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Hedge Clippings | Friday, 23 April 2021
At the end of March 2020 no one would have predicted the extraordinary rally in equities both globally and in Australia. 12 months later, equity based fund managers' performance statistics have finally shaken off the negative Covid-led returns of the first quarter of 2020. Buoyed by market returns of 37.47% for the ASX 200 Accumulation Index (AI) and an even stronger return of 56.35% percent for the S&P 500 AI, only 1.4% percent of managers failed to produce positive 12 month returns.
As a result of the exceptionally strong market, a higher proportion of funds than normal underperformed their relative index as shown by the chart below showing distribution of returns of all equity based funds:
As the risk statement and warnings in every offer document clearly states, "past performance cannot be guaranteed", equally true is the fact that past performance, particularly over the longer term, is one of the better guides to manager selection.
Given that the www.fundmonitors.com database focuses on "actively managed" funds as opposed to index tracking funds or ETF's, it is not surprising that there is an over representation of funds investing in the small to mid-cap sector, whether it be locally or overseas. Not only is there a larger numerical selection of companies in the small to mid-cap universe, but they tend to be high growth rather than value, and more likely to be unrepresented in broker research.
Our most recent analysis, Top 20 Funds: April 2020 to March 2021, can be found here. It covers not only the top 20 funds over one year, but also three and five years for a more balanced, or longer-term view. The relatively small representation of Long Short or alternative equity strategies, particularly over a 3 to 5 year timeframe is probably also explained by the extended strong run in equity markets.
Only four managers of the 12 with a five-year track record make the cut across all three timeframes: Acadian Wholesale Geared Global Equity, DMX Capital Partners, Forager International Share Fund, and OC Micro-Cap.
Of the 13 funds in the Top 20 over 3 years with a five-year track record, 11 also made it in the Top 20 over 5 years: Hyperion Global Growth Companies Fund (Class B), Jencay Australia Investment Fund, DMX Capital Partners, Loftus Peak Global Disruption Fund, Zurich Investments Concentrated Global Growth Fund, OC Micro-Cap Fund, Platinum International Health Care Fund (C Class), Acadian Wholesale Geared Global Equity, Collins St Value Fund, Forager International Share Fund, T. Rowe Price Global Equity Fund.
And, as noted earlier, only 12 funds in the Top 20 over one year had a five-year track record.
AFM's overarching and ongoing recommendation is not to invest in single funds. Diversification provides the greatest level of risk protection available.
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