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The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
Ranger’s income-growth fund to tap into mFund market
Jeff Middleswart
AFM Investment Partners is to launch an mFund for its global yield fund being managed by Texas-based Ranger International, complementing the fund’s platform access on Hub24 and direct lines for investors.
John Donovan, AFM managing director, said last week that the Ranger International fund was clearly relevant for Australians looking for income generation in post retirement. “There’s been a lot of thinking going on about these sorts of products,” he said, during a visit by key Ranger managers. “This is almost like an ASX-type strategy provided globally.”
Australia is a high-dividend country, partly because of imputation, and SMSF trustees have long favoured a handful of bluechips such as the banks, Telstra and BHP because of their dividends. The Ranger mFund should also be of interest because of its diversifying effect.
Bill Andersen, Ranger’s CIO and head of the income and growth strategy since its inception in 2003, said yield-oriented strategies kept the portfolios managers honest. The three key attributes of a stock for the portfolio were quality, financial strength and valuation.
“The first thing we do is find stocks we want to own. And then we look for the yield characteristics,” he said. He has been managing to this style for about 25 years, with his previous firm, Driehaus Capital, as well as at Ranger, which is a US$3.2 billion staff-owned firm.
He said that when he started investing in 1990 the field was not very interesting. There were about 30 or so stocks with a yield of 2.5 per cent or more. So, he sought to build a strategy which combined that with growth.
“The portfolio also has a good risk profile, with a beta of about 0.6,” he said. “Returns tend to lag a little in a bull market and outperform in a bear market.”
Jeff Middleswart, co-portfolio manager, said that traditionally high-yield stocks had been perceived as having low growth prospects, such as tobacco stocks, which was not necessarily the case. The Australian fund, which uses Equity Trustees as its RE, has an ESG overlay which prohibits tobacco stocks.
“We actually manage to income plus growth plus growth,” he said. “We like to keep the portfolio yield above 6 per cent, which we have done each year since 2003.”
Overall, the fund aims for a return of 10-11 per cent a year, with a reasonable concentration of 40-50 stocks, which tend to be mid-to-large-cap weighted.
AFM, which represents several international managers, got together with Ranger only last year and decided on a multi-channel distribution plan for Australia, across institutional, the advised retail and direct investor markets. The fund’s seed investor is the Myer Family Office.
