Global equities and bonds is one of the smallest Autif classifications, containing just 12 funds wit...
Global equities and bonds is one of the smallest Autif classifications, containing just 12 funds with a three-year performance history. The sector has been a popular launching ground for funds because of Pep geographical restrictions on investments, which have only recently been lifted.
The Sarasin Globalsar Balanced fund has been managed by Rolf Stadler for the past two years and follows the house ethos of thematic investing. The fund is relatively defensive by Stadler's own admission, aiming to achieve steady growth, while ensuring capital preservation.
As such, the fund has up to 15% in cash and is invested toward the upper end of this limit with an 11% cash weighting.
Stadler has been active in adjusting the equity content of the fund during the year and his basket of 50 stocks now comprises 52% of the fund, up from about 45% at the start of the year, but down from April's high of 55%. The asset allocation is based on Globalsar's sister fund, Equisar Global Thematic. 'There are similar theme allocations between the funds and the only real difference is that Globalsar tends to invest in large caps,' said Stadler.
The fund has marginally underperformed sector peers over the past two years, returning -6.65% over the year to the end of May this year compared with a sector average of -2.14%. Over the discreet period from June 1999 through May 2000, Globalsar returned 16.9% compared with a sector average of 17.34%.
Stadler is not overly concerned by the fund's short-term underperformance because he has confidence in the long-term potential of the underlying themes the fund is invested in, namely corporate restructuring, e-commerce, energy and firms with pricing power. These themes incorporate elements of traditional value and growth investing, he added.
Japan is one of the fund's main corporate restructuring plays and Stadler is confident that its new prime minister, Junichiro Koizumi, will be a positive stimulus for change. While he believes this will hamper economic growth in the short-term, attractive opportunities are arising and will continue to do so on a stock-specific basis.
Globalsar is overweight oil companies as part of its energy theme and Stadler believes the sector has a bright outlook for the foreseeable future because of the Opec cartel's effective price management and widespread corporate restructuring.
'We believe Opec will be successful in keeping the oil price in the $25 to $30 range, and that has not been discounted in the market at all,' he said. 'We have also seen a change of attitude in oil company management. Before, when they made a lot of money, they increased Capex. But now they are talking about cutting costs and restructuring and focusing more on providing shareholder value.'
The e-commerce theme has been a slight drag on the fund's performance over the past year, despite the large-cap focus and avoidance of pure-play dot.coms.
Stadler believes the benefits of e-commerce are gradually now starting to be seen, exemplified by one of his holdings, Oracle, which advertises that it has saved more than $1bn using its own e-business software.
'The actual benefits of a lot of e-commerce investments, such as supply chain management, are just starting to come through. No one seems to be interested in e-commerce anymore, people no longer tend to discount good news and these companies are trading at more attractive valuations now,' he said.
The fund's bond allocation has been cut over the past six months and Stadler is looking to increase the duration. He said: 'The bond allocation has been reduced from about 45% to 36%. We reduced the duration of the bonds towards the end of March and early April because they moved very strongly.
'We may start to increase the duration as we do not expect a quick recovery in the US and believe inflation rates will fall in the US and Europe in the second half of the year. The average duration is now about four years, and we will perhaps increase it to five-and-a-half years.'
Stadler has also moved most of his bond allocation into corporates, maintaining only a modest weighting in government bonds. 'We have diversified into corporates and benefited from the reduction of the yield spread. In the US, you get 80bp over Treasuries with triple and double A-rated issues,' he said. 'We have about 6%-7% in supranationals, 2% in government bonds and the rest in corporates.'
Axa Global Distribution has just a one-year performance history. Managed by David Finch, the fund returned -2.9% over the year to the end of May, compared with a sector average of -2.14%.
Finch said the fund is quite defensive and operates around a basic portfolio construction of 60% equities and 40% bonds, from which it does not strongly deviate. Similarly, the fund will not deviate from its sector or geographic benchmarks, taking a maximum 1% overweight position in any single stock. The equity portion is mainly invested in large caps and Finch now holds more than 200 stocks. 'Of these, about 20 to 30 are key stocks and the rest are more risk diversifiers,' he added.
'The risk diversifiers are generally stocks I am familiar with and they do not take up a disproportionate amount of my time. The most important thing regarding the numbers are the core holdings,' he added.
The fixed interest portion of the fund is invested in index-linked bonds, giving the performance protection from macro- economic buffeting at the expense of returns below that of triple or double A-rated corporates. 'The niche thing is investing in inflation-proof bonds which are issued in places such as Sweden and the US and which offer yields commensurate with those of gilts,' said Finch.
Looking forward, Finch is almost fully invested with just below 2% in cash and is looking to increase his weightings in US cyclicals, ahead of an anticipated recovery.
Regression analysis: Regression statistics can be used to compare the relationships between funds, markets or a specific benchmark index. They do not make the assumption that the variables (funds) are related as cause and effect, but permit them to be influenced by other variables (markets).
Alpha: The Alpha describes the theoretical reward obtained by one investment when the second investment has a zero return. To calculate the Alpha, the returns of each are taken and compared together to identify their relationship. This reveals relationships between investments in both bull and bear markets. When applied to portfolios, it can be considered to be the return over and above (or below) the market through portfolio strategy. Good managers have a positive Alpha.
Beta: The Beta is the amount the first fund moves when the other moves by one unit. Beta is a measure of relative volatility (absolute volatility is calculated by standard deviation).
If one fund always goes up and down by 1.5 times of the performance of the index, its Beta will be 1.5. This implies that if the return of the index is positive, then 1.5 times this positive return can be expected of the fund. If the index goes up (or down) 10%, the fund goes up (or down) 15%. Beta represents the volatility of the first investment versus the second. It is only an estimate and to be accurate there has to be a perfect correlation between the two investments.
Correlation: Correlation shows the strength of a linear relationship between two funds. A perfect correlation is when the investments behave in exactly the same manner. A perfect positive correlation is represented by 1, perfect negative correlation by -1 and no correlation with a 0. A perfect negative correlation suggests that for every 1% movement by the index we would expect to see -1% movement return on the fund and vice versa. This is an important factor when using modern portfolio theory.
R-squared: The R-squared indicates the level of movement that can be ascribed or determined by the movement of an index. When the R-squared equals 1 there is a perfect correlation between the investments ' 100% of the movement in a fund can be determined by the movement in the index. When the R-squared equals 0, there is no correlation between the investments. An R-squared between 0.7 and 0.99 suggests that between 70% to 99% of the movement in our fund could be explained by the movement in the index. Below 0.3, there is effectively no influence.
Monthly volatility (or standard deviation): Standard deviation is a measure of absolute volatility. It is the measure of the square root of the variance of each monthly return from the mean. The larger the figure, the higher the volatility of a fund and thus its risk. A typical example of the kind of funds and their associated risk ranging from low risk to high risk are: cash funds, fixed interest funds, balanced funds, UK equity funds, overseas equity funds and warrant funds.
Source: Standard & Poor's
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