Category: International Equities

Perpetual kicks goals with Mainstream SMA

Watershed Funds Management has taken out the International Equities category at this year’s IMAP Managed Account Awards. 


Finalists

IMAP congratulates all the finalists in the International Equities category.

  • Loftus Peak
  • Nucleus Wealth
  • Pearl Funds Management
  • Private Portfolio Managers
  • Royston Capital
  • Watershed Funds Management

There’s a lot to like about the Watershed International Share SMA, which got the judges’ thumbs up for the International Equities category at the 2019 IMAP Managed Account Awards.

Firstly, the SMA has delivered an impressive 16.1 per cent since its inception 10 years ago, dwarfing the returns of its benchmark – the MSCI World Index Ex Aus – at 10.3 per cent.

“These returns also rank our SMA in the very upper echelon of performance in the international share space, eclipsing those of our much larger competitors,” says Watershed Funds Management Head of Equity Strategies,

Adrian Rowley. “And with a management fee of 60bps with no performance fee, it comes at close to half the cost.”

Adrian describes this SMA as a concentrated international equity portfolio that is predominantly US-centric. He adds that the SMA is a conservatively managed, low-turnover portfolio, with a real focus on balance sheet strength, operational cashflow and ensuring that companies selected have a moat or competitive advantage in the sector in which they operate.

In fact, when it comes to managed accounts, Watershed has a strong record, utilising the latest technology to run portfolios at both the individual portfolio level (SMAs) and the multi-asset class level (model-of-models).

Currently, Watershed runs five sector-based SMAs that are available on multiple platforms. These include the Australian Share (Large Cap), Emerging Leaders (Australian Share Mid Cap), International Share (Direct, US-centric), International Share ETF (Rest of World Exposure) and Income (Australian Fixed Interest) SMAs.  

Watershed also uses these sector-based SMAs as the core building blocks for four diversified, risk-based model-of-models: conservative, balanced, growth and high growth. These diversified models provide a whole of portfolio solution where holdings are dynamically managed at both the individual stock and asset class level.

According to Adrian, macro-economic conditions and specific sector cycles drive the majority of asset class performance, both short and long-term. Therefore, Watershed seeks to exploit these cycles to achieve higher than index returns over time through active portfolio management, utilising the benefits of managed accounts via either an SMA or MDA structure.

“We favour direct investment, both internationally and domestically, over managed funds or unitised investment vehicles,” Adrian says.

As a result, he says each sector-based SMA has an impeccable track record over the longer-term, with returns comparing favourably to industry peers and at a lower cost, in addition to providing transparency, transaction immediacy and tax-efficiency.

A great disruptor

The Watershed International Share SMA has delivered a return of 16.1 per cent since its inception in 2009, which is nothing to sneeze at, so performance is understandably one of the key measures of success for this SMA. But is it the only measure? 

“In funds management, everybody measures their success in performance numbers relative to the benchmark. But the Watershed International Share SMA is a portfolio that has consistently beaten the benchmark by almost 4 to 5 per cent every year since its inception,” says Adrian.

“However, success can also be measured in other ways, like how a product is structured, relative to its peers.”

He adds that with the much lower turnover of managed accounts, their tax-efficiency, strong growth and lower cost, managed accounts continue to disrupt the traditional managed funds sector. 

“On platform, the Watershed International Share SMA is 60bps with no performance fee, which means this SMA is probably less than half the cost of most traditional international equity managed funds. And in terms of performance, this SMA has consistently been up there in the top quartile.

“So, the way in which this SMA stacks up against its traditional peers, is certainly another way in which we can measure the success of our product.”

Winning the award

Adrian doesn’t deny that winning the IMAP Award for the Watershed International Share SMA means a lot to the business.

“We have just celebrated our 10-year anniversary in July this year, but it’s taken us a long time to build our strategies and track record. Only by doing that have we been able to build a brand that is now being recognised in the industry and the wider marketplace,” he says.

“By winning this award, I hope it enables us to build more brand awareness of Watershed and our capabilities, which hopefully will result in more fund flow for us and great results for our clients.”

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