By Jayson Forrest - Managing Editor - IMAP Perspectives
In an impressive display of portfolio management, Real Asset Management has taken out the Australian Fixed Interest category in the 2021 IMAP Managed Accounts Awards for an unprecedented four consecutive years.
If Real Asset Management (RAM) had any notion of continuing to fly under the radar as a manager delivering investors both capital protection and yield enhancement, while providing them with a reliable income stream and low levels of capital volatility, then it should think again.
With a philosophy built on keeping its investment process simple and transparent, while monitoring for and minimising key risks, RAM’s approach to investing has seen it take out this year’s IMAP Award in the Australian Fixed Interest category for its Diversified Fixed Income and Credit Strategy.
“We’re delighted to be recognised again by a panel of experienced industry consultants in this year’s IMAP Awards,” says RAM director and portfolio manager, Michael Frearson. “During challenging investment periods with record high levels of investment market volatility and record low rates on cash, our strategy continues to deliver on its investment objective.”
Commenting on the Diversified Fixed Income and Credit Strategy, IMAP judge and Chief Executive Officer at Douglas Funds Consulting, Nigel Douglas, conceded it is challenging to produce well-balanced, cost-effective portfolios in the Australian Fixed Interest space.
“In this sector of the market, managers generally focus on listed ETFs, direct hybrids and a few corporate bonds, which means this category has a fairly restricted universe,” Nigel says.
When judging this category, in addition to the key fundamentals of fixed interest investing - including delivering decent yield, capital preservation and diversification - the judges also considered the manager’s investing philosophy, its investment process that emphasised yield and duration management, high credit quality, liquidity, and good client communication.
As well as consistency in performance, the judges were also looking for stability of leadership. And with the RAM management team enjoying over 150 years of collective experience gained at senior global and regional management positions, the judges were well pleased.
With offices in Sydney, Melbourne, Brisbane, Shanghai and Hong Kong, RAM knows a thing or two about investing. The manager has a team of over 90 professionals, offering over 25 investment strategies, accounting for in excess of A$1.8 billion in assets under management.
Michael Frearson - Real Asset Management
During challenging investment periods with record high levels of investment market volatility and record low rates on cash, our strategy continues to deliver on its investment objective
We’re a strong believer in diversification. We diversify across a range of sub-sectors, security types and companies, with strong risk management and clear concentration risk rules. We select securities on an after-tax basis, which is particularly relevant in the managed accounts space
A consistent approach
A veteran of 19 years in managed accounts, Michael says to win the Australian Fixed Income category for four straight years, speaks highly of RAM’s investment approach, which he attributes to the consistency of processes, people and the strategy’s performance track record.
“One of the things we do really well at RAM is we’re consistent,” he says. “We’re particularly consistent in our investment process, which enables us to deliver a meaningful investment outcome to investors.”
The Diversified Fixed Income and Credit Strategy comprises government bonds, cash, subordinate/senior debt and hybrid securities. Since the strategy’s inception in January 2017, it has averaged a return on investment of 4.23 per cent per annum, gross of fees.
As an active manager, RAM’s approach to portfolio construction is focused on ensuring it delivers on the investment objective. And aligned with that investment objective is the selection of quality companies and securities that have a higher likelihood of delivering on their terms of issue and delivering a reliable income stream for investors, along with low levels of capital volatility.
“We’re a strong believer in diversification. We diversify across a range of sub-sectors, security types and companies, with strong risk management and clear concentration risk rules. We select securities on an after-tax basis, which is particularly relevant in the managed accounts space,” says Michael.
RAM takes a risk-adjusted approach to portfolio management. Its investment process begins with careful analysis of the issuer, which includes both the quality of the issuer and the quality of the security. RAM then scores company issuers on a range of criteria, such as management, capital position, earnings outlook, and the risks that the issuer faces.
“From there, we have a proprietary ranking system, where each security is given a specific RAM security score based on structural subordination and the company scoring. This provides us with a consistent score that we can use to rank the universe of eligible investments,” Michael says.
In addition to applying its proprietary scoring for companies and securities, RAM also models the investment universe on an after-tax basis, using in-house modelling. This gives the portfolio managers a snapshot of valuations at any point in time, providing a consistent approach to after-tax valuation when selecting investment opportunities.
RAM uses a top-down overlay to guide sub-sector positioning, which is about 20 per cent of its alpha delivery and process, with the remaining 80 per cent from bottom-up analysis and portfolio construction.
“From top-down, we’re looking at the outlook for interest rates, credit, risk premiums, the economy and inflation. We also have a strong focus on the global outlook and global risks, because that really does flow through to Australian interest rates and credit spread movements,” Michael says
From top-down, we’re looking at the outlook for interest rates, credit, risk premiums, the economy and inflation. We also have a strong focus on the global outlook and global risks, because that really does flow through to Australian interest rates and credit spread movements
When advisers invest their clients’ wealth with us, they’re expecting we achieve the required investment objective, which is to provide a tax-effective income stream with low levels of volatility. And that’s what we’re aiming to deliver.
Delivering on the investment objective
The ultimate success of RAM’s style of portfolio management is measured on the delivery of its investment objective for clients, even during times of market volatility.
“When advisers invest their clients’ wealth with us, they’re expecting we achieve the required investment objective, which is to provide a tax-effective income stream with low levels of volatility. And that’s what we’re aiming to deliver,” says Michael.
“So, to win this award for a fourth straight year is particularly pleasing. It’s recognition by an experienced and independent panel of judges that our philosophy and focus on diversification, even under challenging market conditions, continues to provide an attractive investment strategy for clients in a low yield environment.”
Finalists
IMAP congratulates all the finalists in the Fixed Interest category for 2021
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- Mason Stevens
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- Real Asset Management
- Royston Capital
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- Watershed Funds Management