Australasian equity investors will need to be more discerning in a market where increasing dispersion between stocks and higher volatility could be the norm, according to Harbour Asset Management portfolio manager, Shane Solly.
Solly said while “all boats have floated” upwards over the last few years on calm seas, a return to choppy conditions would separate the fleet.
“As market dispersion increases investors need to be more selective about what they own and what they don’t own,” he said.
Harbour has built one of its lesser-known funds around that core premise, bundling its “best ideas” into a condensed portfolio of 15-25 stocks under the Australasian Equity Focus Fund banner.
Solly said Harbour had quietly been building up confidence in the product, which recently celebrated its third anniversary by finishing first in the latest quarterly Australasian equity rankings.
According to the just-released Aon Investment Survey, the Focus fund was the only product in its category to break double figures during the three months ending April 30 with a 12.5 per cent return.
The Disclose website shows that after total fees (1.79 per cent) and tax the Australasian Equity Focus Fund returned 11.17 per cent over the 12 months to March 31 compared to 13.85 per cent for the benchmark – a 50/50 split between the NZX50 and the ASX/S&P200 (50 per cent hedged to the NZ dollar).
Over the three-year period the Harbour product is mid-pack among its peers in the Aon survey but Solly said the aim was to create a fund tilted to long-term growth companies in Australia and NZ.
“It’s built on our core growth philosophy with a quality overlay looking at structural and cyclical changes in the economy,” he said.
With no explicit reference to either the NZX or ASX indices, Solly said the fund was free to roam among a diverse range of stocks from large cap down to smaller firms.
“We like mid-sized companies with a proven economic model and scope for growth,” he said. “Currently, the fund has no utilities, no telcos and limited exposure to real estate mainly through retirement village operators.”
The Disclose website lists Fisher & Paykel Healthcare as the fund’s top stock, representing just over 10 per cent of the portfolio, followed by A2 Milk at about 9.3 per cent.
However, Solly said the stocks in the portfolio are reasonably even-weighted with “no long tail of small positions”.
Currently, the fund has about 55 per cent invested in NZ shares, 43 per cent on the ASX with the remainder in cash.
Given its index-agnostic approach he said the return characteristics of the Equity Focus product have been indiosyncratic.
“The fund has some index sensitivity but it doesn’t tend to go down as much when markets fall and at least matches the market on the way up,” he said. “This is one of the team’s favourite place to invest.”
To date the Australasian Equity Focus Fund has accumulated $67 million under management, the Aon data shows.