Advance Asset Management has branded Standard & Poor’s (S&P) criticism of its ability to mix good Australian equities managers as “incongruous”, given all eight of its underlying managers are rated ‘four’ or ‘five stars’ by the firm.
Advance’s was among two offerings downgraded to ‘two stars’ (considered below investment grade), while three products’ ratings were reaffirmed in what S&P called a “disappointing” review of Australian equity multimanagers. The research house said that multimanager products were supposed to be market neutral, balancing the bias of different styles of managers while giving exposure to superior stock picking skills, but “Australian equity multimanagers had struggled to meet these investment objectives over an extended period”.
Leanne Milton, head of funds research at S&P said: “you would expect periods of underperformance in market neutral funds, but some of the funds we reviewed had underperformed for seven to 10 years.” The Advance Wholesale Australian Shares Multi Blend Fund and the MLC Wholesale Australian Share Fund were both downgraded from ‘three stars’ to two, while Challenger’s Custom Choice Wholesale Boutique Australian Share Fund and MLC’s Wholesale Australian Share Value-Style Fund and Growth Style-Fund were all maintained at ‘three stars’. Two Russell strategies were rated for the first time, the Australian Opportunities Fund Class A and the Australian Shares Fund Class A, both also rated ‘three stars’.
Regarding the low ratings, Milton said each manager had its own problems for different reasons. “For some it was a capacity issue, or a double layer of fees, for others it was poor manager selection,” she said.
Patrick Farrell, general manager at St. George Investment Solutions, said he was “obviously disappointed” at the decision to downgrade the Advance fund. He said that of the five large cap managers and three small cap managers in the fund, all were rated four or ‘five stars’ by S&P, so it was “a little incongruous” that S&P had suggested in its private report to Advance that it had trouble picking managers. He said he was also surprised that S&P had questioned the fund’s ability to source boutique managers in its report. “We have boutique managers knocking on our door through our connection with the [Asgard] platform,” he said.
Milton said the criticism was about the funds’ ability to blend; the way it had put the managers together, the mandates it had given them, how efficiently they were transitioned and the fees it had charged. “They may have had some of the best managers, but they have still consistently under delivered. Our focus is on the return to the end investor.”
Performance for the Advance fund, before fees, exceeded the benchmark ASX 200 by 1.4 per for the 12 months ending in August, and Farrell said he expected the fund to continue its good performance.