In the ultra-competitive world of funds management often dominated by big egos and hubris, Perth-based fund manager Katana Asset Management prefers to take a somewhat quieter approach.<\/p>\n
The company\u2019s Australian Equity Fund produces returns over the long term that are consistently above the market. That\u2019s no easy feat amid the recent market turbulence of COVID-19 and the more recent surge in inflation.<\/p>\n
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Katana Asset Management\u2019 co-founder Romano Sala Tenna says the fund manager is not bound by artificial constraints in how it invests.<\/span><\/p>\n Romano Sala Tenna, who co-founded Katana with Brad Shallard 17 years ago, says the secret is a keen focus on risk management while also investing the money without any artificial constraints.<\/p>\n \u201cCapital preservation is front and centre of everything we do; it is not something to which we just give lip service,\u201d Sala Tenna says. He knows, first-hand, as a veteran fund manager, that markets go through periods of volatility; so nothing is guaranteed in terms of performance.<\/p>\n The Mercer performance survey of Australian share funds for the period up to December 31, 2022 shows the fund produced an average annual compound return of 13.8 per cent over the five years to that date, compared to the S&P\/ASX 300 accumulation index, which returned 7.1 per cent.<\/p>\n For the three years to the same end date, the fund produced an average annual compound return of 17.5 per cent compared to 5.5 per cent for the benchmark. Mercer\u2019s table shows returns before fees and before taxes.<\/p>\n Katana had a minimum initial investment of $250,000, limiting access to wealthy families and individuals, most of whom live in Perth \u2013 though the minimum is now $25,000.<\/p>\n Fund managers are notorious for \u201cindex hugging\u201d. The further they invest away from the market, the greater the risk they will underperform it. That no longer works for \u201cactive\u201d fund managers \u2013 those that try to beat the market \u2013 as investors can invest in index trackers, such as exchange-traded funds (ETFs) themselves at a low cost.<\/p>\n Active managers have to be prepared to back their convictions. \u201cWe understand that we have to benchmark against the market, but we don\u2019t think in those terms,\u201d Sala Tenna says.<\/p>\n Each member of the investment management team has a \u201cdominate personality\u201d, he says. All of them must come to a unanimous decision on whether to buy, sell or hold a stock.<\/p>\n Katana\u2019s fund does not hold any of the big four retail banks.<\/span>Credit:<\/span>Karl Hilzinger<\/cite><\/p>\n The fund does not hold any of the big four retail banks \u2013 even though they make up 25 per cent of the Australian Securities Exchange by market capitalisation. That is because of weak credit growth and Sala Tenna\u2019s view that provisions for bad and doubtful debts are likely to rise.<\/p>\n He says another factor for not holding the big banks is that the Term Fund Facility \u2013 cheap money provided to the banks by the Reserve Bank of Australia during COVID-19 to encourage them to keep lending \u2013 is coming to an end.<\/p>\n The fund has little exposure to the consumer discretionary sector, given rising interest rates, rising energy prices and rising costs generally, as well as the negative wealth effect that falling house prices will have on discretionary spending, Sala Tenna says.<\/p>\n The fund has about 45 holdings that include exposure to some Australian-listed lithium miners, the biggest of which is Mineral Resources, which is also a significant player in mining services, iron ore and gas.<\/p>\n He says his home state is booming with lithium mining \u201ctaking off\u201d, with more than 50 per cent of the world\u2019s lithium spodumene, from which lithium is extracted, whose uses include lithium-ion batteries, produced in Western Australia.<\/p>\n<\/p>\n