Investment managers with longer-term investment strategies and key allocations in healthcare and IT came out on top through the COVID volatility, according to a new Mercer performance survey.
Mercer has published its Australian Shares Investment Manager Performance Survey, revealing the median manager generated higher returns than the S&P/ASX 300 Index during the 2019/20 financial year – an improvement on the year before when they had underperformed the equity benchmark.
During the one-year horizon, the top quartile investment managers outperformed the market index by more than 3 per cent.
In the second quarter, the median manager outperformed the market index by 0.5 per cent, with top-quartile managers outperforming by close to 3 per cent.
But as the median manager beat the benchmark in FY2020, the performance gap between the upper and lower quartile managers widened year-on-year. Mercer noted the growing gap between value and growth stocks.
Bennelong Concentrated Equities, ECP Asset Management All Cap, Greencape Broadcap Fund, Hyperion Australian Growth and Platypus Australian Equities were named as the top five upper quartile funds in the past 12 months.
All five top performers had a quality/growth investing style, with holdings including healthcare, IT, consumer discretionary and consumer staples contributing to their outperformance.
Ronan McCabe, head of portfolio management for Mercer in the Pacific said the trend for healthcare and IT stocks performing well through the pandemic as the market focuses in on health solutions, remote working and online services is expected to continue.
Meanwhile Allan Gray Australian Equity, Dimensional Australian Value, Lazard Select Australian Equity, Martin Currie Australian Real Income and Nikko AM Australian Share Concentrated were the five lower quartile funds for the year, all with a value style.
Energy, financials and real estate were reported to have dragged their performance.
“Managers that have a quality/growth bias more generally performed strongly over the past 12 months,” Mr McCabe commented.
“Quality characteristics such as accompanies focusing on the efficient use of capital and strong sales momentum have performed relatively well in this tough period, and [have] benefitted portfolios with an emphasis on these themes.
“Investment styles often explain a large part of the relative performance of investment managers and this was the case in this recent period. We have seen time and time again that the benefits of active management are most evident in more challenging markets and this continues to be the case.”
The median manager across targeted volatility, socially responsible investing and long/short investing was also found to have particularly strong performances during the financial year.
Market trends in the first three quarters of the year saw some reversal in the last three months – with previous laggards in energy such as Santos and Origin Energy stating a strong rally.
While quality/growth managers such as ECP and Greencape Capital performed well, value managers such as Merlon Capital Partners and Dimensional Fund Advisors were also within the upper quartile in the June quarter.
The S&P/ASX Mid 50 Index and S&P/ASX Small Ordinaries Index have also both outperformed the S&P/ASX 300 Index in the June quarter, while the large-cap S&P/ASX 50 Index has lagged the market.
Mercer noted the higher interest in smaller market cap companies appeared to have signalled an increase in risk appetite of investors in the current environment.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
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