Large caps set to disappoint, warns Zenith

By Killian Plastow
 — 1 minute read

Mid-cap Australian share funds are likely to offer investors better value than large-cap funds over the next 12 months, according to researcher Zenith Investment Partners.

The Zenith 2016 Australian Large Companies Sector Review found that over the year ending 31 March 2016, the S&P/ASX20 returned -16.2 per cent, whereas the S&P/ASX300 ex-20 returned 3.4 per cent.

Concentrated mangers’ average exposure to the blue chip stocks also declined by almost 10 per cent between 2014 and 2016, said Zenith senior investment analyst Quan Nguyen.


“The Blue Chip/Top 20 index is dominated by Australian bank stocks, and this has been one of the hardest hit segments of the market over the last 12 months,” he said.

Mr Nguyen said outperformance is linked to good selection, and the “reversal” of blue chip stocks from being “among the highest yielding” to their current performance “has made investors question whether the yield trade is over”.

“The key driver of outperformance for Zenith’s rated active funds has been stock selection. In particular, the stock selection-driven decline in exposure to blue chip stocks (the S&P/ASX20 Index) has been a trend that has paid off,” he added.

Zenith noted that the low interest rates mean “high and stable dividend paying stocks” will continue to be an engaging option for income seeking investors.

A survey of fund managers for their outlook for the next 12 months did, however, highlight smaller caps as the stocks of choice, according to Mr Nguyen.

In aggregate, the Australian equities managers Zenith reviewed identified the S&P/ASX 51 to 100, or mid-cap, segment of the market as being the most attractive for the next 12 months.

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Large caps set to disappoint, warns Zenith
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