- About Us
- Regulatory Guidelines
- Research Methodology
- Contact Us
The following is a brief explanation of Zenith’s Fund research process taken from the document titled 'Regulatory Guidelines'. Please contact Zenith directly for more information on Zenith’s fund research process.
Zenith offers its clients access to the investment managers we identify as the “best of breed” through a comprehensive, multi-dimensional selection process. The selection process is rigorous in both its qualitative and quantitative analysis and each component is equally weighted.
As a dedicated provider of managed funds research, Zenith is completely objective in its selection process. Zenith does not manage any proprietary assets and as such is able to choose investment managers with absolute independence.
Our philosophy and commitment is simple. By exploring the investment landscape in a diligent and detailed fashion, Zenith is able to uncover the best opportunities on behalf of our clients.
An effective screening process is critically important to the overall research method. It ensures greater efficiency by directing the research team to concentrate their efforts on funds with superior qualitative and quantitative parameters.
The process begins by dividing the universe into the following broad asset class categories:
Zenith considers all Australian registered managed funds and a limited number of unregistered products. To avoid entering multiple funds for each investment manager, where appropriate, a flagship fund is used as a proxy for the manager’s capabilities in that asset class.
We generate fund data surveys from our extensive database. We begin with the broadest universe to avoid any selection bias at this early stage. Data is collected directly from the investment managers. The collection of in-house propriety data is rare within research houses, however Zenith considers this to be an important source of value add. This method has uncovered many opportunities prior to their coverage on commercial databases. In addition, there is a growing band of investment managers who are looking to limit growth in funds under management to remain within their target capacity limits. As a result, they are not represented on commercial databases. The early identification of quality fund managers is one of our key competitive advantages.
As the number of managed fund products offered to the Australian retail investor continues to expand, we will see offerings from the largest fund managers complemented by the growing band of smaller boutique players. Zenith believes that research groups with the necessary systems and contacts in place to act quickly will be best positioned to offer their clients access to an ever expanding world of opportunities.
From its database, Zenith selects a list of leading contenders who pass the initial performance and risk screens. These quantitative screens include:
All quantitative measures are examined over rolling three-year, five-year and annualised periods.
Zenith has undertaken a detailed study into the appropriateness of differently weighted time periods and believes a three year period is the ideal benchmark. Whilst other timeframes are considered as part of the analysis, beyond this period investment team composition may be highly variable. Furthermore, annualised data may be inconsistent given its short term, possibly cyclical orientation.
Whilst the first stage of the investment process tends to focus on the manager’s risk adjusted and absolute performance, the second stage incorporates an important qualitative overlay. The initial quantitative filter may identify a strongly performing manager who subsequently fails the qualitative filter given Zenith’s view on the team, organisation or process. Conversely, the quantitative filter may look less attractive if the current market conditions do not suit the manager’s investment style. For example, a growth manager will typically underperform in falling markets. However. Zenith may highly rate the team, organisation or process. Under this scenario, the manager may be added to the contender’s list despite its short term performance.
The use of a rolling 3 year timeframe as the benchmark review period aims to smooth out style biases which can often lead to distortions.
If the Zenith team do not have prior knowledge of the credentials of investment personnel but the manager looks attractive on the quantitative filter it will source a view from its network of industry contacts. If negative commentary does not arise, we undertake a preliminary meeting to determine the appropriateness of this manager’s representation on the list.
After a short list has been constructed, detailed due diligence is undertaken with the investment manager. At this stage we thoroughly examine every aspect of the manager, from the overall philosophy and process to the people behind it. This level of due diligence is only achieved through detailed face-to-face manager interviews, a thorough review of all documentation, including the Investment and Financial Services Association (IFSA) standard questionnaire, and an in-depth look at the portfolio’s construction.
The face-to-face interview with the investment manager is regarded as a critical component. Our process extends beyond meeting with the Head of the Asset Class; other members of the investment team, regardless of seniority, are interviewed. This promotes forthright discussions and ensures there is consistent approach within the entire team. This aspect of the interview process is an important element as it provides us with a better understanding of team dynamics, the spread of responsibility, succession planning, team depth and key personnel risk issues.
In addition to interviewing the investment team, Zenith reviews the manager’s corporate strength through meetings with the Chief Executive Officer/Managing Director, Chief Investment Officer and Sales/Distribution Executive. These meetings help us fully understand the manager’s corporate strategy & direction, executive team capability & structure, and any operational issues.
During the course of the interview process an assessment is undertaken on three key attributes: organisation, philosophy & process, and personnel. This section of the review is qualitatively driven.
Key points Zenith considers include:
At the organisational level, Zenith is looking for clean reporting lines, a commitment to the domestic business, an experienced & well credentialed executive team, diversified sources of funds under management, effective administration and strong communication.
