Value style and banks the big winners of the new year

 

Australia, 19 April, 2021 – Mercer’s Australian Shares Investment Manager Performance Survey released today reveals that investment managers with exposure to the Value style and Financial sector outperformed over the first quarter of 2021. Equity markets performed well over the quarter with the S&P/ASX 300 achieving total returns of 4.2% and the S&P/ASX 50 5.3%.

 

As the economy recovers banks have led the rally with Westpac, ANZ and NAB the three largest contributors to index performance. The Financials sector was the stand out contributor delivering 12.1% over the quarter followed next by Communication Services and Consumer Discretionary. The pace of the economic recovery and the risk from rising inflation influenced investor sentiment. 

 

Ronan McCabe, Head of Portfolio Management for Mercer in the Pacific said, “The latest Mercer survey reveals further evidence of the long anticipated recovery in value stocks. After a protracted period of underperformance spanning over a decade, Australia is witnessing the strong performance of value factors seen elsewhere in the world.”

 

Mr McCabe noted that value is not the only style Australian equity investors should be aware of.

 

“Value, along with other return-enhancing factors such as quality, momentum, size and low volatility, is one of five key ‘factors’ that can be used when diversifying to ensure portfolios have exposure to a range of systematic return drivers,” said Mr McCabe.

 

“Our surveys have shown us over the years that value as a style has faced many challenges over the past decade, and these difficult market conditions in Australia may continue for some time. 

 

“While we don’t know whether the current outperformance of value will be sustained, we do believe this approach has the potential to offer diversification of excess returns and enhance expected outcomes. Without exposure to value, investors may risk missing out on the benefits of that diversification,” he said. 

 

Over the one-year time horizon:

  • The S&P/ASX Accumulation 300 was up 38%, reaping the benefit of the rebounds in markets from April 2020 onwards after the market crash in March 2020
  • While IT was the stand out sector over one year returning 80%, Consumer Discretionary and Materials were the biggest contributors to index returns given their comparatively larger index weighting.
  • At an individual stock level, Afterpay was the largest stock contributor over one year followed by BHP, ANZ, Fortescue and other banks. 

 

Australian Shares – All Funds 

Five above-median funds in the past 12 months to end March 2021 (alphabetical order)

Fund

Style

Contributors to benchmark outperformance

Allan Gray Australian Equity

Value

·       Energy

Ausbil Australian Active Equity

No style bias

·       Financials

·       Materials

ECP AM All Cap

Quality/Growth

·       Information Technology

·       Consumer Discretionary

Martin Currie Australia Value Equity

Value

·       Energy

·       Financials

Perennial Concentrated Australian Shares

Value

·       Financials

·       Materials

 

 

Five below-median funds in the past 12 months to end March 2021 (alphabetical order)

Fund

Style

Contributors to benchmark underperformance 

AB Managed Volatility Equities

Low Volatility

·       Consumer Staples

·       Communication Services

Lazard Australian Equity

Value

·       Consumer Staples

·       Industrials

Martin Currie Australia Real Income

Value

·       Real Estate

Plato Australian Shares Low Volatility Income

Low Volatility

·       Consumer Staples

·       Communication Services

Solaris Australian Equities

No style bias

·       Consumer Staples

·       Industrials

 

 

Key Findings

  • Mercer’s latest Australian Shares Investment Manager Performance Survey reveals that the performance of the Value style managers continues to be robust in the March quarter, especially in the Long Only sub-universe. 
     
  • The higher risk appetite of investors and rally in cyclical stocks has resulted in the Targeted Volatility sub-universe continuing to lag the benchmark significantly in the quarter. We believe that these changes highlight the importance of diversification when selecting a portfolio of active managers and strategies. 
     
  • Value stocks continued to rally in the first quarter of calendar year 2021, after having lagged growth stocks for an extended period. Stocks in the financial sector surged higher, led by the major banks (such as Westpac and ANZ) which reported stronger than expected results on the back of lower impairments. Conversely, growth stocks lagged, such as software companies (Afterpay, Xero) and high revenue growth companies like A2 Milk and NEXTDC. As such, Value strategies from managers like Perennial Value Management and Martin Currie Australia performed well, while Quality/Growth strategies from managers like ECP Asset Management and Hyperion Asset Management lagged in the March quarter. 
     
  • The S&P/ASX 50 Index outperformed the S&P/ASX 300 Index in the March quarter, while the S&P/ASX MidCap 50 Index lagged the market. This represents a reversal of the trend seen in previous quarters. The outperformance in large cap stocks this quarter was driven by the rally in the major banks as well as the likes of Telstra, Macquarie and Aristocrat Leisure.    
     
  • The top performing sectors over one year were IT, Consumer Discretionary and Materials, while the detractors were Healthcare, Utilities and Consumer Staples. Over the past three months, Financials, Communication Services and Consumer Discretionary were the largest outperformers versus the benchmark, while IT was the weakest performing sector. The rotation into banks and the sell down in IT in the most recent quarter mirrors the trend seen in other major stock markets.   
     
  • Other ongoing influencing factors on investor sentiment include the pace of the economic recovery and the risk from rising inflation. 

 

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 76,000 colleagues and annual revenue of over $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 @MercerAu and LinkedIn.

 

CONTACT INFORMATION