Financial Keys - A member firm of Genesys Wealth Advisers


Key Moderate Model - Portfolio Change

Sell – Schroder Equity Opportunities Fund

Buy – Insync Global Capital Aware Fund (standard management fee is 1.30% however Financial Keys have negotiated a discount via the managed model, reducing the fee to 1%. This saving is rebated in full to client accounts).


The Financial Keys Investment Committee had been contemplating increasing global equity exposure in the Key Moderate Model over the last few months. At the same time, the Committee has reduced its conviction in the Schroder Equity Opportunities fund.

The increase in global equity allocation is a function of increased portfolio diversification, less Australian dollar exposure, and greater growth opportunities abroad. Global equities provide the portfolio with greater diversification across region, country, and sector, in an asset class where Australian equities constitutes just 2% of world equity markets.

In addition, the Australian market continues to be dominated by Financial and Resource sectors, whilst the Australian healthcare and IT sectors trade at eye-watering valuations.

The diversification benefit of being exposed to multiple currencies, rather than just the Australian dollar, significantly assists the portfolio especially in “risk-off” environments where the Australian dollar tends to fall.

Lastly, whilst there are more Australian companies than ever before earning revenues globally, we prefer to have greater exposure to those companies with access to larger addressable markets earning revenues in multiple jurisdictions, making their earnings more sustainable and defensible, whilst giving them greater ability to grow earnings in the period ahead.

The lesser conviction in Schroder Equity Opportunities is a function of the firms’ sizable assets under management which the committee felt was hampering their ability to generate excess returns. In addition, whilst Schroders employs a style neutral investment approach, they will move from value to growth and vice versa depending on the market environment and their bottom-up stock research.

The Committee felt that Schroders had become too value entrenched over the past couple of years which was hampering their ability to generate excess returns given the market environment ahead is unlikely to reward value investing. The fund had underperformed leading into this year, then didn’t provide any downside protection in March, and has largely struggled since, in an environment that is fairly conducive to active management.

The Committee discussed adding the increased allocation to global equities into existing managers in the portfolio, but the committee was already satisfied with their current allocation and also wanted to complement the existing exposures with a different investment approach and style.

Insync is an Australian based global equity fund headed by Monik Kotecha. The manager focuses on global megatrends and seeks to identify those companies that are or will cause disruption that have a high future return on invested capital - their preferred valuation measure.  They like trends that typically play out over longer than 10 years, trends that are profitable (not all are), and companies that are less dependent on the global economic cycle. Some of the current trends include Health & Wellbeing, Gig Economy, Digitisation, Data Analytics, Cashless Society, and Travel, just to name a few. Insync has a stable and appropriately sized investment team, a sound philosophy and proven process, and consistent outperformance over the long term.

The Capital Aware feature provides downside risk management through buying protection (options) and actively managing currency exposure, though the portfolio will be typically currency unhedged. Here the manager seeks to protect investors from significant falls in the share market whilst ensuring the cost of the protection doesn’t drag too heavily on portfolio returns. This process is also tried and proven over the fund’s history.

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