A stellar performance

Calendar year 2009 was a good one for most investors, with most categories of managed funds staging a turnaround from the big losses of 2008. Australian share funds and those focusing on small Australian companies led the way as optimism returned. After hitting lows last March, most sharemarkets rebounded strongly during the rest of the year.

While the 35 per cent rise in Australian shares last year will cheer investors, share prices are still about 30 per cent lower than at their record high in November 2007.

Morningstar data shows that once again, the winners' circle is dominated by boutique fund managers. One of the exceptions is Perpetual, whose Wholesale Ethical SRI fund came in first spot among large-cap Australian share funds, with a return of 68 per cent last year and an average annual return during the past five years of just more than 10 per cent.

A group executive at Perpetual Investments Business Services, Cathy Doyle, says stock-picking is key to the fund, which excludes any company that is in an "extractive" industry, such as mining. Doyle says that from the 140 companies that remain after an ethical screening process has been applied, Perpetual seeks quality businesses with high-quality management, recurring earnings and low debt. The fund holds about 70 companies.

She says a year ago, valuations were quite low so a lot of good-quality companies were cheap. The fund managers, led by Simon Bridger, tilted the portfolio towards larger stocks. Their picks in financial services and telecommunications proved a big winner for the fund, Doyle says.

The second place-getter in the large-cap Australian shares category - Hyperion Australian Growth Companies fund - produced a return of 59 per cent.

The managing director of Hyperion Asset Management and chair of the investment committee, Manny Pohl, says the fund manager picks stocks from the bottom up.

"Everyone in the team has a background and track record of identifying companies," he says. "The management team has been working together for more than 10 years."

The boutique Brisbane manager looks for companies that can mostly grow "organically", rather than through acquisitions. Pohl says he is not interested in "pie in the sky" propositions.

"What we are after are companies that have got positive earnings and positive cash flows," Pohl says. The fund holds only about 30 stocks.

Among the best performers for the fund in the long term have been Woolworths, Macquarie Bank and Commonwealth Bank. In the past year, the fund's top performers have included employment website Seek and electronics retailer JB Hi-Fi.

The All Star IAM Australian Share fund came in just behind Hyperion with a return of 56 per cent.

Independent Asset Management (IAM) is the underlying manager of the fund. IAM is a boutique funds-management business established by Greg Matthews, who is a veteran manager with a distinguished track record. The managing director of All Star Funds, Kate Mulligan, says the Australian Share fund consists of a well-diversified portfolio of 60 to 80 Australian listed companies. Good performers include Rio Tinto, nickel producer Minara Resources and various smaller companies.

SMALL COMPANIES

Just as the share prices of small companies fall the most when the gloom sets in, so their share prices tend to lift the most when the recovery gets under way. And that is what happened last year, with the share prices of small Australian companies rising by about 57 per cent.

The standout performer was EQT's SGH Wholesale Small Companies fund, which returned just under 124 per cent. The fund is managed by Melbourne boutique manager SG Hiscock & Company. A consultant at Morningstar, Sallyanne Cook, attributes the performance to some outstanding stock-picking, particularly among small resources and healthcare stocks.

The founder of SG Hiscock & Company, Stephen Hiscock, says the two best performers for the fund over the year were Customers Limited, which is an ATM provider, and medical technology company Sirtex Medical.

The Wilson HTM Priority Growth fund was the second place-getter in the small Australian companies category, with a return of 104 per cent. It had an average annual return in the three years to December 31 of almost 19 per cent. The fund holds up to 40 small and mid-cap Australian companies with strong growth prospects.

Wilson HTM is a Brisbane-based stockbroking business and fund manager. The fund uses stock research by Wilson's research, corporate finance and investment management staff.

The HTM Priority Growth fund also has priority access to Wilson HTM-managed IPOs and secondary market capital raisings.

The fund manager at Priority Growth, Sandy Grant, says it has performed well in both good and bad markets, generating a return of about 8 per cent in the year to June 30, 2009, when markets were in free-fall.

Grant says the fund has done "fantastically well" out of the coal seam gas sector, with stocks such as Arrow Energy and Queensland Gas Company. Whitehaven Coal is another long-term performer for the fund, which also favours food, retailing and companies in the healthcare sector.

Australian Unity's Acorn Microcap Trust Wholesale fund also had an outstanding year, with returns of almost 99 per cent. Acorn Capital, the underlying fund manager, was founded in 1998. Acorn Capital is half owned by Australian Unity and the rest owned by Acorn's directors and staff. Micro-caps are defined as listed companies outside the largest 250 by market capitalisation. The fund has produced an average annual return of 16 per cent since its inception in 2001. Good performers for the fund include Resolute Mining and Indophil Resources.

STRUGGLERS

Most funds investing in Australian fixed interest struggled last year as investors favoured growth assets.

The average return for the sector was about 3.7 per cent, or about the same as cash.

Property securities funds that invest in Australian property managed to recoup some of the 40 per cent losses from the previous year, with an average return of about 11 per cent.

The outstanding performer was the EQT SGH Wholesale Property Income fund, with a return of almost 49 per cent. Property securities funds that mainly had exposure to offshore properties did much better, with an average return of about 30 per cent.

Global shares

Sydney boutique Platinum Asset Management had another year of good returns. Its International Brands funds returned almost 32 per cent while Platinum's flagship International Fund returned almost 20 per cent (with an average annual return over 10 years of almost 10 per cent). Platinum actively manages the currency exposures of its funds. But those funds that remove the currency effect through hedging produced the best returns in 2009, as the strongly rising Australian dollar did not detract from their returns. Of the fully hedged funds, Schroders Global Active Value fund (hedged) did best, with a return of almost 43 per cent for the year.