Case study of the EQT Eight Bays Global Fund
Equity Trustees Asset Management and Eight Bays Investment Management (Eight Bays) have together created the EQT Eight Bays Global fund, which will be investing in quality industries with very low stock-specific risk. Equity Trustees head of equities, Chris Haynes, explains how the fund provides access to opportunities under-represented in the Australian stock market, and is complementary to a domestic equity portfolio.
Why did you join forces with Eight Bays?
The equities team at both EQT and Eight Bays have combined under one common investment philosophy. The investment philosophy is centred around buying quality businesses at reasonable prices (QuARP). The focus of the new fund will be particularly on industry characteristics and structure which are key determinants of whether a company is a quality business.
What is different about this product?
There are two unique aspects to this new international fund.
1)The research/investment process. The EQT Eight Bays team is primarily focused on industry dynamics across the globe. Investment decisions will be based on selecting those industries which have the best prospects for growth, profitability and returns (at a reasonable price). The underlying philosophy being that industry structure is a key driver of a company’s performance.
2)The implementation. For what we believe is a first in Australia, the fund’s strategy will be implemented via the use of Industry ETFs (Exchange Traded Funds). The fund will/is invested in a number of ETFs that best represent the industries we believe will outperform (identified by the research process). The use of industry ETFs provides a low cost, low volatility option for investing in the best industries. In particular, it significantly reduces the stock specific risk that some high growth sectors typically exhibit. For Australian investors it will provide exposure to high growth sectors and industries many of which are not available in Australia, eg robotics.
Why did you decide to launch now?
We began working on this product more than two years ago. Launching now is the result of two years of development and research. As the ETF market has developed it has made the implementation of such a strategy only possible in the last couple of years.
What challenges did you face and how were they overcome?
The key challenges are around making sure we are correctly resourced from a research and operations perspective. We believe that the combination of EQT and Eight Bays ensures the product is well resourced. The other challenge is making sure we understand the ETF market. We have spent the last two years researching the best ETFs that give the industry exposure that we require. There are over 1,600 ETFs listed globally. We have narrowed our universe down to approximately 100 which still represents a $500 billion market, which is growing rapidly The strategy was seeded in January 2020 and has performed extremely well since inception.
Can you explain the fee structure?
Fees for the product are in line and commensurate with other international funds. There are no performance fees. The MER for the fund is estimated at around 110 basis points. This covers management of the fund, FX, and broking costs.