Texas launches quarterly reports for flagship fund

The Teachers Retirement System of Texas (TRS) has outlined a set of five investment performance measurement priorities, which include a new detailed quarterly report for the internally actively managed $19.9 billion global best-ideas flagship fund, and incorporating external managers’ signals into the investment process to enhance performance.In a presentation to the April investment committee meeting, the fund outlined the five priorities which included creating a new quarterly report that detailed views, portfolio positions, factor and risk exposures, thematic opportunities and investment performance of the GBI Flagship fund.

It will also prioritise new product/strategy development and continue to develop new strategies, such as global best-ideas natural resources, to meet the demands of the investment management division and complement existing internally managed portfolios.

The fund, whose investment team is led by CIO Britt Harris (pictured), also aims to reach out to other global funds to incorporate best practices into the process, and aims to improve risk management through the use of a risk model that captures shorter-term changes in factor volatility and correlation to help better understand portfolio risk exposures.

In addition to the GBI Flagship fund, the fund manages a precious metals fund internally (which has about $500 million) and natural resources, and TRS has highlighted as part of its strategic plan to expand the multi-product platform as well as establish investment advisory services.

Over time it will also develop commodities expertise for the trust’s real return strategies and thematic expertise for the top-down allocation.

The global best-ideas flagship fund (GBI Flagship) has had three consecutive years of beating the benchmark with 220 basis points of cumulative alpha. Since inception it has exceeded its alpha target by more than 50 per cent. It has 160 basis points of realised tracking error

It ranks as the fourth largest global fund and the 29th largest active fund among the active equity mutual fund universe in the US.

Compared to the MSCI, the fund is overweight materials, and underweight financials and consumer directory. From a regional allocation perspective it is overweight Asia ex Japan, EMEA/LATAM and the US, and underweight Japan and Europe.

In the past year the fund has gained most of its value-add from regional allocations and stock selection but not from sector allocations.

The fund’s process begins with a front-end quantitative screening to get the investable universe from 2,500 to 1,500 stocks. Fundamental research is conducted leaving 450 stocks on the focus list, then 150 high-conviction stocks are chosen. The optimised portfolio consists of these high-conviction stocks, which make up 40 per cent of the portfolio, and a risk control.

At December 31, 2010 the fund’s largest holdings were Apple Inc, Exxon Mobil, Microsoft, JP Morgan Chase and Wells Fargo.

Its top five overweights were Lowe’s, iShares FTSE/Xinhua A50 China Tracker, PepsiCo, CVS Caremark and McGraw-Hill.

In addition to the $19.9 billion that is actively managed, TRS manages a further $36.9 billion internally which is passively managed over large-cap value, large-cap growth, small-cap, EAFE+Canada, emerging markets, long Treasuries, US TIPS, commodities and REITs.

Overall 54.4 per cent of the fund is managed inhouse.