Centralised portfolio management a 0.25 per cent value-add for Intech

Intech claimed it would reduce the volume of unnecessary trading in its Australian Shares Active Trust, by appointing Vanguard Investments to implement the investment decisions of its large cap managers.

Intech is the third Australian manager-of-managers to incorporate centralised portfolio management (CPM) to boost its after tax returns, following MLC and VFMC. Ron Liling, chief investment officer at Intech, said that consolidating the implementation under Vanguard would limit transaction costs and capital gains crystallisation costs. “Previously, if a manager wanted to sell a stock that had been held for less than 12 months, they would have to pay the premium capital gains tax,” he said. “Under the CPM structure, Vanguard can sell a parcel that has been held longer by another manager and shuffle the portfolio accordingly.” Liling said it was important for a number of the large cap managers to hand over implementation to Vanguard for the strategy to work, but that it was not suited to managers’ small cap and illiquid stock portfolios. The managers’ investment decisions are to be received in lag by Vanguard, to assuage any concerns that it may implement a manager’s decision itself and drive up the price. The lag would have to be much greater for illiquid stocks, and so the managers underlying Intech’s High Alpha Trust, which comprises 10 per cent of the Australian shares trust, will remain responsible for their own implementation. As an additional after-tax strategy, Intech has awarded Dimensional Fund Advisors (DFA) a 15 per cent allocation to the trust, because of its integration of tax management into quantitative investment processes. DFA’s value-driven, low-turnover approach appealed to Intech’s tax-effective style, Liling said. Other changes in the $1.8 billion trust include the addition of a customised value strategy run by Barclay’s Global Investors, and termination of mandates with Bernstein, Concord and GMO.