Fund star Teh casts light on low-risk winners

There are still some low-risk buying ­opportunities for income-focused ­investors, says Vertium CIO Jason Teh.

Vertium CIO Jason Teh. Picture: James Croucher

It may be the most-hated bull market in history, but there are still some low-risk buying ­opportunities for income-focused ­investors, says Vertium Asset Management chief investment officer Jason Teh.

“Every second week you hear a bear market prediction, and that’s a healthy sign,” he told The Australian yesterday. “I’m not seeing ridiculous earnings multiples.”

The former Investors Mutual star and retirement income specialist is now running a $20 million portfolio of Australian shares for the Vertium Equity ­Income Fund.

Designed for retirees in the “de-cumulation phase”, the fund has a triple objective of generating higher income with less risk or volatility and a greater return than the S&P/ASX 300 index.

Vertium has a mandate to invest in 20 to 40 ASX-listed companies, while holding up to 50 per cent cash.

Teh says the ideal size of the fund would be $5 billion, and it has been well supported so far. The boutique is seeing $1m a week of inflows and has commitments for a further $150m.

It has a recommended rating from Lonsec based on Teh’s strong track record at Investors Mutual.

To meet its objective, Teh says his fund needs to avoid the traps — such as Telstra and the banks this year — while sticking to the “boring” stocks rather than “trying to find the next Amazon”.

Generally that will also mean holding larger companies as they tend to be less volatile and the fund is trying to minimise the drawdowns that can be associated with taking greater risks.

Teh would prefer to miss an opportunity rather than risk a loss of capital by chasing returns.

“People say they are looking for the next big theme, a disrupter, the next Amazon, but there aren’t many Amazons or Facebooks, so if you try to chase those types of companies, you’re going to have a few mistakes and they tend to be quite wide,” he says. “Over the long-term, hopefully, the Amazons that they found have offset some of the losses, but the variations of their returns for such funds can be quite wide.

“They are designed for ­accumulators.”

Speaking of Amazon, Teh agrees the threat its impending entry to Australia poses to some companies is real but for others it has created some “mispriced opportunities”, like Vicinity Centres.

While most blame Amazon for “dead” shopping malls in the US, he argues this has more to do with the huge oversupply of shopping malls in the US, rather than the ­effects of Amazon.

“The US has the highest square metre of retail gross lettable area per capita in the developed world. It can halve its retail space and still have more space per capita than Australia.”

In his view this huge over­supply of shopping malls in the US is now coming home to roost given it takes time for the rental agreements to roll off.

“Sure, Amazon is pulling some demand away from bricks and mortar retail and is putting the nail in the coffin, but the coffin was created by the development boom many years earlier.”

Fortunately, Australia never had a development boom like the US because local council restrictions have made it difficult to erect major shopping centres.

But with the negative sentiment associated with Amazon’s entry into Australia permeating the entire retail sector and anything to do with it, Teh says the baby has been thrown out with the bathwater.

While others are preoccupied with fears of higher interest rates and the spread of Amazon, Teh points out Vicinity is trading at a 6 per cent discount to net asset value and a sustainable 7 per cent distribution yield, with an A credit rating and 25 per cent gearing.

He feels the downside risk is low, and the company seems to agree with a buyback under way.

Teh also bought Wesfarmers shares for the fund when they were trading on a price-to-earnings ratio near 15 times recently.

He has also waded into the major banks after a healthy ­pullback.

Other favourite investments include Charter Hall Retail and Clydesdale Bank.

Telstra is on the radar but the valuation isn’t cheap enough and he’s wary of another dividend cut.