Atlantic Pacific Australian Equity Fund delivers 53.2% cumulative return over 3 years

The Atlantic Pacific Australian Equity Fund (APAEF) is only three years old, but it has already delivered an impressive 53.2%* cumulative return to investors significantly beating the benchmark S&P/ASX 200 Accumulation Index, which delivered a 25% return to investors during the same period.

George Paxton, a fund manager for APSEC Funds Management Pty Ltd (APSEC Funds Management) whom is the investment manager of APAEF, noted “Since the inception of the Fund, we have generated the bulk of the returns from securities within the S&P/ASX 100. And this focus has served us very well considering the returns that we’ve generated.”

Shares within the ASX 100 deliver healthy returns

Companies within the S&P/ASX100 which have delivered for the Fund include Asciano, Amcor, Challenger, Fortescue Metals Group, JB Hi-Fi, M2 Group, Sonic Healthcare and Telstra. The Fund has also had some success in the small cap space outside of the S&P/ASX100 universe including Premier Investments and Tassal Group.

Mr Paxton added, “With the returns of the Fund being concentrated in extremely liquid names we believe that we can minimise liquidity risk to unitholders. We expect that the Fund holdings and returns will continue to be dominated by Australian large cap securities as we grow our funds under management.”

Challenging market conditions call for dynamic investment strategy

According to Mr Paxton, the first three years since the Fund’s inception have seen different market environments, and in each year, the source of fund outperformance has been different. To deal with these varying market conditions, the APSEC Funds Management team have adjusted their investment strategy to deliver consistent returns.

Mr Paxton said the first year of operation was characterised by a rising equity market. “While the old adage is true that a rising tide lifts all boats, stock selection is critical in a rising market if you wish to add value on a relative basis and we managed to pick some of the great outperformers in that environment which resulted in the Fund outperforming the benchmark.”

However, the second year was a range-bound sideways trading market, which called for a slightly different investment approach.

“In this kind of market (sideways market) stock selection combined with downside management were the key drivers of fund outperformance,” Mr Paxton said.

Stock selection was driven by targeting key macroeconomic themes including a weakening Australian dollar, weak commodity prices and uncertainty relating to Federal Government Budget outcomes.

Downside management strategy in a falling market

Downside management is all about timing protection over negative periods, either through higher cash levels or through the short term use of Index Futures to synthetically reduce market exposure. Unlike most long bias equity managers, we don’t subscribe to the view that quality alone will be able to preserve capital. It has been shown recently in severe down markets during the GFC, high quality companies fare just as poorly as low quality companies i.e. significant diminution in capital of the order of 30-50% can occur.

According to Mr Paxton, “Tactically, the Fund has been overweight offshore names (falling AUD), underweight resource companies (falling commodity prices) as well as overweight specific investments uncorrelated with general movements in the market.”

In the third year the Fund was operating in an environment of an overall falling market. “In this environment the key contributor to fund outperformance was downside management,” Mr Paxton said.

Explaining the benefit of their investment strategy, Mr Paxton said, “Considering the different market environments that we’ve seen over the past 3 years and the consistent relative outperformance that we’ve generated, we believe that we have demonstrated the style-neutral nature of the underlying investment process at APSEC Funds Management, as we set out to do. This means the Fund has the potential to consistently outperform the index regardless of the market environment.”

He emphasised that the combination of a focus on both upside volatility capture via stock selection, and downside risk management has resulted in annualised returns to the Fund’s unitholders being twice the index return.

In terms of market themes that dominated the past 3 years and how they dictated APAEF’s investment direction, Mr Paxton identified them as:

Falling Domestic Interest Rates - as the RBA lowered the base rate to historic lows during the life of the Fund, investors were prompted to chase yield in other securities including domestic equities. Key yield companies included ANZ, M2 Group, Telstra and Westpac.

Underperformance in the Resources Sector – the Fund had zero or close to zero exposure to the resources sector as it anticipated negative absolute or relative performance. For significant periods of time the Fund completely avoided having any exposure to the sector as falling prices in the underlying commodities translated into negative operating leverage and share price movements.

Relatively strong US dollar – the Fund had exposure to some companies with US dollar denominated earnings, which in turn delivered healthy outperformance. Companies that delivered well on this includes Amcor, Brambles, CSL, Cochlear, Magellan Financial and Sonic Healthcare.

And of course, idiosyncratic stock selection has added value over time including investments in Challenger, Fortescue Metals Group, Premier Investments and Tassal Group.

According to Mr Paxton, given the recent strong performance of APAEF, they’ve been getting a lot of interest from external sources.

“We are now expecting a period of rapid growth with an expectation that we will cap the Fund at $200m to protect the performance” he said.

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

* Please refer to the APAEF website and PDS for further detail on performance and mandatory disclosures which can be accessed at www.apsecfm.com.au.

 

DISCLAIMER

Past performance of the Fund is not indicative of future performance. Fund returns are prepared on a mid unit price basis after management and performance fees inclusive of GST. Distributions are assumed to be re-invested at the mid unit price. Individual tax is not taken into account in deriving Fund returns. This report was prepared by APSEC Funds Management Pty Ltd (ACN 152 440 723), a corporate authorised representative (CAR 411859) of APSEC Compliance and Administration Pty Ltd (ACN 142 148 409) (AFSL 345443). APSEC Funds Management is the investment manager of the Fund. The responsible entity of the Fund is One Managed Investment Funds Limited (ACN 117 400 987) (AFSL 297042) (OMIFL). The information contained in this press release was not prepared by OMIFL but was provided by other parties. While OMIFL has no reason to believe that the information is inaccurate, the truth or accuracy of the information contained therein cannot be warranted or guaranteed. Anyone reading this press release must obtain and rely upon their own independent advice and inquiries. This press release has been prepared for the purpose of providing general information, without taking into account your particular objectives, financial circumstances or needs. You should obtain and consider a copy of the Product Disclosure Document (PDS) relating to the Fund before making a decision to invest. The PDS may be obtained from www.oneinvestment.com.au/atlantic/. Neither OMIFL nor APSEC Funds Management guarantee the performance of the Fund or the repayment of any investor’s capital. To the extent permitted by law, neither OMIFL nor APSEC Funds Management, including their employees, consultants, advisers, officers or authorised representatives, are liable for any loss or damage arising as a result of reliance placed on the contents of this press release.

 

For more information, visit:

http://www.apsec.com.au/fundsmgmt.html