Mercer Australia Sector Survey Summary l February 2017

Mercer Australia Sector Survey Summary l February 2017

MERCER SECTOR SURVEYS – FEBRUARY 2017

  • 16 March 2017
  • Australia, Melbourne

Following the late January 2017 waver in sentiment, it was back to good news for growth market investors over February, as markets continued along the now labelled ‘Trump rally’. Health Care and Information Technology were large contributors to the performance of global markets, while Energy and Materials contracted over the month following a period of strong growth.

Expectations for economic growth remained heightened in February as Donald Trump continued to push his agenda of tax cuts, less regulation and higher domestic spending. The Dow Jones hit the historic 20,000 mark on 25 January 2017, and continued well into February, opening on 1 March 2017 at over 21,000.  United States labour markets are certainly producing momentum, with the Non-Farm Payrolls increasing by 235,000 in February following a 238,000 increase in January. Unsurprisingly, it is widely expected that the FederalReserve (Fed) will hike its target rate to 0.75% to 1.0% in its mid-March meeting.

The Reserve Bank of Australia (RBA) kept the cash rate stagnate on 1.5% in its March meeting. The RBA is contending with the ‘catch 22’ of wanting further economic growth, but not wanting to put further pressure on housing prices through lower interest rates (encouraging further borrowing).  Gross domestic product (GDP) did surprise on the upside, however, growing 1.1% in the December quarter to be up 2.4% for the year. The terms of trade rose for the third consecutive quarter as net exports contributed to thresult, primarily through mining and farming sectors.

AUSTRALIAN SHARES

The broad Australian equity market expanded over February, with the S&P/ASX 300 Accumulation Index increasing 2.2% for the month. Returns were positive across the market spectrum, with the best relative performer being the S&P/ASX 50 Accum, increasing 2.4% for the month. The worst performer was the S&P/ASX Small Ordinaries, increasing by 1.3% over the month. The best performing sectors were Consumer Staples+6.0%) and Real Estate (+4.3%). The weakest performing sectors were Materials (-3.2%) and Telecom Services (-3.1%). The largest positive contributors to the return of the index were Westpac, ANZ and NAB, with absolute returns of 6.7%, 5.9% and 6.0%, respectively. In contrast, the most significant detractors from performance were BHP, Rio Tinto and Telstra with absolute returns of -6.0%, -6.8% and -3.1% respectively.

The latest Mercer sector survey data for February reveals that the median Australian shares manager performed in line with the index over three months and underperformed by 0.9% over a one year period. Over the longer term periods of  three and five years, the median manager has outperformed by 1.0% and 1.3%, respectively.

“Attention was focused on reporting season during February and the combination of earnings upgrades in resources and respectable cost controls in industrials resulted in a positive environment for markets and for active managers” said Clare Armstrong, a principal in Mercer’s Manager Research team.

“Although many active managers have found the mid cap segment of the market the most fertile ground for adding value, the theme in this reporting season was  the return of the top 20 which strongly outperformed the small Ordinaries and mid cap stocks.  Although critics of active management will call out the lag in the median strategy compared with the index for the year,  it is always the weaker environments that best demonstrate their skill. What they do best is to avoid negative surprises.” Armstrong said.

Enhanced Index was the best performing style over three months and one year periods with excess returns of 0.6% and 1.5% recorded respectively, while over three and five years, Income oriented strategies were the leading performer with excess returns over both periods of 2.9%.

OVERSEAS SHARES

The broad MSCI World ex Australia Index was up 3.2% in hedged terms and 1.5% in unhedged terms over the month, as the Australian dollar appreciated against the major currencies over February. The strongest performing sectors were Healthcare (+4.4%) and Information Technology (+3.4%), while Energy (-3.4%) and Materials (-2.0%) were the worst performers. In Australian dollar terms, the Global Small Cap sector increased by 0.9% while Emerging Markets increased 1.8% in unhedged Australian dollar terms.

Over February, the NASDAQ returned 3.8%, the S&P 500 Composite Index rose by 4.0% and the Dow Jones Industrial Average increased 5.2%, all in US dollar terms. Major European equity markets also experienced positive returns as the FTSE 100 (UK) increased 3.1%, the CAC 40 (France) increased 2.3% and the DAX 30(Germany) increased 2.6%. In Asia, the Indian BSE 500 was up 4.4%, the Hang Seng Index up 2.0%, the SSE Composite (China) up 2.6% and the Japanese TOPIX was also up 0.9% over February.

Mercer sector survey data for February reveals the median Overseas shares manager performed in line with the benchmark over three months while under-performing over a one year period by 0.2%. The median manager has outperformed over three, and five year periods by 0.1% and 0.2%, respectively.

Long Short strategies were the strongest performers over three months with excess returns of 0.1%, while over a one year period, Index focused strategies were the best performing style outperforming by 0.2%. Targeted Volatility strategies were the strongest performing style over three and five years, posting excess returns of 2.2% and 1.6%, respectively.  

RESULTS

The preliminary medians for the Mercer Surveys were as follows:

 

3 Months

1 Year

3 Years

5 Years

 

(%)

(%)

(%pa)

(%pa)

Median of the Mercer Australian Shares Survey

5.8

21.1

7.4

11.7

S&P/ASX 300 Index

5.8

22.0

6.4

10.4

Median of the Mercer Overseas Shares Survey

3.5

12.2

10.9

17.5

MSCI World ex-Australia Index

3.5

12.4

10.8

17.3


If you would like a copy of the full report please email : tracey.hayward@mercer.com

 

ENDS

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