Firetrail, Airlie: How advice practices benefit from early ratings on new funds

7 Jun 2018

In the past month Zenith has been the first Australian research house to rate three new funds from Airlie Funds Management and Firetrail Investments, and as Zenith’s Head of Equities Quan Nguyen explains, backing selective funds early is all part of a value proposition that can benefit adviser clients and their investors.


That’s because like companies, investment funds often have their own life cycle and the potential for strong performance can change as a fund grows and new investors get on board. In the equities space this is particularly true: as the best opportunities are ultimately finite, and getting into a fund early when trading is most agile, can often mean a big difference in returns for investors. In theory at least, the larger a fund grows, the harder it is to sustain the performance of its early days. Wait several years and you have a real prospect of missing the investment boat.


In February this year, Zenith published a research report that determined the best time to invest in a smaller companies fund is at the beginning of its life. Zenith believes this is due to lower levels of FUM during the early stages of a fund’s life. This allows the fund manager to be more nimble when trading stocks, in addition to having a broader investment opportunity set relative to peers who manage more assets. Zenith found that the average Small Cap fund outperformed its benchmark by approximately 12% in the first 12 months of its life. However, as the funds matured, the average excess return gradually declined to a more subdued, albeit still attractive, 7.9% p.a. by year 10, before gradually converging towards approximately 7% p.a. thereafter. As such, we believe value still remains in investing in funds that are more mature with established track records.


Zenith’s philosophy is to empower its advisers to deliver best of breed financial advice by accessing the world’s best investment opportunities as soon as practicable. That requires having a broad, lateral and empathetic mindset on what advisers and their clients require as investment solutions, often before they may be aware of its availability. It requires flexibility from a research team in what is an extraordinarily busy annual review cycle covering over 780 funds. It also requires a bold commitment to review funds through an established and thorough process – no shortcuts.  Even if the opportunity for investors appears very compelling, a research rating requires a deep dive and factual assessment of whether a fund can deliver on its objectives for investors.


Quan said “In rating funds early, we need to balance out the priorities and probabilities of approving investment solutions that will add the most value to our advice clients, while allowing an appropriate track record to develop to ensure all ratings are based on solid fundamental principles and high conviction”.


Mark Burgess, Head of Research Relationships at Magellan said “Zenith has shown a willingness to identify and rate quality strategies early. They were first to rate the Magellan Global Fund in September 2007 and they have backed this up again by being first to rate Airlie in June 2018.”

Airlie Funds Managment rated first by Zenith

On 1 June 2018, Zenith initiated coverage on the Airlie Australian Share Fund (APIR: MGE9705AU) with a Recommended rating.

The Fund is managed by Airlie Funds Management (Airlie) and distributed by Magellan Asset Management (Magellan). The Fund provides investors with a fundamentally driven, quality and value styled, Australian equities exposure. 

Zenith has known both portfolio managers John Sevior and Matt Williams during their tenures at Perpetual where the strategies they managed generated attractive absolute and excess returns.

Zenith has a high regard for Airlie's senior investment personnel and believes the investment process employed has the Fund well positioned to achieve its investment objectives.

Firetrail Investments rated first by Zenith

On 8 May 2018, Zenith initiated coverage on the Firetrail Australian High Conviction Fund (APIR: WHT3810AU) and the Firetrail Absolute Return Fund (APIR: WHT5134AU). The Firetrail Australian High Conviction Fund has been rated Highly Recommended whilst the Firetrail Absolute Return Fund has been rated Recommended.

Zenith’s conviction in the Firetrail Australian High Conviction Fund is underpinned by the consistent application of the investment process which produced impressive long-term excess returns during the investment team's tenure at Macquarie Asset Management (MAM). Despite the recent formation of the business, Zenith has a high regard for Firetrail's investment personnel and capabilities and believes the Fund is well placed to meet its investment objectives.

 More funds on the pipeline

Zenith is committed to uncovering new, quality investment strategies and presenting new options to its advice practice clients. With each sector asset class review, consideration is given to new funds that may be included in the ratings universe. In the most recent Australian Fixed Income Sector Review released on 31 May 2018, Zenith introduced five new fixed income strategies to the ratings universe. 

For more information on new funds that have been rated by Zenith, please visit our website (login required).

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