RaboDirect's Key Accounts & Investments Manager, Michael Courtney, sat down with Nikko Asset Management Senior Portfolio Manager, James Lindsay, to get his views on the Nikko AM Concentrated Equity Fund.
1. Can you explain your role with Nikko AM NZ and how long you've been with the company?
I'm a Senior Portfolio Manager at Nikko AM. My role primarily involves extensive research on companies. This research includes meeting management, the clients and competitors of companies and analysing the sectors in which they operate to ultimately help decide if a share is worth investing in. I then use this information, together with research produced by my three colleagues to decide what shares the Fund should invest in.
This is my 17th year working at Nikko AM NZ as part of more than two decades of investing in the Australasian share markets.
2. How long have you been managing the Concentrated Equity Fund for?
Nikko AM operates a team investment approach and I've had joint portfolio responsibility for the Fund since 2001.
3. Can you explain a bit about the strategy behind the Concentrated Equity Fund?
The Concentrated Equity Fund is designed to provide clients access to the team's best ideas. We target approximately fifteen stocks, this small number of stocks allows for significant outperformance when we get the calls right. The Fund also has the ability to move into to cash when we are believe the market is too expensive, such as in 2007 just before the financial crisis when the Fund had approximately 40% in cash.
4. When someone invests in the Concentrated Equity Fund, where is the money invested?
The money is invested in shares listed on the New Zealand and Australian share markets. We seek companies that offer value, have sustainable high quality returns and an expectation of being able to grow into the future. If we are unable to find such companies we will leave the money in cash until a suitable investment is found.
5. How do you decide what the most suitable/appropriate investment options are for the fund?
We use a rigorous investment process to identify companies to conduct research on. The ongoing in-depth research includes analysing financial statements, company announcements, meeting with management, board members and industry contacts to develop a deep understanding of a company and the sector it operates in. By doing this, we have a thorough understanding of a company and what is it worth.
6. What are Nikko AM NZ's views on the NZ, Australian and wider global economies at the moment?
New Zealand is experiencing solid above-trend GDP growth, positive consumer and business sentiment, strong house price inflation and positive net migration. This is supported by the Christchurch rebuild, but hindered somewhat by a high New Zealand dollar and the fall in dairy prices. Relative to other economies, New Zealand's government is well placed.
The Australian economy faces challenging conditions, with a slowdown in the resource sector and related reduction in infrastructure investment. Both State and Federal coffers are under pressure. These factors contribute to the current low cash rate, but this provides a crucial underpinning for the Australian stock market.
The global economy is benefiting from monetary stimulus and government intervention. There is a modest, but sustained economic recovery. Investors' focus is US and European economic performance. The timing and scale of US interest rate rises will influence the direction of asset prices. Signs of slowing Chinese growth and weakening global commodity prices are also impacting global growth.
7. Although this fund is an Australasian equity fund, does Nikko AM NZ still pay close attention to what is happening globally?
In short, yes. Nikko AM NZ is New Zealand's only dedicated global investment manager and this is a unique advantage for the NZ Equity team. Nikko AM is one of the largest asset management companies in Asia, has extensive global resources across 12 countries and covers the world's major investment centres. The Nikko AM global investment platform provides a real time connection to a network of over 280 investment professionals who share proprietary ideas and perspectives.
Global events have a greater impact on the New Zealand market than ever before. Many companies we invest in have operations in the US, Asia or in Europe and so keeping abreast of what is happening in these markets is essential.
8. How would you describe the performance of the fund in recent times? And what sort of performance should customers expect from this fund going forward?
Recent performance has been solid, outpacing the NZX50 and many of the peer funds over the past year. The Nikko AM NZ Equity team occupies an enviable position in New Zealand. With a breadth of experience and access to the resource base of a global asset manager, the team are rapidly solidifying their place as one of New Zealand's leading equity teams.
It is always hard to predict future returns, but the team believe that the stocks in the Fund offer value, look sustainable and have the ability to grow their earnings in the future.
9. Could you explain your thoughts on the risk this fund carries?
As this fund invests in shares investors need to be comfortable with the risk profile of this type of investment. If clients are unsure whether this type of investment suits them they should seek financial advice. All investments carry some level of risk and past performance is not necessarily an indication of future returns. Further information on risk can be found in the Nikko AM NZ Retail Unit Trusts Investment Statement (29 May 2015).
10. What methods does the fund use to minimise foreign exchange risk?
The fund has the flexibility to allow Australian stocks to be hedged between 0% and 100%. Currently, with the New Zealand dollar close to all times high against the Australian dollar, there is no hedging on the Australian stocks.
11. What specific performance objectives do you set for the fund?
To outperform the RBNZ Official Cash Rate over a rolling three year period by 5% per annum before management fees by investing primarily in New Zealand and Australian listed equities.
12. Does this fund pay distributions? If so when?
Yes, six monthly on the last business days of March and September.
13. Why should someone invest in this fund?
For four reasons:
- Team experience: is one of the most experienced teams in New Zealand
- Its concentrated nature: a collection of the team's best ideas
- A fundamental investment process that aims to deliver attractive and repeatable risk adjusted returns
- Nikko AM NZ is New Zealand's only dedicated global investment manager
14. For someone who is new to funds, what are some important considerations to take into account before investing in the Nikko AM Concentrated Equity Fund?
Please consult the Nikko AM NZ Retail Unit Trusts Investment Stateme93-121684nt (29 May 2015) for more information. Investment decisions are very important. They often have long-term consequences.
15. How would you see this fund fitting into an investor's portfolio?
Investors should consider this as part of their allocation to growth assets. Investors should seek advice when deciding whether to invest.
This document is issued by Nikko Asset Management New Zealand Limited (Company No. 606057, FSP No. FSP22562) investment manager and promoter of the products included in this document. This material has been prepared without taking into account a potential investor’s objectives, financial situation or needs and is not intended to constitute personal financial advice, and must not be relied on as such. Recipients of this document, who are not habitual investors, or their duly appointed agent, should consult a qualified and appropriately Authorised Financial Adviser and the current Investment Statement, Prospectus or Information Memorandum. Past performance is not a guarantee of future performance. While we believe the information contained in this presentation is correct at the date of presentation, no warranty of accuracy or reliability is given and no responsibility is accepted for errors or omissions including where provided by a third party.
To the extent that any information, analysis, opinions or views provided above constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised advice under the Financial Advisers Act 2008, nor do they constitute advice of a legal, tax, accounting or other nature to any persons.