The Zenith 2017 Australian Shares – Large Companies Sector Review found that the average rated fund generated an 18.1 per cent return over the 12 months ending 31 March 2017.
Despite this, Zenith senior investment analyst Quan Nguyen said the average rated fund in the sector underperformed the benchmark by around 2 per cent.
“Our analysis identified several unexpected outcomes over this period,” Mr Nguyen said.
“Looking back over the seven-year period from March 2010 to March 2017, this result was an extreme outcome; active large cap funds, on average, generated positive excess returns on a rolling one-year basis in virtually all observations over that time frame.”
The research found that active managers tended to hold higher allocations to the Australian small cap segment of the market, relative to the benchmark, with the view that they can generate additional excess returns.
“The underperformance of small caps has proved to be a headwind for active managers over the last year,” Mr Nguyen said.
“The most notable market capitalisation biases among our rated funds were the average underweight to the S&P/ASX 20 (13 per cent), and the average 7 per cent overweight to stocks outside of the S&P/ASX 200 Index.”
Despite the overall underperformance of large caps, Zenith said some funds were significant beneficiaries of the market conditions, with six funds out of 58 outperforming the benchmark over the one-year periods before and after the market rotation.
The review noted those funds did not come from one specific investment style, with growth, neutral and value investment styles all represented in the sub-group.
“We are encouraged by this outcome as it reinforces our view that active managers should be able to outperform regardless of market conditions and investment style over a market cycle, albeit a very short one this time,” Mr Nguyen said.
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