In search of further downside protection in its core global equities book, AMP Future Directions has invested US$800 million in a yield strategy run by an investment partner with the multi-affiliate Grant Samuel Funds Management.


Van Athukorala

The ‘global shareholder yield’ strategy run by US manager Epoch Investment Partners has been selected as a key defensive tactic in the $5 billion Core International Share Fund run by senior portfolio manager with AMP Capital Investors’ Future Directions Funds, Van Athukorala, who gave it a 15 per cent weighting.

“What clients worry about most is down-markets. When markets are up, they’ve made gains through beta and at best, some alpha, but in down-markets we want to fall less than the benchmark,” Athukorala said.

The Epoch strategy invested in stocks demonstrating sustainable dividends, which were typically generated by companies which convert cashflows into shareholder dividends, and also undertake share buy-backs and routinely pay down their debts, he said.

Because high-dividend paying companies typically generated stable cash flows, they were also bought during market declines as investors sought certainty of earnings.

“So in down-markets we expect the strategy to perform well, and in up-markets, we expect it to outperform and at least keep pace with the benchmark,” Athukorala said.

In the five years to March 31, which encompassed the financial crisis and its aftermath to date, Epoch’s shareholder yield strategy delivered a net return of 5.4 per cent against the 2.4 per cent posted by the benchmark MSCI World Equity Index, according to the manager’s website.

To fund the mandate, an allocation to a Wellington global equity strategy which invested according to technical signals was redeemed. While AMP Capital’s confidence is Wellington as a funds manager remains undiminished, it decided that this strategy did not meet the needs of the Core International Share Fund in current market conditions, Athukorala said.

Epoch’s fund joins five other active strategies in the AMP portfolio, such as growth plays run by T. Rowe Price and Baillie Gifford, and a Schroders product themed on quality stocks.

Damian McIntyre, a distribution executive at Grant Samuel Funds Management, said most of the returns from the Epoch strategy were generated by cash dividends, although all three income streams combined to create “shareholder yield”.

“If you find a company with rising free cash flow, which is already in the habit of allocating cash flow to benefit shareholders, then you should expect a reasonable or rising shareholder dividend. That’s Epoch’s sweet spot,” he said.

The strategy is run by portfolio manager Eric Sappenfield and co-portfolio manager Mike Welhoelter, and screens 14,000 stocks worldwide in its selection process.

McIntyre noted that in the first quarter of 2011, up to 44 companies across the globe increased their dividends, and that there were currently 104 stocks in the Epoch portfolio.

Grant Samuel acquired a stake in Epoch in October 2007, and began distributing its products in May 2008 before first winning a mandate seven months later, said managing director Andrew McKinnon. The Future Directions mandate brought the amount of capital raised by Epoch’s Grant Samuel-distributed funds to $2.1 billion, he said.

Grant Samuel’s other affiliates are Tribeca Investment Partners, which runs about $1.2 billion in domestic small-cap and long/short equities, and Grant Samuel Infrastructure Partners.

“We always try to identify a specialist in each asset class,” McKinnon said, adding that a partnering global fixed income manager would soon join its line up.

Esasaquity Portfolio Design in the Presence of Taxes
Roundtable discussion convened by Investment Magazine and Parametric

10.30am – 12.30pm
Friday May 27, 2011
The Library, Park Hyatt Hotel, Melbourne

There is compelling evidence that the careful management of the tax experience can boost after-tax returns of an equity portfolio.

Parametric, an after-tax investment specialist, has calculated that astute tax management of an S&P/ASX 200 index fund can feasibly add 40 basis points of Tax Alpha to the return of a non-tax-managed index portfolio (at superannuation tax rates).

Be they passive or active, it pays to measure managers’ after-tax performance as a foundation upon which after-tax investment mandates can be designed. Investment Magazine invites you to an upcoming roundtable, co-hosted with Parametric, focusing on enhancing Australian and global equity returns through active tax management.

The specific objectives of this roundtable are:

  • To canvass the techniques that funds can use to improve their after-tax performance;
  • Explain the practical steps funds can take to accurately measure the after-tax performance of their managers;
  • Discuss the difference between generic and customised after-tax benchmarks;
  • Discuss ways to structure the equity investments of an aggregate fund and to coordinate the tax-management of multiple managers; and
  • Explore how lower tax rates for members in the de-cumulation phase can be exploited.

We would deeply value your contribution to this discussion, and sincerely hope you can attend.

Join the discussion