the NZX50 gross index (50%) and the ASX200 accumulation index 100% NZD hedged (50%,). Anything achieved above that hurdle and 15% of the over-achievement goes to the manager. There is no upper dollar limit on the size of the bonus.

This reference document was downloaded as a link of the Milford website, so I assume the reference numbers have not changed since July 2018.

SNOOPY

[Snoopy]

https://fisherfunds.co.nz/assets/ann...March-2021.pdf

Fisher funds have been widely discussed on this forum for their listed exchange traded funds, Kingfish (NZX), Barramundi (ASX) and Marlin (Rest of World). But this is a discussion of the unlisted versions of those funds. The funds under scrutiny here are:

1/ The New Zealand Growth Fund:

Investment Theme	Stock picking on the NZX
Fund Size	@31-12-2021 was $320.0m
Principal holdings	@31-12-2021 were: Mainfreight, Fisher & Paykel Healthcare, Xero Limited, Infratil Limited, Summerset Group Holdings Ltd, Auckland International Airport Limited, A2 Milk Company Limited, Vista Group International Limited and Ryman Healthcare Limited.
Distribution over FY2022	None
Total Management Annual Charge	= 1.40%
Fund risk rating	'5'

2/ The Australian Growth Fund:

Investment Theme	Stock picking on the ASX
Fund size	@31-12-2021 was $109.8m
Principal holdings	@31-12-2021 were: CSLLimited, Wisetech Global Limited (software for freight and customs management), Carsales.com Ltd, CBA, Seek Limited, NextDC Limited (data centre operator), NAB, ANZ, AUB Group Limited (insurance brokers and underwriting agencies), Brambles Ltd (freight).
Currency Hedging Policy	Target 70% to NZD
Distribution over FY2022	None
Total management annual charge	= 1.42%
Risk rating	'6'

3/ The International Growth Fund:

Investment Theme	Stock picking outside of Australia and New Zealand
Fund size	@31-12-2021 was $142.9m.
Principal holdings	@31-12-2021 were: Meta (was Facebook), Alphabet (was Google), Signature Bank (US based full service commercial bank), Tencent Holdings Ltd (Chinese multinational technology and entertainment conglomerate and holding company headquartered in Shenzhen, Hong Kong listed), Dollar General Corporation (American variety stores), Paypal Holdings, Gartner Inc (consulting company doing technical research), ICON plc (clinical research organization doing research outsourced by pharmaceutical, biotechnology and medical device companies), Mastercard.
Currency Hedging Policy	Target 50% (In practice between 0% and 110%)
Distribution over FY2022	None
Total management and annual charge	= 1.42%
Risk rating	''5'

----------

Fisher funds claims to be the fifth largest investment manager in New Zealand, managing over $13.2 billion for more than 280,000 clients (AR2021 page 4). They have a 20 strong investment team (AR2021 p6). Fisher Funds have a 'concentrated approach' to their investments. A fund will typically hold just 15-20 different shares at any one time. This is consistent with a non-index tracking approach.

SNOOPY

[Snoopy]

Fisher Funds have a 'concentrated approach' to their investments. A fund will typically hold just 15-20 different shares at any one time. This is consistent with a non-index tracking approach.

Here is a link to the latest webinar put on by Fisher Funds (broadcast February 2022)

https://www.youtube.com/watch?v=VjkVw8EDm6s

Trying to untangle the thinking behind how Fisher Funds operates, I make the following observations from this webinar, on the 'investment tactics' of Fisher Funds. Most of the strategy statements are from Ashley Gardyne, the Chief Investment Officer at Fisher Funds.

