Home / Monash offers an alternative in outcome-orientated space

 (Pictured: Simon Shields)

One of the various consequences of the GFC for super funds and other investors is the greater freedom they are now prepared to offer their managers. It is a bit like – but not exactly – a return to the balanced fund era of the 1980s.

A new boutique which emerged in 2012 is Monash Investors, a benchmark-unaware concentrated equities manager run by two experienced analysts, Simon Shields and Shane Fitzgerald. The two most recently worked together at UBS Global Asset Management.

Monash last year appointed Damien Hatfield of Triple A Partners as a third-party marketer who has been talking to super funds, family offices and other large investors about the firm’s approach to investing. Responses have been interesting.

Monash operates one fund, which it calls the Monash Absolute Investment Fund, which has the ability to: invest not only in Australian shares but also international shares, short for either hedging purposes or to take advantage of opportunities and to hold an unspecified amount of cash for defensive purposes. It is a type of outcome-orientated fund, which some big managers and multi-managers, such as SSgA, AXA Investment Managers, Perpetual Investments and Russell Investments, have launched in Australia in the past year or so.

But unlike the others, which mostly involve a range of strategies with lots of overlays and derivatives, the Monashfund is fairly easy to understand.

The analysts categorize stocks they find “compelling” according to whether they are “outlook driven” or “event driven”. Outlook-driven stocks are those with a strong upside payoff potential, typically greater than 60 per cent. These involve a lot of research. Event-driven stocks have only a moderate upside payoff but there will be a catalyst event, such as change of management, new market entrant or insider buying or selling. Usually, more of the Monash portfolio will consist of outlook-driven stocks.

The analysts, who have worked for both value and growth managers in the past, are style agnostic and size agnostic in their stock selection. The current portfolio consists of 20 stocks, of which 10, representing 60 per cent in value, are outlook driven and 10, representing 20 per cent in value, are event driven. There is currently 20 per cent in cash.

International shares are taken up opportunistically. A recent success, Shields says, was an investment in UK’s Royal Mail, which produced a 45 per cent return in two-and-a-half months and was subsequently closed out.

“We want to reliably grow investor wealth, which means protecting the portfolio too,” he says. Given its focus on controlling for risks, its net exposure to the market has been about 70 per cent. Volatility has been about half that of the market.

Hatfield says that there are several trends among super funds which make Monash’s approach attractive, including a renaissance of interest in hedge funds. Funds, too, are starting to broaden what used to be a 10-or-so per cent alternatives bucket to spread the investments over general listed equities. One big fund has abandoned its alternatives category and now splits its investments into liquid or illiquid (which has a 20 per cent cap).

The other important trend is member-driven and also influenced by the demographics of larger numbers entering retirement. This is the downside protection angle, which is part of outcome-orientated investing.

Shields and Fitzgerald own more than 80 per cent of Monash Investors. The remainder is held by two passive investors, one of which is their former employer, UBS, and the other a private investment by former Macquarie Bank chief executive Allan Moss. Prior to his five years at UBS, Shields spent nine years at Colonial First State and eight years at Rothschild and Westpac. He was lead portfolio manager and head of Australian equities at both UBS and Colonial. Fitzgerald spent 14 years on the sell-side at JP Morgan and four years on the buy-side at UBS.