“Despite the sector’s competitiveness, on an after-fee basis, our surveys indicate that active strategies continued to outperform, albeit marginally, over the past five years,” Zenith head of research Ben Davis said.
Currently, one point of difference the active managers are employing is an underweight position in the materials and financial sectors, which happen to make up 66 per cent of the S&P/ASX 300 Index.
“The relative performance of these sectors will be key in determining whether active managers add value over the short term,” Davis said.
In addition, active managers are also underweight in large-cap stocks compared to the S&P/ASX 300 with a preference for an overweight position in mid-cap and small-cap stocks.
“These segments are less efficient than the top 50 and provide more fertile value-adding opportunities, but also carry higher risk,” Davis said.
In assessing the overall sector, nine Australian equities funds received Zenith’s highest rating of highly recommended.
“At the culmination of the review, seven new funds received highly recommended ratings, including those offered by BT, Concord, Fidelity, Greencape, Perpetual and Zurich,” Davis said.
The Ausbil Australian Active Equity Fund and Perpetual Wholesale Concentrated Equity Fund maintained their peak ratings.
“Despite the increase in the number of highly recommended funds, these funds still represent only 6 per cent of the investment universe, which in our view is a good indication of their elite status,” Davis said.
The review also examined the correlation between domestic equities and emerging markets.
Certain sectors of the local share market had performed well on the back of resources demand from Asia, Zenith investment analyst Graeme Miller said, and as such investors needed to be mindful of their combinations of emerging market stocks and Australian stocks in trying to achieve proper diversification.
