Elizabeth Moran takes a closer look at the strategies that has led to Hyperion Asset Management winning two prestigious awards.
Hyperion Asset Management has had an excellent year being named Fund Manager of the Year by Morningstar and last week, being awarded the same title by Money Management, a financial news website aimed primarily at financial planners.
Hyperion Asset Management is one of the fund managers I covered in the article Top 10 Performing Share Funds in July 2020. At that time, Hyperion ranked second in Mercer’s top 10 funds.
In taking out the Fund Manager of the Year award for Money Management, Hyperion won in two sub categories:
- Australian Large Cap Equities for its Hyperion Australian Growth Companies Fund
- Australian Small/ Mid Cap Equities for its Hyperion Small Growth Companies Fund
Given its award-winning status I thought I’d take a closer look.
Hyperion has a philosophy of investing in quality businesses with the strongest competitive advantages and organic growth opportunities. They believe they invest in companies that display common characteristics of:
- Predictable earnings
- Low debt
- High interest cover
- Sustainable competitive advantages
- High return on capital
- Strong free cash flow
- Organic growth options
- Experienced and proven management teams
Hyperion state they are long-term investors and not short-term traders. They began operating in 1996 and the average holding period for companies in its portfolios is 10 years. The company has approximately $6 billion in funds under management.
One of the features I really like about Hyperion is that it lists its top contributors and detractors and percentage holdings. Further, it provides company updates in each monthly update on some of the companies it holds, so that over time you get a good feel for the portfolios. Other portfolio managers are less inclined to detail the stocks they hold.
Hyperion Australian Growth Companies Fund
This fund seeks medium to long term growth by investing in companies in the S&P/ASX 300 Index. The fund is highly concentrated and invests in 15-30 stocks.
Performance over one year is outstanding at 46.1 per cent, up 14.5 per cent over the benchmark. The fund’s three-year performance also beats the benchmark by a significant 11.9 per cent. When we drill down into the holdings and relative weight, we can understand why.
Afterpay is the top holding with an 11.6 per cent allocation, followed by Xero with 11.2 per cent. Both shares have been the highest contributors to the returns on a rolling 12-month basis. Over the period, Afterpay shares are up 146.4 per cent and Xero 78 per cent. Wisetech Global is another big allocation at an average weight of 8.3 per cent and its shares were up 69.1 per cent.
Interestingly, the Top 5 holdings chart doesn’t show Wisetech, so we can deduce that the fund has taken profits and sold down some of its holdings.
CSL is the third largest holding with a 7.6 per cent allocation but the company was a detractor in April, with shares down 12.4 per cent, reducing performance by -1.6 per cent.
If we compare the portfolio now to what we knew back in July 2020, four of the top five holdings back then are still in the portfolio as at 30 April 2021 – CSL, Domino’s Pizza, Xero and Afterpay. Resmed was number five, and may still be held, but is not listed in the most recent fund update.
James Hardy and Seek are now in the top five with Domino’s Pizza and Resmed dropping out.
- Minimum investment – $20,000
- Fees – Management expense ratio (MER) 0.95%
- Fund Size – $2,249.6m
- Income – The fund distributes income quarterly. Over the last year income totalled 52.92 cents per unit.
- The application price per unit as at 31 May 2021 was $4.8778.
Hyperion Small Growth Companies Fund
This fund aims to provide long term capital growth by investing in Australian companies primarily listed outside the ASX100 at the time of investment. Again, the fund is highly concentrated and invests in 15-30 stocks.
One year performance is very strong at 46 per cent, but the benchmark S&P/ASX Small Ordinaries Accumulation Index had a very strong year as well, returning 39.8 per cent.
The strong recent result would have boosted returns over longer periods. So, I’d prefer to look at relative net performance over time. On an annual basis, the fund has outperformed the index in every instance. Impressively, it’s outperformed by more than 10 per cent over three and 10 years. Shorter term, its three-month relative performance was negative, although this looks like a hiccup and I don’t read much into short terms.
The Small Companies fund has not dissimilar returns to the Australian Growth fund. The funds also hold shares in common. However, none of the companies in the top five holdings are in the benchmark.
Hub24 Ltd. is the stand-out performer with its price increasing by 158.8 per cent over a rolling 12 month period. Domino’s Pizza and Xero are other strong performers.
The table also shows the average portfolio weight, and two stocks have an allocation over 10 per cent – Wisetech Global and Domino’s Pizza, with Xero at 9.5 per cent.
- Minimum investment – $20,000
- Fees – MER 1.25% (plus 15% of outperformance above the S&P/ASX Small Ordinaries Accumulation Index)
- Fund Size – $716.5m
- Income – The fund distributes income quarterly. Over the last year income totalled 55.93 cents per unit.
- The application price per unit as at 31 May 2021 was $5.72.
Hyperion’s strategy, like other fund managers, is a concentrated one. I like that they disclose investments and provide updates about companies in its portfolios. This helps enormously for investors investing across asset managers as they can begin to understand underlying allocations.
There are common investments across both funds – Xero, Wisetech Global, Dominos Pizza, Hub24, and Netwealth – but it’s clear the portfolio managers are trading to make the most of market opportunities.
Both funds started on 30 September 2002 and returns are similar. I would have expected the smaller company fund to be less predictable and, given its higher fees, would probably thus prefer the growth fund.
The share market has had a golden run – it’s important to remember past returns cannot be relied upon for future performance.
This article was originally published in Eureka Report.
Disclaimer – Hyperion Asset Management Limited (‘Hyperion’) ABN 80 080 135 897, AFSL 238 380 is the investment manager of the Funds. Please read the Product Disclosure Statement (‘PDS’) in its entirety before making an investment decision in the Funds. You can obtain a copy of the latest PDS of the Funds by contacting Hyperion at 1300 497 374 or via email to email@example.com.
Hyperion and Pinnacle Fund Services Limited believes the information contained in this communication is reliable, however no warranty is given as to its accuracy and persons relying on this information do so at their own risk. Any opinions or forecasts reflect the judgment and assumptions of Hyperion and its representatives on the basis of information at the date of publication and may later change without notice. The information is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. This communication is for general information only. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any person relying on this information should obtain professional advice before doing so. To the extent permitted by law, Hyperion disclaim all liability to any person relying on the information in respect of any loss or damage (including consequential loss or damage) however caused, which may be suffered or arise directly or indirectly in respect of such information contained in this communication.