The aviation industry-based superannuation fund AvSuper has awarded a $75-million mandate to Perpetual Investments, to be managed in a concentrated Australian equity strategy.
AvSuper has about $1.4 billion in funds under management and 6100 members.
The concentrated equity strategy is managed by Paul Skamvougeras, who says the concentrated equity portfolio typically holds about 30 stocks. The strategy’s benchmark is the S&P/ASX300, which Perpetual says it outperformed by almost 5 percentage points, before fees, in calendar 2012.
Skamvougeras says the strategy is not constrained to investing only in large-cap stocks, and it holds “a selection of smaller caps and ex-index stocks in the portfolio”.
Its key holdings currently include IAG, Aurizon Holdings, Crown, Telstra, Rio Tinto and Oil Search.
The strategy currently has assets of about $2.5 billion and Skamvougeras says the manager could manage almost twice this amount before hitting capacity constraints.
The risk-and-return profile of a high-concentration fund is different from a more broadly based equity fund, which could have as many as 80 or 90 stocks in its portfolio.
“Portfolio construction within a concentrated strategy is very much reflective of the high conviction ideas of the portfolio manager,” Skamvougeras says.
“When constructing a concentrated portfolio, getting it right is not just about what stocks you own, but it’s about what you leave out.
“There typically is a higher level of volatility within a concentrated portfolio versus an index. At Perpetual we believe our focus on quality and value mitigates this volatility.”
The risk in a concentrated portfolio “is that the high conviction bets of the manager lag or underperform the market in a given time frame”, Skamvougeras says.
“[But the] key benefits of a concentrated strategy are that a good manager will navigate through the market and invest in industries that can outperform the market over the medium term, while avoiding industries that may have obvious structural or cyclical headwinds,” he says.