Dividend flavour to new Pie fund

World financial markets are threatening to crash but boutique fund manager Pie Funds says now is the perfect time to launch its new Australasian Dividend Fund.

Wednesday, September 28th 2011, 12:15PM

by Niko Kloeten

The fund will continue the company's strategy of investing mainly in small companies listed in Australia and New Zealand, which Pie Funds believes are often inefficiently priced due to a lack of coverage by the investment community.

It used this philosophy in its Pie Australasian Growth Fund, which returned 31.80% per year over the three years to July 31, according to Morningstar figures.

Pie Funds says the new fund will target companies with earnings stability, growth and a sustainable dividend distribution policy.

Managing director Mike Taylor says Pie Funds is no stranger to launching products in the midst of financial turmoil, having opened its growth fund during the global financial crisis.

"It's optimal for a number of reasons," he says of the launch's timing. "First, it offers the chance to buy into equities at favourable valuations.

"Our last fund started during the GFC, and that presented a number of opportunities, including the ability to buy very cheaply, which helped that fund produce a return in excess of 100% in 2009 when the market recovered.

"Second, the more prices fall, the higher the dividend payout becomes. And finally, if the world is again going into the economic abyss, then central banks will have to print more money.

"This will lead to inflation, which makes assets like equities, property and commodities all the more valuable. You need to own these, not cash in the bank at 3%."

Pie Funds, which has just under $25 million under management, announced earlier this year it would close the growth fund to new investors, and Mr Taylor says the dividend fund will also be closed once it reaches a similar size, possibly up to $35 million.

He says with the relatively small amount under management keeping costs down is important, and performance fees are crucial.

"If we don't do well it will be a very lean year."

Mr Taylor says the new fund is "less speculative" than the growth fund because it will only invest in established companies, but he warns it still carries plenty of risk.

"It's equities and it's small cap companies and you always run the possibility that the company might cut their dividend or there might be a massive recession."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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