Willis Towers Watson today (November 4) launches its first Australian-domiciled fund. As you’d expect, it’s not a plain-vanilla core multi-manager strategy. It’s intended to deliver sustainable alpha using the strategy and processes of a popular Irish-domiciled fund which now has a four-year track record.
Called the ‘Global Equity Focus Fund’ (GEFF), the strategy aims to combine the best ideas from a number of global equity firms – currently 10 – which have agreed to lower fees and, combined, represent a style-neutral portfolio of between 100 and 200 stocks.
The Australian fund, which is open to NZ investors, follows the initial Irish-domiciled UK fund announced in 2015, and the rollout of the same strategy to other domiciles, such as the US. It has proved very successful for WTW and, so far at least, its clients. It has raised about US$13 billion globally in just-on four years.
The strategy itself actually goes back 10 years. WTW (then as Towers Watson) developed it for a US charitable foundation, which took on the manager responsibilities – following the advice in a traditional advisory capacity. The returns from that have been excellent: 2.7 per cent a year excess over benchmark on average for the 10 years. But that was then, this is now.
With the current GEFF performance, the target is a more sustainable 2 per cent alpha per year, which still comfortably beats most active managers and multi-managers. The four-year track record is currently running at about 1.4 per cent alpha.
A big determinant of global performance over the past few years has been the very strong gains from US tech-oriented large-cap stocks. In general, quality growth stocks have outperformed value stocks globally for about 12 years and in Australia for eight years. In September, though, there was a pronounced, though short-lived value flutter of outperformance, prompting observers to think that the markets are too ‘toppy’ and overdue for a value renaissance.
Stuart Gray, WTW’s London-based portfolio manager for GEFF and bespoke mandates, and Leslie Mao, the Sydney-based head of Australian equities research, did a series of presentations last week ahead of today’s launch. WTW has already been seeded for its new fund with about A$150 million of local funding.
Gray says the current 10 managers are a “bit more than usual”. Like most multi-manager strategies, the number will go up and down depending on market and industry circumstances. Each manager offers up between 10 and 20 of its ‘best ideas’ for the discrete mandates. WTW does not cherry-pick the stocks itself.
As it turns out, the overlap between the manager’s portfolios is very small. “We choose these managers to be different and think differently,” Gray says. “We have a mix of styles and the overlap is really low. There may be only one or two stocks which are in common with one or two managers.” WTW doesn’t attempt to intervene in the portfolio construction phase nor override a manager’s stock selection.
Leslie Mao says: “The way we implement the strategy is different from the conventional concentrated portfolios. Usually people think about 30-50 stocks in a concentrated global fund. When the true impact of the portfolio is assessed, it mostly boils down to the top 20-or so stocks as being the most meaningful, according to various academic research. We do not ask for managers’ concentrated model portfolios. We ask for their ‘best ideas’.”
They say there has been a groundswell of investor interest in the fund from the region, from pre-launch meetings. Gray says that, overseas, WTW has seen investors of different types in different countries come on board. “There’s a breadth of support, it’s resonating,” he says.
The Australian-domiciled unit trust is a ‘registered managed investment scheme’ with daily liquidity, using Northern Trust as custodian and asset servicing provider. WTW has a global relationship with Northern Trust.