BT Financial Group subsidiary Advance Asset Management has removed Colonial First State Investments from the manager line-up for its $550-million Australian Fixed Interest Multi-Blend Fund and awarded new mandates to AMP Capital Investors and Aberdeen Asset Management.
Portfolio manager for fixed interest and cash at Advance Asset Management, Ron Mehmet, says the review of the fund’s managers was prompted by the changing nature of the Australian bond market.
He says the traditional approach to managing domestic fixed-interest portfolios – analysing Australian Government monetary and fiscal policy, interpreting economic indicators, forecasting inflation and then determining valuations – has been overtaken by international events.
“Suddenly we are getting this influence from overseas and we’re getting our bonds internationalised,” Mehmet says.
“As a result, you have to take in the whole world. I believed that we needed to take that into consideration and pick managers that are doing that. I have to adapt the portfolio to the changing market conditions, because it’s dynamic – it’s not static.”
As a consequence of the review, Colonial, which had managed money for the Advance fund since 2005, was dropped from the line-up and incumbent manager Perennial, which has managed money for the fund since 2010, has had its mandate reduced.
Recent personnel changes at Colonial also influenced Mehmet’s decision.
The new Advance line-up
Perennial now manages about 30 per cent of the fund, the same as AMP, and Aberdeen manages about 40 per cent.
“People are concerned about what they hear from overseas, so they rush out of bonds and into equities, and then they rush back the other way,” Mehmet says.
“Volatility does not suit [Perennial’s] style.”
Mehmet says Aberdeen employs a multi-strategy approach to managing fixed interest, which is better suited than the fundamental style employed by Perennial to capturing the factors that drive markets.
“They’re a rotational manager,” Mehmet says. “By diversifying the number of strategies they use, I have reduced the risk in the portfolio.”
He says the “systemic-type investment process”, run by AMP Capital’s head of macro markets, Simon Warner, is also better suited to the changing nature of the bond market.
The Multi-Blend fund has an investment objective of outperforming the UBS All Maturities Composite Index – covering government, semi-government and principally investment-grade corporate debt – by 75 basis points a year on a rolling three-year basis. In the three years to the end of May, the fund outperformed its benchmark by 48 basis points before fees.
Clarification: This article has been clarified to say that the Advance Australian Fixed Interest Multi-Blend fund return for the three years to the end of May, 2012, is before fees.