Industry Funds Management (IFM) has finalised the strategy for its first active Australian equities portfolio, with a launch date set for July 1, and is seeking an investment director to support incumbent executive director Clyde Haldane.
Haldane, one of the eight founders of fund manager Portfolio Partners, joined IFM two years ago to implement the active equities process, but has been working part-time since early last year because of family circumstances. IFM’s new strategy is based on Haldane’s research, which he said quantitatively showed companies with excellent track records of efficiently investing incremental capital to create long term returns for shareholders will persistently do so, even when that business has change of management. By the same token, he found companies that poorly invested new capital have also persistently done so. “The new active management portfolio will focus on identifying those companies that have the excellent track record of reinvesting their new capital,” Haldane said. He dismissed the investment adage that past performance is not an indicator of future performance, saying that in this case, it’s different, and he has the figures to prove it. Given there are only 20 stocks in the large cap sector which have this attractive track record, according to Haldane, the IFM portfolio will hold around 16 stocks, with a buy/sell transaction around once a year. The portfolio will also run the companies through the usual financial analyses, but the reinvestment record will be like a “filter”. “It’s a better indicator for a long term investment than looking at future earnings forecasts. I’ve run a buy and hold strategy portfolio in the past aimed at long term investment, and we could only see earnings out for one to two years, and even for two years, it’s a lot of guesswork,” Haldane said. Haldane is seeking a second pair of hands to assist him before taking the strategy out to the market. That person must be “quite strategically minded and willing to take a long term view on a company, not just past experience of buying and selling stocks”, he said. “Obviously we’re going to get to know the management of the companies we invest in quite well. You have to make sure the stocks you buy are doing a good job of reinvesting that new capital.” The strategy will mean this portfolio has a high tracking error, complimentary to an investor’s existing Australian equities portfolios as opposed to simply diversifying them, Haldane said. Prior to joining IFM, Haldane had worked on family-owned private investments after leaving Portfolio Partners in 2001. Until now, IFM has only offered index and enhanced index investing in Australian equities.
Future Fund chief investment officer Ben Samild said that FY24 has been a great year for alpha creation, thanks to strong returns in equities and, unusually, across multiple hedge fund strategies all at the same time. He reflected the past few years have been “a difficult time to be an asset owner and to generate positive returns for risk assets” but the Future Fund is tracking well of its long-term mandate.
Simon Hoyle and Darcy SongSeptember 4, 2024
