Nucleus Growth Fund rated “Recommended” by IIR

Independent Investment Research recently released a report into our Tactical Growth fund and rated our fund as Recommended. Some of the highlights:


IIR ascribes a “RECOMMENDED” rating to the Nucleus Tactical Growth model portfolio. While the track record is relatively short, IIR views the quantum and pattern of performance as being consistent with the Investment Manager’s stock selection investment style and inherent biases of its quantitative models. Importantly, it also indicates the ability to add value through its TAA investment process. The ability to generate stock selection returns in a manner consistent with the Investment Manager’s expectations (which are largely derived from quantitative models it utilises) plus the ability to add alpha through TAA (which places a greater emphasis on qualitative assessments) should not only aid total returns but serve to smooth returns as the inherent ability to generate alpha from the two separate components will vary over a market cycle. While the team is small, notwithstanding the resources in the three investment committees, the Investment Manager partly mitigates potential issues through a ‘quant heavy’ process and sensible focus of time and resources.


  • While the Model Portfolio has a limited track record, the key investment team and investment committee members have a substantial amount of relevant experience as well as generally having worked and/or known each other for a significant amount of time. The latter, when combined with equity ownership, augurs well for team stability.
  • The performance of the Model Portfolio to date has been solid. The Investment Manager has added value through the TAA component and the two equities sleeves have broadly performed in line with the respective MSCI indices, a commendable achievement given the marked ‘value’ bear market in domestic and global equities over this period.
  • The three internal Investment Committees comprise a broad range of relevant skills and expertise, facilitating a diversity of views. Furthermore, the PM’s long standing relationships with the committee members combined with their equity ownership augurs well the stability of the composition and effectiveness of the committees.
  • There is a strong alignment of interest with investors, with key members of the investment team and investment committees having equity ownership or, through options programs, a pathway to equity ownership.
  • The Model Portfolio is provided to investors though an SMA / IMA investment vehicle. Investors benefit from such vehicles in the sense of real-time transparency of portfolio holdings, generally materially lower investment management costs, and a tax treatment that pertains only to their personal holdings rather than a fund as a whole.
  • The Investment Manager’s client portal provides a high degree of transparency for investors. We note the Investment Manager was a finalist in the IFA Fintech and IFA Innovator of the year (2018).


  • Almost all boutique fund managers are characterised by a degree of key person risk. In relation to the Investment Manager, this applies primarily to founder and PM Damien Klassen. We note the majority equity interest the PM owns; the risk pertains to being hit by the proverbial bus, so to speak.
  • While the Model Portfolio has recorded solid performance to date, potential investors must recognise the track record is relatively short, thereby providing a lesser indication of investment manager skill and investment process repeatability than may otherwise be the case with a longer track record.
  • While the inherent ability to generate alpha from the two separate components of the investment process are likely to vary over the market cycle, we expect the greater source of value add or detraction over the longer term will be the TAA component. This is predominantly a qualitative process for the Investment Manager. While the relevant Investment Committee has solid experience, it is ‘under gunned’ relative to larger, more established players in the multi asset, global macro segment.


  • The Investment Manager has a distinct Quality / Value investment bias, as opposed to Growth. This is both an opportunity and a threat, depending on which style happens to be in favour in equities markets. Investors should realise that there will be periods where this style may outperform and underperform the equities market as a whole.
  • The ability thus far to generate alpha through TAA and patterns of returns through stock selection consistent with expectations may make the Model Portfolio suitable as a core High Growth investment vehicle in a broad range of market environments.
  • An advantage of an SMA is the ability to tailor individual portfolios. The Investment Manager permits investors to “knock out” only sectors that do not match their ethical preferences, enabling investors to maintain as large of an opportunity set as possible.


  • The last few years have been characterised by a bear market in value investing. A prolonged continuation of this dynamic, which IIR sees as unlikely, may present headwinds for the Investment Manager.
  • Business sustainability risks is invariably a consideration for relatively low FUM, early stage fund managers. We do not perceive business sustainability risk to be particularly high. However, should there be a sustained period of poor relative performance it is conceivable there be a reversal in FUM growth, changing our perception of this risk.

Ethical Overlay

A distinct advantage of an SMA investment vehicle is it permits investors to tailor a portfolio to match their preferences. The Investment Manager offers a comprehensive ability for investors to knock out sectors that do not match their ethical preferences. This categories include climate change, war, human rights, vices, health, animal rights, and religion.

In a few categories, investors can distinguish between “High Impact” and “Broad” exposures.  For example, in the Carbon category this lets investors choose to either knock out just the worst offenders (tar sands and brown coal) or the entire sector depending upon the strength of their convictions.

To our knowledge, the degree to which investors can implement their ethical preferences in the Model Portfolio is unique in Australia.

For a summary report click here.

If you are looking for the full 20-page report, click here to register or give us a call on 1300 623 863.