The 5 most popular retail funds in Q1 2019
These large-cap Australian equity funds from AllianceBernstein, Dimensional, Greencape, Investors Mutual and DNR Capital received the highest amounts of retail money among Morningstar's medalist-rated funds in the first three months of 2019.
Mentioned: Dimensional Australian Core Equity Trust (14318), Greencape Broadcap (14654), Investors Mutual Concentrated Aus Share (18953), AB Managed Volatility Equities (40678), DNR Capital Aus Eq High Conviction R (40948)
These large-cap Australian equity funds from AllianceBernstein, Dimensional, Greencape, Investors Mutual and DNR Capital received the highest amounts of retail money among Morningstar's medallist-rated funds in the first three months of 2019.
Starts with quant, finishes with fundamental
Alliance Bernstein Managed Volatility Equities (40678) tops this list of leading inflows, adding about $36 million of retail investor money in the first three months of 2019.
The fund, which holds a Morningstar Bronze medal, uses a quantitative screen to first select stocks based on quality, value and price stability with a focus on downside protection.
AB's fundamental analysts then remove stocks with any perceived risks not captured by these metrics, including event risk, cyclical downturns, and balance sheet stress.
Morningstar's manager research team particularly likes this additional layer of analysis, pointing to the fund's exclusion of Telstra as a holding because of increasing mobile competition.
It typically allocates about 80 per cent of the portfolio to Australian equities, and the remaining 20 per cent to global equities, usually holding about 70 companies.
Conglomerate Wesfarmers, tollroad operator Transurban, major banks Westpac and Commonwealth Bank and Insurance Australia Group were the fund's top five holdings as of the end of February 2019.
Low turnover and 400-plus stocks
Morningstar Bronze medallist Dimensional Australian Core Equity Trust (14318) applies a methodical investment process that favours companies with higher profitability. It looks at companies within the smaller range of large-cap companies, down to a minimum size of $50 million.
Morningstar manager research analyst Ross MacMillan notes the portfolio is low-turnover and highly diversified, comprising more than 400 stocks.
He also notes the fund includes Australian real estate investment trusts – which the manager typically excludes from its funds because of their non-equity characteristics to ensure the strategy comprehensively represents the local market.
Companies are weighed for inclusion in the portfolio on the basis of their market cap and other factors Dimensional has assigned for each market segment, such as price-to-book ratio.
"This ensures an overweighting to value, high profitability, and smaller market-cap stocks … and an underweighting to growth, low profitability, and larger stocks," says MacMillan.
Commonwealth Bank, Westpac and National Australia Bank were among its top 10 holdings as of the end of February, along with BHP Group, local oil and gas heavyweight Woodside Petroleum and miners Rio Tinto and Fortescue.
Deep understanding of companies
This Morningstar Gold medal fund Greencape Broadcap (14654) boasts an "outstanding investment team that follows a thoughtful approach," says Morningstar manager research analyst Andrew Miles.
Under the leadership of portfolio manager Matthew Ryland, who has headed the team since the fund opened in 2006, he emphasises the team's focus on the business models and management quality of companies being considered for the Greencape portfolio.
"The focus is on gathering insights from competitors, suppliers, ex-employees, and other industry participants. This helps them verify whether the underlying businesses and their management teams are superior compared with competitors," Miles says.
The fund typically holds about 60 stocks, and allows up to 10 per cent in offshore stocks.
Its top holding was BHP Group as at the end of January, followed by Commonwealth Bank, biomedical company CSL and National Australia Bank.
Strict investment discipline
Investors Mutual Concentrated Australian Share (18953) launched in 2010, and is led by Hugh Giddy. It also draws "prized insight" from Investors Mutual Limited founder and outspoken, high-profile industry figure Anton Tagliaferro.
The strategy, which Morningstar awards a Silver medal, has a concentrated portfolio of about 30 stocks. These are selected using fundamental analysis that identifies companies with competitive advantages, good management and steady earnings.
"IML’s investment discipline is one of the strictest in the market, and we’ve long been fans of the depth in their research and analytical rigour," says Morningstar manager research analyst Sarah Fox.
While noting the fund's high concentration can leave it vulnerable to just a few bad calls, "we expect IML’s comprehensive company due diligence to avert most threats," Fox says.
CSL, Telstra, telco Chorus and commercial property company Unibail-Rodamco-Westfield were among the strategy’s top holdings at the end of February 2019.
Higher volatility but doesn't overpay
A long-serving team, a bias toward quality companies and reasonable fees distinguish the Silver-medallist DNR Capital Australian Equity High Conviction (40948) as one of Morningstar's preferred concentrated strategies, says manager research analyst Michael Malseed.
"A disciplined approach to valuation has ensured the portfolio doesn’t overpay for quality and steers away from expensive mid-cap 'market darlings',” Malseed says.
"Instead, returns have typically been driven by successful positioning in solidly performing large-cap names.”
Malseed notes investors should be prepared for higher level of volatility than the market, given the fund's aggressive target of returns 4 per cent above the index.
The team takes a long-term view on companies, but is prepare to sell quickly if quality deteriorates, says Malseed, pointing to DNR's removal of Vocus in 2016 ahead of the telco's share price collapse.
Alongside National Australia Bank and Macquarie Group, BHP, construction materials firm James Hardie and property group Lend Lease rank among the portfolio's top five holdings