Zenith examines the following points:
On the philosophy and process front, Zenith is looking for a fundamentally sound investment philosophy, a consistent and discipline investment approach, transparent portfolio construction and robust risk management.
On the personnel front, Zenith is looking for a well resourced, highly credentialed investment team with a solid track record of value add. A spread of responsibility within the team should limit key person risk, whilst an appropriate remuneration structure should incentivise all members of the team.
In addition to the qualitative assessment undertaken as part of the detailed due diligence, a more in-depth analysis is performed on portfolio attribution.
Whilst the quantitative data gathered from the initial filter process is re-examined in the detailed due diligence phase, it is the testing of the manager’s portfolio which drives this part of the process.
Key information sought by Zenith to undertake this task may include:
This data is supplied on a monthly basis and is electronically delivered to Zenith to allow for ease of data implementation into internal database systems.
The data gathered from this quantitative review is then compared with responses from the qualitative interview process with managers on process and philosophy. During this process we are looking for consistent responses. For example, does the portfolio trading data match the manager’s response to a query on an indicative level of portfolio turnover?
Important trends and themes we look for in the quantitative analysis include:
Zenith’s key competitive advantage is that we recommend only the best investment products for our clients. Initially we apply both qualitative and quantitative screens to identify funds worthy of further consideration. Detailed due diligence is undertaken on the resulting short list. This involves a highly comprehensive review process which encompasses an assessment of key criteria including the organisation’s structure, the investment philosophy and process, the calibre of the investment personnel and an in-depth portfolio attribution analysis. The best funds are added to the “Recommended List”, a list of our highest conviction products.
Zenith prides itself on the regularity and depth of its continual vigilance over investment managers. This extends from those managers already represented within the product and / or service to those on the “radar screen” for possible inclusion. Whilst the same process is used in the monitoring of managers to that adopted in the initial evaluation, it often “drills down” to specific issues that may have been identified during the month, quarter or yearly period of review.
In addition should there be a personnel departure (i.e. Peter Morgan from Perpetual in October 2002) and / or a significant process change, Zenith will meet immediately with the manager to evaluate the impact of the change and recommend a course of action to the Investment Committee.
Below we have detailed the specific data reviewed:
Zenith undertakes thorough screening of each asset class to identify quality managed investment opportunities.
This is followed by an extensive due diligence process, where funds are assigned a rating. This rating is based on Zenith’s proprietary scoring system.
The quantitative assessment is flexible in that we do not rely on a performance history of three years to positively rate a fund and may use the history of an investment manager at a previous organisation if required (eg. in the assessment of Orion Asset Management we assessed the performance history of Tim Ryan at Credit Suisse).
Each fund is assigned an overall score/rating:
|Highly Recommended||= / > 80%|
|Recommended||70 - 79%|
|Approved||55 - 69%|
|Not Approved||< 55%|
Only a small number of funds achieve a Highly Recommended rating. These products typically rate first quartile on each of the following criteria - investment personnel, security selection, portfolio construction, risk management, organisational strength and risk adjusted performance and product features.
Recommended products are deemed strong investments within their respective asset class, typically rating first quartile on most criteria.
Approved products are deemed above investment grade investments within their respective asset class. Approved candidates typically rate above the median on most of the assessed criteria.
The fund rating has temporarily been placed under review due to qualitative and/or quantitative issues that need to be addressed by the Zenith Research Team.
A redeem rating will be placed on a product where: Zenith has downgraded the rating to below investment grade through a lowered conviction in the product or; where a significant event adversely impacts the product to such an extent that investors are advised to redeem their investment.
No previous rating held. The fund has passed Zenith’s preliminary screen however the issuer has declined to participate in a full due diligence review.
Previous Zenith rating withdrawn due to the issuer electing to cease ongoing coverage, or the fund has been terminated and wound up.
No previous rating held. The fund has either passed Zenith’s preliminary screen but failed the full due diligence process; failed Zenith’s preliminary screen making it ineligible for a full due diligence review; or is yet to be included in Zenith’s preliminary screen or sector review process.
Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) is the provider of general advice. To the extent that any content of this website constitutes advice, it is General Advice (s766B Corporations Act 2001) for Wholesale clients only and prepared exclusively for Zenith clients, without taking into consideration the objectives, financial situation or needs of any specific person. Investors should seek their own independent financial advice and obtain a copy of, and consider, any relevant product PDS or offer document before making any investment decision. This website is subject to copyright and may not be reproduced without the consent of the copyright owner. This website was prepared in good faith and Zenith accepts no liability, whether direct or indirect, for any errors or omissions. Past performance is not an indication of future performance.