Transcription of Finance News Network Interview with Australian Ethical Smaller Companies Trust Portfolio Manager, Andy GraceyDonna Sawyer: Hello I’m Donna Sawyer from the Finance News Network and joining me from Australian Ethical, is Smaller Companies Trust Portfolio Manager, Andy Gracey. Andy welcome to FNN.
Andy Gracey: Nice to be here.
Donna Sawyer: Andy tell me about yourself and your investment style?
Andy Gracey: I’ve been at Australian Ethical Investment for around nine years; I’m naturally a value type investor. The investment universe at Australian Ethical is more growthy, so we basically describe our investment style as GARP, or Growth At a Reasonable Price.
Donna Sawyer: How much do you manage and what percentage of client money is invested locally?
Andy Gracey: The Fund currently has $300 million in terms of funds under management, that’s 100 per cent domestic equities. In terms of where we invest, we invest a lot in medical technology and information technology. And we’re 60 per cent weighted in terms of smaller companies, or companies outside the ASX 100, and 40 per cent weighted towards ASX 100 companies.
Donna Sawyer: Reporting season is behind us now. What’s your assessment and what were the standouts?
Andy Gracey: Overall we saw the market in terms of earnings per share across the market, down around three per cent. This is made up of industrial companies and bank shares where earnings actually rose over five per cent, while mining service and mining companies’ earnings were down 27 per cent. So they’re down heavily.
In terms of standouts for us, we had GBST
(ASX:GBT) which is a small software company focusing on wealth management and broking. They had a very solid result, ahead of expectations and the market got quite excited about that stock. Sirtex
(ASX:SRX) which is a medical device company had a good result, we’re very pleased with that and Suncorp
(ASX:SUN) had a good result announcement.
Donna Sawyer: In terms of your portfolio, did reporting season cause you to reweight your exposures?
Andy Gracey: Look we’re continually pruning the portfolio, adjusting portfolio weights. We’ve seen during the last few months we’ve actually exited some individual stock holdings, because of valuations being exceeded. We’ve also been more active in terms of the IPO market and also some of our companies undertaking placements. And we’ve also been buying some of the names that we hold that have been underperforming.
Donna Sawyer: So what are your three biggest positions and how do you fit that into your Ethical Investing charter?
Andy Gracey: OK our largest position in the portfolio at the moment is software company GBST. As we’ve talked about previously, GBST is involved in wealth management and broking - generally kind of back office functionality in terms of software. That’s our largest position. We also have large holdings in internet service provider iiNet
(ASX:IIN) and also IT services company, Oakton
(ASX:OKN). All three of these companies fit under the ethical charter on the basis of efficiency and that they promote efficiency, or better ways of doing things.
Donna Sawyer: Now to the local economy, what are the risks?
Andy Gracey: With the risk to the local economy, we’re seeing mining CAPEX really come off. So what we really need is another sector and the market’s looking at the housing sector to make up that void, if you like. So we’re really looking at GDP of between 2.00 and 2.5 per cent. However, if the housing sector, which is looking pretty good at the moment, if the housing sector falls away the risks are that GDP may fall short of that 2.00/2.5, because mining investment is coming off in a big way. So we need something to fill that void.
Donna Sawyer: So what happens when the RBA stops lowering rates?
Andy Gracey: Well undeniably asset prices equities property is getting a free kick from lower rates. We expect to see another one or two interest rate cuts in the next 12 months. But we also expect that interest rates will remain low for the foreseeable future.
Donna Sawyer: Let’s talk about performance. How have your local funds performed relative to your benchmarks over the last year?
Andy Gracey: Over the last 12 months, the Smaller Companies Trust has done 24.6 per cent. This ranks it in the second quartile in terms of the Mercer survey; this is the year to 31 August 2013. Over the six months, the Fund has actually done 8.7 per cent; this is actually ranking the Fund number one from over 100 Funds. So we’re pretty pleased with that performance over that period.
Donna Sawyer: What about your long term performance?
Andy Gracey: While we’re thrilled with our six month performance, we’re really focused on terms of long term performance. And we’re pleased to say over three, five, seven and 10 years, the Fund ranks in the top quarter of all Funds as measured by the Mercer survey. We’re also pleased with our 10 year performance data. We’ve done around nine per cent after fees against a benchmark which is at six per cent.
Donna Sawyer: Finally Andy, what’s your outlook?
Andy Gracey: Well at the moment, the market is wrestling with very low historical interest rates. The market is also wrestling with the fact that governments are slowly withdrawing, in terms of fiscal spins are coming back. So we expect interest rates to continue to fall and we think the low interest rates, will be overall supportive of the market.
Donna Sawyer: Andy Gracey thanks for the update.
Andy Gracey: Thank you very much.
Ends
