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Silver-rated SGH ICE fund

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Objective

SGH ICE invests mainly in ASX listed companies outside the top 100 with a business franchise -companies which possess sustainable competitive advantages, possess a moat and entrenched market position, have pricing power, and where it is difficult or inconvenient for clients to discontinue using the company's products or services.

Independent commentary

We have gained increased conviction in SGH ICE because of our growing regard for portfolio manager Callum Burns. He's a highly-capable and insightful investor, and the strategy is backed by a proven and repeatable process. Our conviction does rely on his continued presence, and investors need to be aware of the significant key-person risks associated with the strategy.

Burns' background before joining SG Hiscock in 2005 was in asset allocation, so his strong grasp of big-picture issues helped shape the portfolio. Investment support comes from Aidan Brooksby, who joined in late 2012, and the pair also has the ability to tap into the wider group of experienced investors that make up SG Hiscock.

ICE is not your typical small-cap strategy. The process is all about finding firms with the traits of a quality franchise, such as owning assets that are hard to replicate, having an entrenched market position, or demonstrating pricing power. The portfolio tends to steer clear of areas such as mining, property, and basic manufacturing, opting instead for a range of industries such as healthcare and technology. Stocks that make the initial grade are assessed on where they sit in one of three phases within the lifecycle spectrum - establishment, growth, or peak cash generation. The primary hunting ground is ex-100 industrials, though Burns is happy to hold large caps that tick the boxes for him, and this is borne out in its average exposure relative to other small-cap peers.

Capacity is currently not a factor here, and it is assisted by the willingness to invest in large caps that fit investment criteria. The strategy has consistently beaten peers over most periods and looks even better on a risk-adjusted basis. Overall, SGH ICE is a solid strategy, and our enthusiasm for it has continued to grow. For those looking for a strong choice in the small-cap space, it is definitely a candidate.

Key fund data

Management fee: 1.18%pa (performance fee of 15.375% on returns 1.20% above the S&P/ASX300 Accumulation Index) Morningstar Analyst Rating: Silver Minimum initial investment: $20,000 Role in portfolio: Core

Source: Morningstar.com.au

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