8 funds that top-rated fundies would put their own money in

Throughout Livewire’s 100 Top-Rated Fund Series, the country’s best fund managers have shared their views on the highs and lows of the investment landscape. From where we are in the market cycle right now, the trends that will shape the next decade, and the investment ideas they’re backing, our fundies have provided you, our dear readers, with a guide for the months and years ahead. 

But one question that’s seldom asked of the fundies is which external fund manager would they entrust their own personal wealth to? To add a bit of pizzaz and fun to the series, that’s exactly what we put to our participating managers, who responded openly and candidly to the query.

From a strategy that’s delivered 66% annually, to a manager dubbed as the “British Warren Buffett”, and a contrarian investor with a stomach of steel for buying companies whose prices have been obliterated, here are eight choices made by the managers we interviewed along with a description of the products they selected. Enjoy!

Edited Transcript

Paul Skamvougeras’s top pick - Paradice Australian Small Cap Fund

When asked the question, Paul Skamvougeras of Perpetual immediately nominated the Paradice Australian Small Cap Fund, which is co-managed by the respected (albeit very private) Adam Harvey.

The fund typically invests in 50-70 companies listed outside of the S&P/ASX 100 and focuses on the calibre of management, current and future cash flows, and the quality of a company's balance sheet. The strategy has delivered 32.17% in the 12 months to May 2021, compared to 26.73% for the small-cap benchmark.

Andrew Parson’s top pick – Fundsmith Equity Fund

Andrew Parsons of Resolution Capital places his trust in Terry Smith, dubbed by a UK magazine as the “British Warren Buffett”. Smith is the founder of the Fundsmith Equity Fund, a global equities strategy with a staggering £24.2 billion (A$44.43 billion) in funds under management.

Parsons speaks highly of Fundsmith’s no-nonsense and high-conviction approach to investing. The Fundsmith Equity Fund has delivered a cumulative return of 482.9% since its 2016 inception till May 2021, compared to 238.5% for the MSCI World Index.

Smith is as charismatic to watch as any of the elite fundies of the world, and for those interested, check out this video of the Fundsmith Annual Shareholders’ Meeting where he shares his views on markets.

Kate Howitt’s top pick - WaveStone Australian Share Fund

As someone who has dedicated much of her career to understanding companies, Kate Howitt of Fidelity International opted for someone from the same mould: Catherine Allfrey of WaveStone Capital.

“I’d give some money to Cath Allfrey. I think she’s a great manager, a great risk manager, and she starts from a place of a really deep understanding of individual company fundamentals and that really appeals to me," she says.

Managed Fund

WaveStone Australian Share Fund

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Catherine Allfrey's pick - Allan Gray Australian Equity Fund and Bennelong Australian Equities Fund

For Catherine Allfrey of WaveStone Capital, managers with guts and bravado are key. In that regard, Simon Mawhinney, the Chief Investment Officer of Allan Gray Australia - and Livewire’s most popular contrarian contributor - comes top of mind.

Mawhinney was recently profiled by Patrick Poke on The Rules of Investing podcast and is famous for executing stomach-churning maneuvers like buying banks and oil stocks in the middle of the COVID crash, and stocks such as Newcrest Mining (ASX:NCM) and AMP (ASX:AMP) at depressed prices.

“They’ve done a really good job and they’ve stuck to their knitting time after time. If I take a 10-year view, they’ve been in the top quartile,” Allfrey says of Allan Gray.

Managed Fund

Allan Gray Australia Equity Fund

Australian Shares

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Another manager Allfrey likes is the Mark East-led Bennelong Australian Equity Partners, which adopts a high conviction approach across its strategies. The boutique’s core Bennelong Australian Equities Fund, which holds 25-50 stocks, has delivered 13.56% annually in the 10 years to May 2021, compared to just 8.74% for the benchmark.

While Bennelong doesn’t disclose individual stocks in its performance reports, its latest update showed one reason why the Australian Equities Fund is blowing it out of the water; nearly half its portfolio has been invested in consumer discretionary stocks. That maneuver would partly explain the fund’s whopping 43.52% return in the year to May 2021 versus 27.72% for the index.

Managed Fund

Bennelong Australian Equities Fund

Australian Shares

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Ben Griffiths top pick – The Medallion Fund

Though Ben Griffiths of Eley Griffiths Group is a true-to-label bottom-up stock picker, he doesn’t mind having a robot in his wealth pot, nominating a strategy from American hedge fund Renaissance Technologies, founded by billionaire investor Jim Simons, who is dubbed as “The Man Who Solved the Market”.

“The Medallion Fund has returned 66% per annum every year since 1988. I’m not a quant investor per se but it would be terrific to have some money with Renaissance Technologies and Jim Simons," he says. 

Unfortunately for Ben (or any of us), the fund is closed to all but Renaissance’s former and current partners. So how they manage to put on such an impressive show? While there is no publicly available information about the strategy on Renaissance’s strategy, this article by Institutional Investor sheds some light on the fundie’s inner workings.

“According to The Man Who Solved the Market, Medallion’s strategy involves holding thousands of short-term positions, both long and short, at any given time. The fund makes high frequency trades, but has also held positions for up to one or two weeks, per Zuckerman’s description.”

The article also includes a calculation to quantify what a rate of return that high really means: “In 31 years, Medallion would have turned a $100 investment into a $400 million fortune.”

Sam Ruiz’s top pick – Stonehorn Global Partners

Sam Ruiz of T. Rowe Price would back Stonehorn Global Partners, a Hong Kong-based boutique started by the three original founders of Macquarie’s Asian Listed Equities capability.

“They run a local Asia ex-Japan strategy up there in Hong Kong. They are true stock pickers, they know the region really well, and just more broadly the thematic of Asia – particularly across Southeast Asia – is something that I think is very exciting," he says. 

While Stonehorn does not publicly disclose its positions, Founder & CEO Sam Lecornu did appear on Bloomberg in March 2021 and said that markets were so hot that he’s had to sell off stocks “we want to hold forever because they have gone beyond our blue-sky valuations”.

Stonehorn was rotating some of its portfolio into small caps and targeting companies playing into the China middle-class growth thematic.

Simon Doyle’s top pick – BlueOrchard Microfinance Fund

One of the themes that Simon Doyle of Schroders called out during the Top-Rated Fund Series was growing inequality; an issue he’d like to help tackle through impact investing firms like BlueOrchard (owned by Schroders).

The manager operates the BlueOrchard Microfinance Fund, which it describes as the first private and fully commercial microfinance investment fund worldwide.

“BlueOrchard is a firm that actually looks to provide things like microfinance to address some of those issues of inequality. It’s an environment where those sorts of things can provide positive benefits outside of just generating return.”