Healthcare and IT explain best performing Australian fund managers during COVID-19

 

Australia, 13 July 2020 – Mercer’s Australian Shares Investment Manager Performance Survey released today reveals that investment managers who stuck to longer term investment strategies came out on top despite volatile markets caused by COVID-19.

 

Healthcare and IT allocations were the key contributors to positive performance in the last year, with Energy and Financials as the major headwinds. The Value versus Growth conundrum is a global phenomenon and Value focused strategies e.g. low P/E stocks, continued to frustrate investors over the quarter and one-year horizon, while Quality themes, such as companies with low levels of debt performed very well during a tough period.

 

Ronan McCabe, Head of Portfolio Management for Mercer in the Pacific said, “The COVID-19 pandemic and market reaction has been unprecedented. While many stocks in some sectors have been adversely affected, stocks in Healthcare and IT have performed very well as the market has focused on healthcare solutions, and a favourable view towards online and remote working products and services. It is reasonable to expect this trend to continue for the foreseeable future.” 

 

“Managers that have a Quality/Growth bias more generally performed strongly over the past 12 months. Quality characteristics such as companies focusing on the efficient use of capital and strong sales momentum have performed relatively well in this tough period, and has benefited portfolios with an emphasis on these themes,” he observed.  

 

Mr McCabe also noted, “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.”

 

 

Australian Shares – All Funds 

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

Fund

Style

Contributors to benchmark outperformance

Bennelong Concentrated Equities

Quality/Growth

·       Consumer Discretionary

·       Health Care

ECP Asset Management All Cap  

Quality/Growth

·       Information Technology

·       Consumer Discretionary

Greencape Broadcap Fund

Quality/Growth

·       Consumer Staples

·       Materials

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 June 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

·       Financials

·       Energy

Martin Currie Australia Real Income

Value

·       Real Estate

Nikko AM Australian Share Concentrated

Value

·       Financials

·       Energy

 

 

Key Findings

 

  • Mercer’s latest Australian Shares Investment Manager Performance Survey reveals that for the full financial year ended June 2020, the median manager generated higher returns than the S&P/ASX 300 Index. This is a solid improvement over the previous financial year, when the median manager lagged the Australian equity benchmark. 

  • Over the one year horizon, the top quartile investment managers outperformed the market index by over 3%.

  • The median manager’s performance for Q2 compared to the benchmark was positive, outperforming the index by 0.5% with top quartile managers outperforming by nearly 3%. This marks a rebound in benchmark-relative outperformance after a tough Q1 for managers in both absolute terms and in benchmark-relative terms. 

  • The performance of the median manager in these three sub-universes was particularly strong in FY 2020 - Targeted Volatility, Socially Responsible Investing, and Long/Short. Out of the three sub-universes, the Targeted Volatility cohort had the strongest outperformance, fulfilling their objective of generating outperformance with lower than market volatility. 

  • While the median manager beat the benchmark in FY 2020, the performance gap between the upper and lower quartile managers has widened compared to FY 2019. 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 highlights the importance of fund manager diversification when selecting a portfolio of active managers. 

  • Market trends and stock leadership seen in the first three quarters of the financial year saw some reversal in the last quarter. While growth stocks like Afterpay and Appen continued to outperform, previous laggards in the Energy sector (such as Santos and Origin Energy) also staged a strong rally. As such, while Quality/Growth managers like ECP Asset Management and Greencape Capital continued to perform well, Value managers like 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 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. The higher interest in smaller market cap companies appears to signal an increase in risk appetite of investors in the current environment. The outperformance in mid and small cap stocks this quarter was driven by the likes of JB Hi-Fi, Appen and Kogan.com.   

  • The top performing sectors over one year were Healthcare, IT, and Consumer Staples, with Energy, Financials and Real Estate the detractors. Over the past 3 months, IT, Consumer Discretionary and Energy were the largest outperformers versus the benchmark. This continued the strong performance for IT over the past year, but the rally in Energy stocks was a welcome relief after a very tough Q1.

 

 

-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 USD $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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