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Dennis Adonis No Comments

The APSEC team are extremely proud to have been awarded a 5 Crown Fund Rating by FE fundinfo for the Atlantic Pacific Australian Equity Fund (APAEF) in August 2020, placing the APAEF in the top 10% of its assessed benchmark of more than 500 comparable Australian managed funds.

How are the Crown Fund Ratings assessed?

FE fundinfo, parent company of Money Management, is one of the world’s leading providers of investment fund research. Their analysis is used by investors and financial advisers globally to distinguish between funds that are strongly outperforming their benchmark and those that are not.

FE Crown Fund Ratings cover hundreds of thousands of investment instruments worldwide, which are assessed on three key measurements to derive a fund’s performance: alpha (out-performance), volatility and consistently strong performance.

Rebalanced twice a year in February and August, the top 10% of funds are awarded five FE Crowns, the next 15% receive four Crowns and each of the remaining three quartiles are given three, two and one Crown(s) respectively.

The rating identifies funds that have, over the preceding 3 years, displayed superior performance in terms of:

  • stockpicking
  • consistency of outperformance against a credible benchmark
  • achievement of results at a relatively low risk

The rating methodology does not simply identify the best performers. FE fundinfo view certain types of performance as more valuable than others, awarding their Crown Fund Ratings to results that they believe are not just outperforming, but are also consistent, and delivered at lower risk than their benchmark.

Importantly, no fees are charged for the analysis. Funds do not, and cannot pay to influence their Crown Rating, which gives investors confidence that the results are fully independent and purely quantitatively based.

You can find a comprehensive overview of the Crown Fund Ratings methodology here.

How has the APAEF achieved this?

The APAEF, which celebrated it’s 7-year Anniversary milestone in June, is a long-bias equity market product which typically buys or short sells Australian listed securities and ASX 200 futures contracts, with a core focus on downside protection.

Risk management is an essential part of our DNA. We are not prepared to accept large drawdowns in the funds entrusted to us by our investors, which is the reality faced by all long-only fund managers when markets move against them.

Rather than just chasing upside returns and selling down to cash as our defensive position (long), we pursue active hedging strategies to protect capital and also capture returns when the market goes down (short). This is achieved through a combination of long stocks, short stocks and short share price index (SPI) futures to hedge out risk.

This risk management and proactive trading mantra has allowed the Fund to significantly outperform the market since inception, and also smooth out volatility during market downturns, as you can see below.

Performance chart to August 31 2020_100k

* Annualised returns since inception in June 2013 of the Fund are 9.2% p.a. vs the S&P/ASX200 Accumulation Index returning 7.3% p.a. as at August 31, 2020.

How prepared is your portfolio for the next major correction?

With valuations dislocated from the material economic devastation caused by the ongoing pandemic, global share markets have surged since the March crash, led by the S&P 500, which returned to record highs in September.

The S&P/ASX200 has jumped 34pc in the past six months, despite more than 1 million Australians being unemployed, millions more being supported by JobKeeper and Melbourne remaining in Stage 4 lockdown due to the second wave coronavirus outbreak. Moreover, Australia is deep in the grip of the deepest recession since the Great Depression of the early 1930s.

Many investors are naturally wary of the potential impacts of another major market correction, especially as fiscal stimulus packages wind down.

For most long-only funds and investors, the only option will be to try and time the market and sell down to cash to try and avoid the losses experienced in February and March 2020.

Fortunately, in most periods that the has market dropped, the APAEF has provided downside risk protection, leaving investors less exposed to drawdowns.

APAEF relative returns chart

 

As you can see in the risk statistics chart below, the largest drawdown the fund has experienced in more than 7 years since inception was -7.1% while the largest drawdown for the ASX 200 in the same time period was -26.7%. The Alpha value shows the outperformance of the Fund vs the benchmark ASX 200, annualised at 2% per annum since inception (net of all fees).

 

3 year risk statistics chart_September 2020

 

FE fundinfo further quantify the level of risk of Australian investment products vs the ASX 200, which has a risk rating of 100 with cash being zero risk.

These risk scores are free standing and not related to their other ratings. They are designed to give investors a simple and intuitive way to assess the volatility of an investment product relative to the market.

Managed funds will mostly have a score between 1-150, whereas direct equities will generally be above 100, sometimes considerably above 100 (with no upper limit).

Pleasingly, the APAEF is rated at 77, and so is considered lower risk than the ASX 200, despite returning almost 2% p.a. more than this benchmark since inception.

Read here for more information about the FE fundinfo Risk Score.

 

APAEF FE fundinfo risk score

 

This is especially important for many investors and retirees right now, helping address the dilemma of moving into cash and getting almost zero real returns or moving into shares and facing the ongoing risk of significant capital loss in the event of another market correction or crash.

For investors who are risk-averse and need decent returns to fund their lifestyle into retirement, the APAEF may offer an attractive solution especially in current market conditions.

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