Australian market neutral funds delivered negative returns over the 12 months to 31 December 2016, according to research house Zenith Investment Partners.
The median return for Zenith’s rated funds was -3.1 per cent, below the sector’s benchmark, the Bloomberg AusBond Bank Bill index, which generated returns of 2.1 per cent.
“In the previous year, all of Zenith’s rated market neutral funds outperformed the sector benchmark and significantly outperformed the Australian equity market,” Zenith said.
“However, this year only three funds were able to beat the benchmark, whilst none outperformed either the Australian or global equity markets.”
The median volatility of returns when measured by standard deviation remained at a modest 6.7 per cent, the research house found, where the Australian and global equity markets displayed returns volatility of 12.1 per cent and 10.7 per cent respectively.
The research house also found Australia’s market neutral funds were almost at capacity, owing to strong returns seen in previous years.
“Of the Australian market neutral funds which are rated Recommended or above by Zenith, only around $1.2 billion of available capacity remains across two funds, as at 31 December 2016,” said Zenith senior investment analyst Justin Tay.
“With the strong levels of FUM growth experienced by the sector in recent years, Zenith has projected that this capacity will be fully exhausted by mid-2018.”