From best to worst: Materials plummet

Australia, October 28, 2021

 

Australia’s resources sector has borne the brunt of changing demand dynamics, with Materials dropping from a top performing sector over one year in the June quarter to among the worst over one year in the September quarter, according to Mercer’s Australian Shares Investment Manager Performance Survey.

 

The third quarter of 2021 continued to be positive for equity markets with the S&P/ASX 300 returning 1.8% and the corresponding S&P/ASX 50 index, 1.1%. Energy and Industrials were the leading sectors delivering 6.2% and 4.5% growth respectively over the quarter, followed next by Communication Services. Over the one-year time horizon the S&P/ASX 300 returned 30.9%, while the ASX Small Ords returned 30.4%.

 

Ronan McCabe, Head of Portfolio Management for Mercer in the Pacific said the environment in China and the local mergers and acquisitions (M&A) market had driven the peaks and troughs in the last quarter.

 

“The regulatory crackdown in China and challenges in the Chinese property sector has dampened the demand for much of Australia’s key resources. As a result, iron ore prices plunged causing the Materials sector to lag -13.2 per cent over the quarter. In contrast, reduced output within the Chinese economy and energy shortages have driven demand for coal and natural gas, with the likes of Santos and Woodside performing well,” Mr McCabe said.

 

“And, it’s been a record year on the M&A front so far in 2021. The last quarter saw some significant deals announced such as the proposed acquisition of Afterpay and the takeover bid for Sydney Airport. Managers that were well-positioned into those names have benefited,” he said.

 

At an individual stock level, Macquarie Group was the largest stock contributor over the quarter, followed by Sydney Airport, CBA and Wisetech Global.

 

Over the one-year time horizon:

  • The S&P/ASX 300 Accumulation Index was up 30.9%, benefiting from a rebound in company earnings and the continued improvement in market sentiment after the sharp correction in early 2020.
  • The rally was broad based with most sectors generating a positive return. Cyclical sectors like Financials and Consumer Discretionary were the biggest contributors to index returns.

 

A recent survey conducted by Mercer on asset allocation intentions by Australian and New Zealand investors representing some A$1.3 trillion in funds under management suggests investors currently have a more “risk-on” attitude. Respondents revealed they were looking to increase their exposure to higher-risk assets, in particular sustainable themed strategies (40%), private debt (30%) and infrastructure (40%). Similarly, investors indicated they planned to reduce defensive assets, including sovereign bonds (53%), inflation linked bonds (30%) and hedge funds (23%).

 

-ENDS-

 

 

Key Findings

  • For the September quarter, the median manager generated higher returns than the S&P/ASX 300 Index, outperforming the index by 1.3%, with top quartile managers outperforming by 3.2%. This marks an improvement in benchmark-relative outperformance, given the median manager lagged the benchmark in the previous quarter.
  • Over the one year horizon, the median manager outperformed the market index by 1.8%, while top quartile investment managers outperformed by 7.9%. The performance gap between the upper and lower quartile managers over one year was material at 8.6%. We believe that the significant differences in performance highlight the importance of due diligence and diversification when selecting a portfolio of active managers and strategies.
  • While growth stocks continued to rise in the September quarter, cyclical stocks also posted positive returns, resulting in a reasonably broad-based rally. High growth stocks in the IT sector staged a strong rally, this included Wisetech Global and Novonix, given the optimistic outlook for cloud-based software and lithium batteries respectively. At the same time, cheaper cyclical stocks in the Energy sector outperformed strongly, such as Oil Search and Whitehaven Coal, on the back of higher oil and coal prices. The Materials sector performed poorly, driven by the sharp correction in iron ore prices which impacted BHP, Fortescue Metals and Rio Tinto.
  • The top performing sectors over one year were Financials, Communication Services, Consumer Discretionary and Energy, while the detractors were Healthcare, Materials, Industrials and Consumer Staples. Over the past three months, Financials, Industrials, Energy, IT and Communication Services were the largest outperformers versus the benchmark, while Materials was the weakest performing sector.
  • The performance of the median manager in the Long/Short sub-universe was particularly strong in the September quarter. 

 

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 approximately 25,000 employees are based in 43 countries and the firm operates in 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 81,000 colleagues and annual revenue of over $19 billion. Through its market-leading businesses including Marsh, Guy 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 @MercerAU and LinkedIn.

 

Important notices:

‘MERCER’ is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917.

References to Mercer shall be construed to include Mercer LLC and/or its associated companies.

This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without Mercer’s prior written permission.

The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. Mercer’s ratings do not constitute individualised investment advice.

This report provides general information or advice and does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or products or constitute a solicitation to purchase on behalf of any of the investment managers mentioned, including MIAL, their affiliates, products or strategies that Mercer may evaluate or recommend. The report is not intended to be, nor should be construed as, financial product advice. It does not take into account your objectives, financial situation or needs. You should therefore consider the appropriateness of the advice and consult a financial adviser before making any investment decision.

For the most recent approved ratings of an investment strategy, and a fuller explanation of their meanings, contact your Mercer representative.

Conflicts of interest: For Mercer Investments conflict of interest disclosures, contact your Mercer representative or see www.mercer.com/conflictsofinterest.

Mercer universes: Mercer’s universes are intended to provide collective samples of strategies that best allow for robust peer group comparisons over a chosen timeframe. Mercer does not assert that the peer groups are wholly representative of and applicable to all strategies available to investors.

Risk warnings: The value of your investments can go down as well as up, and you may not get back the amount you have invested. Investments denominated in a foreign currency will fluctuate with the value of the currency. Certain investments like Emerging Market Debt carry additional risks that should be considered before choosing an investment manager or making an investment decision.

 

 

Explanatory Notes:

The returns for periods of 1 year or more are equivalent annual rates of return. No allowance has been made for management expenses or redemption fees. These vary materially between managers and between contracts for the same manager. Consequently the actual net return achieved by clients may be lower than that indicated.

Managers are ranked from highest return to lowest return. In some cases rankings may be different due to return differences disguised by the rounding. The rankings attributed to indices are the rankings that these indices would have achieved if they had been in the survey.

The "Median" is the value above or below which half the managers fall.

The "Upper Quartile" is the value above which one quarter of the managers fall.

The "Lower Quartile" is the value below which one quarter of the managers fall.

"Excess Return" is the return earned by a manager less the return on an index. It is a measure of the value that the manager has added relative to the index.

"Tracking Error" is the annualised standard deviation of the monthly "Excess Returns". It is a measure of variability of the manager's returns relative to the benchmark.

"Information Ratio" is the "Excess Return" divided by the "tracking Error". It is a measure of the variability of the manager's returns relative to the benchmark.

The Benchmark utilized for the purposes of the “Excess Return”, “Tracking Error” and “Information Ratio” is the S&P/ASX 300 Total Return index.

Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages), for any error, omission or inaccuracy in the data supplied by any third party. Information for this report is retrieved from investment managers who have self-selected “Australia - Equity” as their strategy categorisation within in our GIMD database. This information is not independently verified by Mercer and fees charged by these investment managers could have an impact on the performance once factored in.

 

This document is not for distribution to retail investors.

 

This document has been prepared by Mercer Investments (Australia) Limited (MIAL) ABN 66 008 612 397, Australian Financial Services Licence #244385.

 

Copyright 2021 Mercer LLC. All rights reserved.

 

CONTACT INFORMATION