E-Commerce boom sees IT continue to outperform

 

 

Australia, 16 October, 2020 – Mercer’s Australian Shares Investment Manager Performance Survey released today reveals that investment managers with exposure to IT and growth continued to perform strongly versus their peers. COVID-19 has accelerated the trend towards e-commerce and online activity, fuelling the rally in the likes of Afterpay (payment platform) and Goodman Group (e-commerce logistics).

 

Ronan McCabe, Head of Portfolio Management for Mercer in the Pacific said, “In what has been a turbulent nine months, IT has continued to outperform the broad market. Long-term secular trends that had been expected to play out over the next number of years have been accelerated since COVID-19, such as e-commerce, remote working and data warehouses performed well, as opposed to physical retail.” 

 

Healthcare and IT allocations have continued to be the key contributors to positive performance in the last year, with Energy and Financials as the major headwinds. Investment managers that had exposures to high growth and quality companies did better than value-based managers.

 

 “Stocks focused in Healthcare and IT have been the winners through COVID-19 as we’ve seen Quality/Growth continue to outperform Value. Typically in a sell off and recession we can expect to see Value perform better, but this time it hasn’t been the case. However, now is not the time to write off Value and investors should seek to retain Value exposure in their portfolios through the cycle,” said McCabe.

 

Looking ahead, the US elections in early November may prove to be a volatile period both before and after. ”Looking at the last seven US presidential elections, the median Australian Shares investment manager generally outperformed the broad index in both the three months leading up to the election and the three months after the election. However, as the 2016 election showed, the equity market can react unpredictably to political outcomes. Volatility could increase as the election approaches and the market discounts potential policy changes,” McCabe added.

 

 

Australian Shares – All Funds 

5 upper quartile funds in the past 12 months to end September 2020 (alphabetical order)

 

Fund

Style

Contributors to benchmark outperformance

Bennelong Concentrated Equities

Quality/Growth

·       Consumer Discretionary

·       Health Care

Bennelong Core Equities

Quality/Growth

·       Consumer Discretionary

·       Health Care

ECP Asset Management All Cap  

Quality/Growth

·       Information Technology

·       Consumer Discretionary

Hyperion Australian Growth

Quality/Growth

·       Health Care

·       Information Technology

Platypus Australian Equities

Quality/Growth

·       Health Care

·       Information Technology

 

 

5 lower quartile funds in the past 12 months to end September 2020 (alphabetical order)

 

Fund

Style

Contributors to benchmark underperformance 

Allan Gray Australian Equity

Value

·       Energy

Dimensional Australian Value

Value

·       Financials

·       Energy

Lazard Select Australian Equity

Value

·       Energy

Martin Currie Australia Real Income

Value

·       Real Estate

Nikko AM Australian Share Wholesale Fund

Value

·       Financials

·       Energy

 

 

Key Findings

 

  • Mercer’s latest Australian Shares Investment Manager Performance Survey reveals that in the first quarter of the financial year ended June 2021, the median manager generated higher returns than the S&P/ASX 300 Index. This extends the outperformance of the previous quarter, when the median manager also beat the Australian equity benchmark. 

 

  • Over the one year horizon, the top quartile investment managers outperformed the market index by 4.6%.

 

  • The median manager’s performance for the September quarter compared to the benchmark was positive, outperforming the index by 0.6% with top quartile managers outperforming by nearly 2%. This marks a continued rebound in benchmark-relative outperformance after a tough March quarter for managers in both absolute terms and in benchmark-relative terms. 

 

  • The performance of the median manager in the Long/Short sub-universe was particularly strong in the September quarter.   

 

  • While the median manager beat the benchmark over the one-year period to end September, the performance gap between the upper and lower quartile managers continues to widen compared to the one-year period to end June. This has been driven by the divergence in performance of Value and Growth stocks in particular with the Value style lagging. We believe that this continues to highlight the importance of fund manager diversification when selecting a portfolio of active managers. 

 

  • Growth stocks showed firm leadership in the first quarter of the current financial year, continuing the trend seen for much of FY 2020. COVID-19 has accelerated the trend towards e-commerce and online activity, fuelling the rally in the likes of Afterpay (payment platform) and Goodman Group (e-commerce logistics). Conversely, stocks in the Energy sector (such as Woodside Petroleum and Origin Energy) drifted lower, as oil prices stagnated over the quarter. As such, while Quality/Growth managers like ECP Asset Management and Hyperion Asset Management continued to perform well, while Value managers like Allan Gray and Nikko Asset Management lagged in the September quarter. 

 

  • The S&P/ASX Mid 50 Index and S&P/ASX Small Ordinaries Index have both outperformed the S&P/ASX 300 Index in the September quarter, while the large cap S&P/ASX 50 Index has lagged the market. This is a continuation of the trend seen in the previous quarter. The outperformance of smaller companies reflects positively on investor risk appetite – especially for stocks perceived to be supported by underlying growth. The outperformance in mid and small cap stocks this quarter was driven by the likes of NextDC (data centres), Pointsbet (online bookmaker) and ARB Corporation (truck accessories).    

 

  • The top performing sectors over one year were IT, Healthcare and Materials; while the detractors were Energy, Financials and Real Estate. Over the past three months, IT and Consumer Discretionary were the largest outperformers versus the benchmark. This continued the strong performance for IT over the past year, which mirrors the trend seen in other major stock markets, particularly in the US. 

 

  • Other on-going influencing factors on investor sentiment include the recently announced Australian Federal Budget, which has a strong focus on reinvigorating the Australian economy through an emphasis on job creation and business investment. On the other hand, the outcome of the upcoming US elections in November and the timing of a vaccine for COVID-19 remain sources of uncertainty. 

 

How the market moved

 

-ENDS-

 

About Mercer

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s more than 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of Marsh & McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 76,000 colleagues and annual revenue of $17 billion. Through its market-leading businesses including MarshGuy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com.au. Follow Mercer on Twitter or LinkedIn.

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