Speaking to InvestorDaily, Mr Baird said the sector is one of the most differentiated segments in the market and each player is “very different in the way they manage money”.
Mr Baird cited Zurich Financial Services Australia Ltd as one example of a company that “has very much a trader philosophy”.
“They are less about an underlying view on the actual stocks and more about short-term trading,” he said.
Comparing the return profiles of Zurich Investments Equity Income Fund and Merlon Wholesale Australian Share Income Fund will reveal different levels of market exposure, Mr Baird said.
“BT funds are different again,” he said, adding that “BT funds have generated half of what Zurich has, and Zurich is then six or seven per cent behind Merlon.
“It’s really about selecting a fund that meets everything you want and there is a lot to choose from in this space.”
Of the 17 funds Zenith has rated in the space, Zurich Investments Equity Income Fund was the only fund to be “highly recommended”, while 12 funds received a “recommended” status and four funds were “approved” by Zenith.
Mr Baird’s comments come after the 19 December release of the van Eyk Research Australian Equity Income Review 2013, which awarded 10 managers an investment grade.
A top AA rating was awarded for the first time in the sector.
The report found equity income funds are becoming increasingly sophisticated as they seek to tailor their funds to the specific needs of the retiree market.
“We are seeing the better managers becoming much more sophisticated at balancing the often competing goals of generating consistent income and preserving capital,” van Eyk Research head of manager research Robert da Silva said.
“There’s a heightened focus by these managers on minimising risk, which is shown by the greater attention they give to the finer points of risk management like sequencing risk, or the order in which returns arrive,” Mr da Silva said.
“The main objective of equity income strategies is to provide a consistent return stream to investors greater than the dividend yield of their benchmark (typically the S&P/ASX 200 and ASX300 Accumulation indices), but not at the expense of capital gains when they occur.
They typically use options strategies to boost income and limit downside risk,” he said.
The Australian Equity Income Review invited 16 managers to participate.
Of these, four managers were screened by van Eyk in the initial assessment for not being sufficiently competitive, while one manager declined to be rated.
In addition to the AA-rated manager, four of the managers received an A rating, five a BB rating and one a B rating (BB and above is considered investment grade).
