Morningstar gives two Tyndall funds a look
Morningstar has given both Tyndall Small Companies and Tyndall Core "investment grade" recommendations.
Wednesday, September 29th 2010, 5:45AM 
4 Comments
by Jenha White
It says Tyndall Core offers a low-cost, well-managed New Zealand equities strategy with a tight focus on risk control - "for better or worse," recommending it as having a core role in a portfolio.
The research house describes Tyndall Small Companies as offering investors genuine small-cap trans-Tasman exposure, "but thin resources in a volatile sector mean it should only be used in moderation." It recommends it as a supporting player in a portfolio.
Experienced investors Rickey Ward and James Lindsay have co-managed both of these strategies since 2001 and also manage a number of other portfolios. Morningstar believes a risk to the strategies are that there are fewer team resources than peers.
It believes the addition of another analyst in Tyndall Core would benefit the process.
As for Tyndall Small Companies, it says small-cap investing can be a minefield.
"Although we're comfortable with Tyndall's knowledge of the Kiwi component, the plethora of small companies in the Australian universe and the limited broker research coverage mean that additional resources are essential."
Tyndall Core takes an index conscious approach to portfolio construction, using the benchmark as a starting point before selecting weightings relative to the index.
Tyndall Small Companies invests in smaller sized Australian and New Zealand stocks. Around 70% of the portfolio comprises from the ASX small ordinaries, the remainder sourced from the NZX50 top 10.
Both strategies entail a four stage process that relies largely on broker data rather than proprietary models.
Tyndall Core's returns have not wavered too far from the index, consistent with the risk-constrained set-up. It has outperformed its benchmark over rolling three and five-year periods. When the down market turned Tyndall achieved large outperformance, finishing 2009 5% ahead of benchmark.
Major contributors to performance over the year to June 30 2010 included Nuplex, Equinox and AMP New Zealand Office Trust.
While Tyndall Small Companies has been managed since 2001, the retail version has only been available since September 2009. The numbers have been good and the strategy has outperformed the composite index each year with the exceptions of 2006 and 2007.
The portfolio rallied when the market bounced in 2009 and outperformed by over 11%.
Morningstar says long-held overweight positions have been positive contributors to performance during the past few years among them Nuplex and ARB Corp.
Both Tyndall Small Companies and Tyndall Core have been consistent so far this year.
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
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Comments from our readers
Our fund analysts do take business issues into account when undertaking research, but their assessments are based primarily on judgements of quality of investment people and process, not unsubstantiated rumours about businesses being potentially on the block.
Additionally, it may be worth reiterating that our fund assessments are not a binary 'recommended/not recommended' process, they're a five-point scale from 'Highly Recommended' (the maximum possible) down to 'Avoid'.
Although this is the first time that I have heard that Tyndall NZ is under "caretaker management". I was permanently appointed as Tyndall NZ's Managing Director from 1 January 2010 and I intend to be in the role for a long time. The last time that Tyndall NZ was under caretaker management was when I was interim MD from Feburary to August 2007.
As for the sale rumours, I have been at Tyndall for 10 years (as have 10 of the 15 staff) and, like almost all of our competitors, seem to constantly be the subject of some sort of sale rumour -- whether Tyndall or its parent. This in New Zealand is just the nature of the industry, I guess. Fortunately, as Phillip states in his reply, good researchers such as Morningstar don't concern themselves with unsubstantiated rumours.
Peter Lynn,
Managing Director
Tyndall NZ
I am well versed in the appraisal processes adopted by research houses (including Morningstar’s) and understand the significance that some place when evaluating business risk.
Many research entities devote a considerable amount of effort in evaluating the intentions of the shareholders of the business whom they are appraising, as this often has a significant bearing on the future success of the underlying investment products.
As someone who has ‘lived’ through Morningstar reviews, I remain intrigued how many of the permitted responses to questions are either black or white (or binary). Whilst this review approach delivers an efficient outcome, it often overlooks the “art” involved in managing investment products.
It’s a delicate process for researchers to balance the volume of investment products requiring appraisal with the commerciality of delivery. Unfortunately the investment management industry is becoming increasingly more sophisticated in how they engage with research reviews, reducing many of them to little more than advanced promotional documents and events.
Experienced researchers often tackle this aspect of the research process by obtaining a copy of the investment manager’s standardized questionnaire (such as IFSA in Australia), and place emphasis upon understanding the “art-form” of investing. Increasingly this leads to “unsubstantiated rumours” being followed up and reported on in the appraisals, to reduce the likelihood of misinforming investors.
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Clearly a binary appraisal process is unable to reflect this