By Jayson Forrest - Managing Editor - IMAP Perspectives
Beating a high calibre field of entries, First Sentier Investors has taken out the 2021 IMAP Managed Accounts Award in the Australian Equities category.
This year’s panel of judges had a quality line-up of candidates to adjudicate in the Australian Equities category of the 2021 IMAP Managed Accounts Awards, with awards judge Amanda Munro CFA conceding that several managers could have won this category.
However, the eventual winner impressed the judges with the experience of its investment team, the way in which the portfolio was focused on investing in ex-20 ASX 300 companies, its active approach to company engagement and its ESG philosophy, which formed an integral part of its investment process.
The winner of the 2021 IMAP Managed Accounts Award for the category of Australian Equities is First Sentier Investors, winning the award with its Ex-20 Australian Share Fund SMA offering.
“It was pleasing to see that return on investment capital was given importance as a key metric in the fund’s value-adding holdings,” says Amanda. “It was also interesting to note that First Sentier Investors commits to a specific outperformance target of 3 per cent over rolling three-year periods.”
By tapping into the broader opportunity set of the S&P/ASX 300, the First Sentier Ex-20 Australian Share Strategy contains a selection of high conviction stock picks from the Australian Equities Growth team at First Sentier. The investment objective of the strategy is to outperform the S&P/ASX 300 Accumulation Index ex the S&P/ASX Top 20 Index over rolling three-year periods before fees.
According to Dushko Bajic CFA - Head of Australian Equities Growth at First Sentier Investors - a key feature of the strategy is its diversification of stocks, which he says is important because the manager doesn’t invest in companies in the financials and resources dominated S&P/ASX 20 Index.
“This approach to stock selection is significant, because it means the portfolio can help diversify a top-heavy Australian share portfolio,” he says
Dushko Bajic CFA - First Sentier Investors
Companies that add the most value through time are the ones that can grow their top-line and earnings, but also generate a return on invested capital that is well above their cost of capital. The real power of stocks like this are their ability to retain earnings and reinvest them back into the business
Approach to investment
As a manager, First Sentier is a fundamental, bottom-up investor. It has a particularly strong focus on companies that can grow their revenues and earnings, which translates into strong returns on invested capital.
“Companies that add the most value through time are the ones that can grow their top-line and earnings, but also generate a return on invested capital that is well above their cost of capital,” says Dushko. “The real power of stocks like this are their ability to retain earnings and reinvest them back into the business, allowing these businesses to invest in innovation to help develop their services and products.”
Dushko leads and experienced team of 10 investment professionals at First Sentier, comprising of eight portfolio managers and analysts, and two quantitative analysts.
“In the ex-20 category, I think what really stands us in good stead is the depth, cohesion and experience of our investment team, who on average each have over 20 years’ experience. This experience enables us to model over 200 ASX companies in detail,” says Dushko. “The skill and knowledge of our team makes us a trustworthy steward of our clients’ capital.”
A distinctive part of First Sentier’s investment process is its bespoke research. The manager undertakes extensive modelling via a consistent Discounted Cashflow (DCF) valuation approach. Dushko believes this detailed modelling is the bedrock of the manager’s competitive advantage.
First Sentier also has a strong and deliberate focus on ESG as part of its investment selection criteria, which impressed the IMAP judges. As part of its investment thesis, every company that is researched is individually scored on its ESG, with that scoring incorporated into the manager’s investment decision-making process.
In the ex-20 category, I think what really stands us in good stead is the depth, cohesion and experience of our investment team, who on average each have over 20 years’ experience… The skill and knowledge of our team makes us a trustworthy steward of our clients’ capital
Integrity and durability
When it comes to measuring the success of First Sentier’s Ex-20 Australian Share SMA offering, Dushko concedes that success will always be measured by performance that is delivered to investors. But perhaps what pleases him most about this strategy is the integrity and durability of the process that sits behind delivering this performance.
“It’s the ability of being able to consistently deliver that performance through the full investment cycle, which includes periods of strong economic growth and also periods of dislocation and market stress.”
To emphasise this point, Dushko refers to last year’s market volatility caused by COVID-19, when the Australian economy and sharemarket were both highly stressed. Yet, it was during this same period when the portfolio performed its best, including outperforming the benchmark. Dushko says that was made possible by the investment team’s strong focus on high quality companies that were able to continue to grow their revenues and earnings.
It’s the ability of being able to consistently deliver that performance through the full investment cycle, which includes periods of strong economic growth and also periods of dislocation and market stress
Winning the IMAP Managed Accounts Award for Australian Equities is a particularly challenging accomplishment, given the number of high quality candidates competing in this category. And it’s a point not lost on Dushko.
“It’s always pleasing to get industry recognition for the amount of hard work and commitment that investment teams put into portfolios, which often happens in the background and largely goes by unnoticed,” he says.
“For us at First Sentier, it’s pleasing to be able to deliver returns to investors, so they can build a great capital base from which to enjoy their retirement. That’s really the motivation for us to get out of bed each morning. It’s particularly pleasing to be recognised for the work we’re doing in making a great contribution to the financial wellbeing of our clients.”
IMAP congratulates all the finalists in the Australian Equities category for the 2021 Awards.
- Blackmore Capital
- First Sentier Investors
- Infinity Asset Management
- Macquarie Investment Management
- Perpetual Private