1/ Invest in the long term story. See market volatility as an opportunity.
2/ Inflation close to a near term peak, as a result of reducing spending by governments and cooling consumer markets all around the world. So interest rates may stop rising sooner than you think.
3/ Traditional retailers like WHS tend to be price takers operating in a competitive market, and can't put prices up too much ahead of competitors. But cost of merchandise shipping and labour is going up. So traditional retail is not favoured.
4/ Look for companies with 'pricing power', like some of the infrastructure companies and those in the software space (like Xero).
5/ Interest rate rises are only a problem if they rise further than the expected level of interest rate rise already priced into the assets you want to invest in. The consensus built into the market already is that the official cash rate will be 2.6% by the end of the year.
6/ Market investment themes going forward: End of 2021 - very few great businesses at attractive investment price levels. Six weeks on, technology companies being sold down are presenting the best opportunities. Have added Netflix on the recent sell off, Microsoft for the first time and Salesforce.com. Opportunities are there but you have to be picky as well. Happy to hold Meta (facebook) through the recent downturn as Fishers believe in their ability to fight off competition from Tik Tok. Long term Fishers see the trend away from traditional TV to streaming video on demand (facebook is going more into the streaming space) is intact.
7/ Banks in a good position as mortgage rates are rising faster than term deposit rates, caused by homeowners wanting to fix their mortgage at higher than today's prevailing floating rates to avoid paying even higher fixed mortgage rates in the future.
8/ Own Ryman and Summerset. While acknowledging the sell off in the wider property market could have a negative effect on retirement village earnings, the fundamental tailwinds mean many years of growth ahead for both these investments. Reallocated their retirement sector sector investment in favour of Summerset who are executing better.
9/ Oil and gas sectors are performing well.
10/ Don't try and pick sectors that are performing well over a short period of time. Maintain a broad portfolio across a range of different sectors, and try to pick companies in each of those sectors that will do better than average over the long run.
11/ Think 'company by company', rather than looking at whole country sharemarket movements.
12/ Like holding 'healthcare' companies and 'low end retailers' as defensive assets in a recessionary environment.
13/ Avoiding investing in times of crisis (war and pandemics) is very difficult, so do not consider the Geopolitical environment. Investments in good companies will eventually win out.
14/ Increased in growth asset percentage holding from 55% to 60% in Fisher's balanced fund, to offset effect of lower interest rates.
15/ Keen on 'cell tower' and 'data-centre' infrastructure assets.
16/ Crypto Assets: Fisher invest in high quality growing businesses, but they must be already profitable. and leaders in their industry. This reduces the volatility and downside risk. Will wait until they can identify clear winners before diving in. Not clear what crypto and web3 assets will be the winners, so intend to remain on the sidelines for now.

SNOOPY

[Snoopy]

The Fisher Funds fee hurdle rate triggering bonus payments for managing growth assets is:

"The official cash rate" (OCR) + 5%.

On 13th April 2022 the OCR was increased to 1.5%. This means a Fisher Growth fund must earn over 1.5%+5%=6.5% per annum before a bonus payment becomes due to fund management.

https://fisherfunds.co.nz/investment...fees-expenses/

As you can see from the link above, the following fee information specifically links to the kiwisaver funds. There is no separate fee information that I can find disclosed for non kiwisaver Fisher funds. So I assume the fee structure is the same for both kiwisaver and non-kiwisaver managed funds.

Fisher pockets 10% of the returns above the 'performance hurdle' of the investment (leaving the investors with 90%). However the absolute value of this bonus is also capped to be no more than 2% of the total asset value of the fund. Furthermore, there is a clause in the bonus payment rules that says the trigger level for hurdles being set at a new high must be 'grandfathered'. That means if:

1/ a share fund does well and a bonus is paid out, AND
2/ then it falls back,

THEN the 'grandfathered' clause means that if it rises again to its previous high level, the fund managers do not get an 'extra bonus payment' for making up the same ground twice in a later time period.

SNOOPY

[Snoopy]

'Kiwiwealth' is the fund management business of 'Kiwibank' and emerged out of the former 'Gareth Morgan Investments'.

I finding it a lot harder to prise out information on this manager than the other two I have reviewed so far. There seems to be only one sharemarket investment option called the 'growth fund'. This has a mandate to invest 100% of the money invested inside it into shares, with the aim of beating a target of having 85% of the money invested in shares and 15% invested in cash and fixed interest.

The report on the last full year reporting period publication is here.

https://www.kiwiwealth.co.nz/assets/...-June-2021.pdf

Growth Fund

Investment Theme	The fund aims to invest 80% into the sharemarket and 10% each into NZ cash and fixed interest. Of note is that a core objective of the fund is to have no equity investment in Australia or New Zealand - nothing at all. In fact, the fund declares a reality of 6.8% of the funds under management invested in Australasian Equities.
Principal Investments	Microsoft Corp, Apple Inc, Alphabet Inc (Google), Amazon, Facebook and ASML Holding NV (Computer Chip manufacturing technology). Also interestingly, two hedge fund investments. 1/ Two Trees Systematic Global Macro Fund – UCITS, takes long and short positions, primarily through futures and forwards, in global equity indices, bond, currency, commodity, and volatility markets. 2/ GMO Systematic Global Macro Trust, seems to be an Australian headquartered hedge fund for which little operational information is available.
Distribution over FY2022	None
Fund size	$2,206m (@30-06-2021)
Currency Hedging Policy	Hedge 70% of returns in foreign currency back to the New Zealand dollar (which covers 87.5% of the targeted foreign investment).
Total annual management fees	= 1.11% of the fund's value
Fund risk rating	'4'

Kiwiwealth's investment team numbers 15 people, to which I would add the CEO, COO and CIO to make a total of 18 people.

SNOOPY