Of the 69 funds considered by the researcher in its 2013 Australian Equities Review, 24 funds “failed to clear the first hurdle”, according to a statement by van Eyk.
van Eyk chief executive Mark Thomas said it was important for financial planners to see the outcome for all of the funds that were considered in a review.
“This also helps discourage ‘ratings shopping’ by fund managers,” said Mr Thomas.
According to van Eyk head of manager research Matthew Olsen, there were three major failings on the part of the 24 funds that failed to make the cut.
He cited insufficient levels of active risk in the portfolio, insufficient manager skill, and an investment process that was not significantly different from the majority.
“A lack of active risk means managers are much less likely to generate meaningful excess return for investors,” Mr Olsen said.
Along with the 24 funds that failed to clear the first hurdle, three of the funds were rated ‘B’, which is below ‘investment grade’.
Of the 42 funds that were recommended by van Eyk, five received the highest ‘AA’ rating, 19 were rated ‘A’, and 18 were rated ‘BB’.
While the Australian share market has “normalised” since the global financial crisis, there are still risks related to a slowdown in China, a weak manufacturing sector and potentially overvalued local banks, according to van Eyk.
“Good risk control and risk awareness by managers continue to be highly regarded in this asset class,” said van Eyk.
Lead analyst on the Australian equities sector review, Varun Venkatraman, said Australian equities returns may be lower over the next two to three years compared to long-term averages.
“While our long-term strategic asset allocation recommends 28 per cent of a balanced portfolio be allocated to this asset class, we are currently recommending a lower tactical exposure,” Mr Venkatraman said.
