International equity fund managers who are less constrained by their investment mandates of their funds have been better able to take advantage of opportunities around the globe and retract positions still exposed to the effects of the financial crisis than their more benchmark-constrained competitors, according to a new report by Standard & Poor's.

A number of fund managers have also revised their risk-management approach from one based on observing the degree the portfolio diverges from its benchmark to one where risk is viewed from an absolute sense.

"We have seen a trend among many international managers to broaden their investment mandate constraints to better align constraints to risk targets and manager skill," S&P Fund Services analyst Justine Gorman said.

"The structure of international equity markets is also changing, with emerging markets becoming an ever-increasing portion of global growth and demand, leading to improved transparency and liquidity in these markets," she said. 

The research house surveyed 345 international equities funds offered by 38 managers in its sector review.

S&P found that in the year to 30 September 2010, fund managers that identified the greatest level of alpha opportunities were from growth or growth at a reasonable price, thematic, concentrated, and unconstrained equity investment disciplines.

The research also indicated that managers have been increasing their cash limits, in some cases up to 10 or 20 per cent.

International equity small-cap stocks widely outperformed large-cap stocks over the year to September 2010, returning 24.4 per cent and 12.7 per cent, respectively in US dollar terms.