MFS institutional equity portfolio manager Paul Fairbrother says too many active managers have “run scared” under business pressures, chasing benchmarks and becoming quasi-passive in the process.
Speaking to Investor Daily during a recent Australian visit, London-based Fairbrother took aim at fellow active managers.
“Too many active managers in our industry, because of business pressures, have run scared. They end up locking in and trying to chase the benchmark as well and trying to become almost quasi-passive. They’re charging an active fee, but they’re not really active managers,” Fairbrother said.
He said this is occurring amid continued flows into passive strategies and benchmarks, contributing to market overconcentration and a growing tilt toward growth stocks, particularly in mega-cap tech.
It also comes amid ongoing criticism that the Your Future Your Super performance test, which the Treasury has recently proposed reforms to strengthen, has made active investors more risk-averse and less willing to pursue stronger returns.
But while active strategies have largely struggled to outperform the benchmark recently, with SPIVA’s latest Australia Scorecard finding 74 per cent of Australian equity general funds underperforming the S&P/ASX 200 last year, Fairbrother said it remains an attractive environment for active managers – particularly those focused on value and contrarian strategies.
That view is reflected in practice, with Fairbrother part of the team behind the strategy underpinning MFS’ Global Contrarian Equity Trust (AUD), which was launched to Australian institutional investors this time last year.
Since then, the fund has performed strongly, delivering a total net-of-fees return of 15.64 per cent, more than double the 6.09 per cent return from the MSCI World Value Index for the year to 31 March. That performance included a soft patch in Q1 this year, when value stocks came under pressure.
He said the strategy’s performance largely comes down to stock selection, with its concentrated portfolio of just 32 names making it a “high risk, high reward” approach.
With its largest holdings often outside the benchmark’s top names, he described the strategy as “unconstrained” or “benchmark-agnostic”, noting it is benchmark-aware but not driven by it when building the portfolio.
“We definitely are not slaves to the benchmark. We don’t really worry about benchmarks. In some ways, that’s the opposite of being contrarian,” Fairbrother elaborated.
In terms of contrarian stockpicking, he said the core thesis is about “taking advantage of human nature” by identifying when sentiment around a stock is either overly optimistic or overly pessimistic, and remaining unemotional during periods of market stress.
One of the fund’s recent standout contributors is Samsung, which was purchased in Q4 2023 and sold in Q4 2025. Over the past year, the stock is up nearly 400 per cent to 11 May.
“It’s a good example of what I’m talking about with contrarians, because right now, it’s sort of a hot stock, and it’s in the wheelhouse of the AI momentum and the semiconductor boom. But 18 months ago, it wasn’t, and it was seen as more at risk of disruption from AI,” he said.
He added that MFS prefers to buy stocks when they are out of favour, as the odds tend to be more attractive in those situations. Avoiding debt is another “golden rule”, with leverage seen as a key risk to the contrarian approach.
More broadly, Fairbrother said the fund’s stock picks are driven by idiosyncratic opportunities, with strong returns generated over time across sectors including materials, industrials and parts of the consumer space.
With 124 investment analysts globally focused on individual companies, he added that MFS’s research platform and due diligence process, which identifies structural issues to avoid as well as areas of undervaluation, is central to uncovering investment opportunities.
Beyond the past 12 months, the strategy has been in place for nearly a decade and has outperformed in six of the nine calendar years of available data. Over that period, which has been marked by significant volatility and major geopolitical events, he said volatility is a positive for contrarian investing as it tends to surface market inconsistencies.
“We seem to have had a better consistency of performance [compared to deep value managers], and I think that’s because it is near an idiosyncratic portfolio of stocks.”
Again pointing to ongoing flows into passive strategies across markets, he said value and contrarian approaches offer diversification opportunities at a time when markets have enjoyed a prolonged bull run and many investors have yet to experience a major market downturn.
“There’s the small players there who don’t have a lens on valuation, don’t care about valuation, and I think that’s almost becoming dangerous, but it also creates opportunities for the active managers who are going to be brave and do something different.”
Looking ahead, he said the long-running bull market is likely to give way to a different environment that will require a new investment playbook.
“I think the next decade is going to look very different in terms of lower returns, and more likelihood to be volatile.
“[This] is a good thing for us, because we’re going to try and take advantage of that, but it’s not going to be a smooth ride for people.”
