Over the last few days I had the pleasure of researching an investment theme that will have a lasting impact for our generation and beyond. While there are no guarantees with investments, the one thing that is a near certainty is that over the next few decades the world will face a massive clean water shortage.
In our last article we discussed a brand new ETF that invests in water infrastructure and industrials, the Summit Global Water Infrastructure Multifactor ETF (NYSEARCA:WTRX). Today I wanted to take the opportunity and do an update and a check-up on a mutual fund that we previously covered, the AllianzGI Global Water Fund (MUTF:AWTAX) (MUTF:AWTIX) (MUTF:AWTCX) (MUTF:AWTPX).
Since we have previously covered the fund in detail in this update we will focus on the recent track record along with taking a deep look as to how this actively managed fund compares with its ETF and mutual fund competitors.
- Sponsor: AllianzGI
- Managers: Andreas Fruschki
- AUM: $505.5 Million across share classes, ( $357.9m as of 6/8/15)
- Historical Style : Midcap Growth
- Investment Objectives: Seeks long term capital appreciation by investing in water related investments
- Number of Holdings: 32, down from 37 at our last update.
- Current Yield: 0.82%, Annual Distributions
- Inception Date: 03-31-2008
- Fees: A Share : 1.49%, I Share: 1.21%; Up from 1.46% & 1.15%.
As we can see the fund has gone through a number of big changes. One of those changes is the number of fund holdings going from 37 down to 32, becoming even more concentrated. The second change is that the fund's expenses inching up to near 1.5% for the A share. The fund has continued to do well and has reached over half a billion dollars in net assets across all share classes.
For further reading, here is a great overview of the fund from Allianz. us.allianzgi.com/EquityProduct/External%...
Let's take a look at how the fund has performed.
Over the last year we start to see some divergence between the funds with the Allianz fund trailing.
While the fund has returned a respectable 12.18%, it delivered half of the performance of the PowerShares ETF or the Calvert mutual fund.
Going back to the to our last update on June 8th, 2015, the fund shows that it has delivered on its active management promise.
As we can see, the two actively managed mutual funds have outperformed the ETF by a good margin. More importantly during the selloff of Q3 and Q4 2015, the Allianz fund was able to maintain relative price stability while the two other funds fell sharply.
If we update our longer term numbers, we can see the Allianz fund showing why it is a 5 star rated fund.
Over the last 3 years the fund has returned a positive 10.30%, significantly above the 1.41% for the Calvert fund and the .35% for the PowerShares ETF.
Going back 5 years the trend continues to hold. Notice that both the Allianz fund and the PowerShares ETF were neck and neck during the market climb. Where the Alpha was generated was during late 2015 and early 2016 during the sharp sell offs where the fund did not tumble with the markets. The Calvert fund is not shown at this point because it had not yet been launched.
Finally going back to 2008 we see the divergence between the actively managed mutual fund and the passive ETF right from the market bottom.
The Fund Versus The Competition
As discussed in yesterday's article and as demonstrated with the update for this actively managed fund, some active strategy, be it an actively managed mutual fund or a "smart beta" type ETF is beneficial for this investment space. Let's take a look at how this plays out in the real world.
Below is a snapshot comparison between the Allianz Global Water Fund, the Calvert Global Water Fund and the two ETFs, the standby go to PowerShares PHO and the newly launched Summit Global Water Infrastructure ETF.
The first place where active management shows up is in the allocations.
Source: Morningstar Tools
As we can see, the two mutual funds are fairly split in their domestic vs international exposure, with the Allianz fund also allocating a meaningful cash position. The newly launched Summit ETF is nearly 80% international whereas PHO is a traditionally domestic fund with nearly all assets invested in US stocks. PowerShares does have the more recently launched global ETF ticker symbol (NASDAQ:PIO) which is currently about 50/50 domestic/international.
What is interesting and of value to this discussion is to take a look at the underlying holdings of these funds.
Source: Morningstar Tools
The first thing to note, the bottom line. The two ETFs and the Allianz funds are fairly concentrated with the top 10 holdings representing between 41% and 61% of the total portfolio. The Calvert fund on the other hand has the top 10 make up only 15% of the portfolio resembling an index fund more than an actively managed, alpha seeking mutual fund.
The second thing to take note of are the names that are common to the various portfolios. Most interesting is that the top names present in the Allianz fund are for the most part found in the Calvert fund, yet only 3 of the top 10 of the Allianz fund are in PHO and only 1, Pentair (NYSE:PNR) is found in WTRX.
Since the Calvert portfolio is far less concentrated, I would assume the vast majority of the Allianz portfolio is also present in the Calvert fund, albeit in smaller concentrations.
One final set of graphics that I have chosen for this article is the risk analysis.
Source: Morningstar Tools
Looking over the last 3 years, we can see that the Allianz fund has performed best out of the three funds in a number of ways. First, it generated the best alpha versus the MSCI ACWI index and managed to have a beta of .84. Both PHO and the Calvert funds significantly underperformed both the Allianz fund and the broader indexes. After doing this analysis it is not surprising to see the Calvert fund underperform considering it resembles an index fund more than an actively managed concentrated fund.
Source: Morningstar Tools
The same results hold true over a 5 year period. The Allianz fund is the only one out of the three to generate a positive alpha to the primary benchmark while still maintaining a .85 beta.
Since WTRX was recently launched, there was no data for it to be in the risk analysis.
Conclusions & Bottom Line
Overall, the Allianz fund is still behaving like a 5 star fund, even with the relative underperformance over the last 18 months. The fund has shown consistently that it can outperform the benchmarks and the peers over the long term through its above average risk mitigation.
I do want to state my displeasure with the higher fees. The funds have over $500 million yet have an expense ratio of nearly 1.5%. While over the long term the fund has justified its expense ratio, it is appalling that it went up as the fund raised more capital and the fees have not fallen as expected.
While the fund was the only actively managed water fund that worked in the past, today we have new lower cost alternatives in the form of "Smart Beta" ETFs.
In yesterday's article I stated that one idea for an investor may be to combine WTRX with an actively managed fund. This just may be the way to go.
So what do you think?
More information on this mutual fund is available at the fund's website.
I believe in active management that works, and I am here to help you find those opportunities. Please follow me here on Seeking Alpha as we look for those opportunities and sort out the good managers from the mediocre. Simply click the "Follow" button next to my name at the top of the article or on my profile page.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Maks Financial Services is a registered investment advisor and our Form ADV Part 2 is available upon request. We certify that the opinions and predictions in these articles are our professional beliefs at the time of publication and should not be construed as personal investment advice. Please consult your financial professional to see how anything discussed here applies to you. Furthermore this is not a solicitation to buy or sell any securities. This is not Tax Advice. Please consult your tax professional.