Omega is the investment manager of the Pinnacle aShares Global Dynamic Income Fund (Managed Fund), which aims to be a highly diversified portfolio of global and Australian equities and bonds.

We’re going to get into the construction of truly diversified portfolios shortly, but first Mat, can you tell us a little bit about your background and the formation of Omega Global.

Mathew McCrum: Omega was formed some nearly 12 years ago by myself and my co-founder Andrew Gruskin. We met at a large US fund manager and at the time we were talking and we just felt investors needs were better satisfied by boutique managers, and in particular we wanted to really launch ourselves with outcome orientated strategies like SAVE that really delivers on what investor’s needs are – rather than what’s in market indexes or benchmarks.

So turning to the portfolio that’s behind SAVE, the portfolio that you manage, what is the main aim for the Omega team?

Mathew McCrum: Our main aim is to deliver a portfolio that has income of cash + 4% and has a reasonable return and we want to do that by managing risk and understanding risk in a really researched way and then constructing a portfolio from the bottom up to deliver on those outcomes.

So, let’s go back to August 2019, you’re building this portfolio from scratch, where does a fund manager like yourself start?

Mathew McCrum: The key thing for us is we start with a massive universe of securities. So, the great thing about looking global, rather than domestically, is there are an amazing amount of securities out there in the world. So, we started off by looking at nearly 10,000 bonds, we look at around 1,500 equities, so that’s a great starting point because in that huge universe there is a collection of securities that is perfect for delivering on these outcomes. So that’s our starting point. Then we drill down and look for organisations that have consistent dividends that are growing in dollar amount, we don’t look at yield, we think looking at yield is dangerous, it can become a dividend trap. But if you look at companies that have dollar dividends that are growing, that are profitable, have good exposure to factors that we like – like value, growth, profitability, that are low risk or low volatility – and put them together in a way with some fixed income securities that have similar characteristics, then you get a portfolio like SAVE.

Give us an example of a couple of these securities inside the portfolio.

Mathew McCrum: A good example is the Swedish clothes retailer, that has low volatility compared to international equities. In fact, if you get a bit technical it has a beta of about 0.3 to European stocks. It has consistent dividends, it has growing dividends, it’s profitable so that’s a company we really like. ITV in the UK is another one, it’s a media company. Again, it just puts out those consistent growing dollar dividends and it’s strongly profitable.

Are there any big ‘no no’s’? Any type of security you avoid completely?

Mathew McCrum: Securities we don’t like are any sort of organisation that has a high degree of volatility, has high beta, and by beta I mean the relationship to overall equities is the same. So, we don’t like securities that are volatile, we don’t like low dividend not very profitable companies or even organisations that can be yield trap. A good  example of that, Telstra at one stage was a yield trap. They’re organisations we don’t like.

The portfolio holds equities and bonds, is this a unique approach? What role do the bonds play?

Mathew McCrum: Equity/bond combination is not so much unique, but it’s the way we put it together that’s very unique. We put this portfolio together form the bottom up. We don’t target a specific allocation to bonds or equities, but what we’re looking at is that blend of organisations and securities that provide that sort of low volatility reasonable income outcome. So, it’s that blend that’s very unique. We’re not targeting that specific allocation. Often portfolios that have bonds and equities together all go top down, they’ll go ok we want a particular allocation to bonds and then equities. We don’t view it that way, we view it just bottom up, security characteristics.

So, for investors listening, what do you think are the key things they should keep in mind in order to achieve true diversification in their portfolios?

Mathew McCrum: I think the key thing for investors is have a look at how much exposure they have to either particular stock markets, sectors or organisations. So, try limit that exposure in a way that’s suitable for the individual investors and look to use perhaps more international equities if it’s appropriate or investments that explicitly consider risk.

Disclaimer: This communication was prepared Pinnacle Investment Management Limited (ABN 66 109 659 109 AFSL 322140) (‘Pinnacle’). Pinnacle Funds Services Limited ABN 29 082 494 362 AFSL 238371 is the product issuer of the Pinnacle aShares Dynamic Cash Fund (Managed Fund) ARSN 632 118 720 and Pinnacle aShares Global Dynamic Income Fund (Managed Fund) ARSN 632 117 303 (‘the Funds’). Any potential investor should consider the relevant PDS before deciding whether to acquire, or continue to hold units in, a fund. Past performance is for illustrative purposes only and is not indicative of future performance. Pinnacle Investment Management Limited believes the information contained on this website is reliable, however no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distribution and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so in light of their specific investment objectives and financial situations. Any person considering action on the basis of this communication must seek individual advice relevant to their particular circumstances and investment objectives.

Author Jarrad Brevi

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