One of the nation’s top-performing fund managers, Hyperion Asset Management, says it is targeting local and offshore institutional money to build the capacity of its flagship Global Growth Companies fund to reach as much as $14 billion.
Banking on its recent strong track record that saw it top the Morningstar and Mercer surveys last year with its high conviction growth strategy, chief investment officer Mark Arnold said Hyperion’s aims for the coming years was to grow funds under management for its global strategy.
“We think we have capacity for $14bn in the global fund. That is what we would feel comfortable managing,” he told The Australian alongside his deputy chief investment officer, Jason Orthman.
The retail component of the Global Fund was almost $129 million at April 30, while the institutional component is worth more than $500m.
“We are in early stages of the domestic retail launch,’’ Mr Orthman said. “The larger amounts of money are in the institutional space and we have had preliminary conversations with domestic and offshore institutions. We have had quite a bit of engagement from the US.
“When you have capacity for $14bn, if you get traction in the institutional market then those numbers are achievable.
“We have built our domestic business off the back of industry super fund mandates. We would be hopeful we could do a similar thing over time (in the global space). But we want a mixture of retail and institutional. Hopefully, we get a balanced outcome.”
Hyperion Global Equity generated a 16 per cent return in 2018, despite recording a 10.1 per cent loss over the fourth quarter of the year. Over three years, it has delivered a 25 per cent return, outperforming its benchmark MSCI Global Index by 10 per cent.
While there has been speculation Hyperion is eyeing a global equities LIC (listed investment company) based on the Global Equity fund, Mr Arnold said it was just a “longer-term option”.
“The LIC market is more difficult now than it was 18 months ago. We are not ruling anything out in terms of distribution but our focus is getting that retail fund size up and getting some institutional money,’’ he said.
Hyperion recently released a paper titled “Death of the Value Anomaly in a Low-Growth World”, which claimed simple short-term value measures such as price-earnings multiples were not likely to be effective for investors in a structurally low growth and disrupted environment. “If companies are losing market share or their business model is being fundamentally challenged, historical ranges will no longer be relevant. This is when value traps emerge and share prices can remain permanently depressed,” the study says.
“We believe qualitative analysis is becoming more important in a low-growth world. Attractively priced companies with the ability to compound earnings and free cash flows over long time periods will generate substantial alpha.’’
Price-earnings metrics are traditionally favoured by value managers who look for quality shares that are undervalued by the stockmarket. The concept has been out of favour in recent years amid the big global shift into index funds with lower levels of volatility.
“Value has really underperformed their growth counterparts. Average businesses have struggled to grow and the environment has become more competitive,’’ Mr Orthman said.
“What we think about is if the intrinsic value of the average businesses start declining, you need to take market share to grow. If the next 10 years look like the last 10 years, that value anomaly in investing on price-earnings may not come back.”
Mr Arnold added: “We think there are a lot of zombie companies being kept alive by low interest rates and quantitative easing. They are sitting ducks waiting for the innovative companies to take market share.”
Hyperion does not trade in and out of sectors and its average holding period per stock in its portfolio is 10 years.
The company has benefited from positions in Alphabet, Mastercard, Costco and Amazon.
“We like modern businesses that use technology well and that includes tech companies. We want creative and innovative cultures when we are investing,’’ Mr Arnold said.
“At the moment we have a mix of tech-based businesses in our portfolio.”
Mr Arnold reiterated his view that electric and autonomous vehicles would have a big impact on the efficiency and cost of transport in the future.
This article was originally published in The Australian.