GLOBAL market jitters in the past year derailed Australian share funds, which delivered the worst returns since the global financial crisis.
The median local share fund returned losses of 6.9 per cent last financial year, pummelling investors' confidence and erasing some of the strong double-digit returns of the previous year.
Even so, the median fund manager's performance was largely in line with a 7 per cent fall in the S&P/ASX300 index in the year to June 30, Mercer figures show.
Returns over a longer period show that the sharemarket rout of recent years continues to have an impact, with the median Australian share fund up by 5.9 per cent over three years, but down by 3.1 per cent over five years.
Investment managers' performances are critical for the allocation of tens of billions of dollars in retirement savings by superannuation funds. Income style funds, which invest in stocks with a reliable dividend stream, fared better in a falling market. Overall returns were down by 1.4 per cent. Hedge funds returned losses of 5 per cent, slightly better than long-term investors.
Overseas share funds also posted negative returns, eroding much of the previous year's gains.
The median overseas share fund fell by 1.5 per cent, slightly outstripping a 0.5 per cent fall in the benchmark index, the Mercer figures show.
The best performer was the Anton Tagliaferro-backed Investors Mutual, which delivered a return of 2.3 per cent for the year, outperforming the benchmark by more than 9 percentage points. It returned 10.7 per cent over three years.
With about $1.6 billion under management, the value manager had to be more selective with the stocks it backed. It steered away from key cyclical stocks and the so-called "value traps" of Myer, Billabong and Seven West Media.
"We've had the view since the GFC (global financial crisis) that it was not just a normal downturn, that it was a significant change in terms of the way forward and that the economy wouldn't come roaring back," Mr Tagliaferro said. "We've stayed away from a lot of the cyclical stocks and stuck with the companies that have continued to grow despite the difficult environment."
The Bennelong Concentrated Australian Equities Fund came in with the highest return over three years, reporting a gain of 12.4 per cent. The fund's manager, Paul Cuddy, said he looks for a trade-off between quality, growth and value attributes.
"We have an inherent bias to high-quality companies that can deliver earnings above expectations. The perfect company for us is one that is out of favour, and satisfies our investment criteria."
Mr Cuddy said that, in the longer term, tough macroeconomic conditions were masking some attractive opportunities.
Of the long-only funds that had disappointing performances, Legg Mason Australian Value Equity Fund fell by 14.5 per cent over the financial year. Independent Asset Management continued to underperform, with returns down a hefty 27.4 per cent over the year.
Funds that were heavily exposed to retail, media and energy stocks were among the worst performers. Healthcare, utilities with low levels of debt, and Telstra gave the best returns. Banking stocks, a traditional mainstay for fund managers because of their high dividends, also outperformed the broader market.
Frequently Asked Questions about this Article…
How did Australian share funds perform last financial year and why did returns fall?
Global market jitters drove a weak year for local funds: the median Australian share fund returned a loss of 6.9% in the last financial year. Mercer’s data show that fund managers’ results were largely in line with about a 7% fall in the S&P/ASX300 index, so broad market weakness, not just stock‑picker underperformance, was a key driver.
What were the longer‑term returns for Australian share funds (3‑year and 5‑year)?
Over a longer timeframe the median Australian share fund was up 5.9% over three years but was down 3.1% over five years, reflecting that recent sharemarket routs have continued to affect multi‑year performance.
Which fund styles did best during the market downturn?
Income‑style funds, which focus on stocks with reliable dividend streams, fared better in the falling market (overall returns for that style were down about 1.4%). By contrast, hedge funds posted losses around 5% for the year.
How did overseas share funds and their benchmarks perform?
Overseas share funds also posted negative returns, eroding much of the prior year’s gains. The median overseas share fund fell about 1.5% for the year, slightly outperforming its benchmark, which fell about 0.5%, according to Mercer’s figures.
Which fund managers or funds stood out in the report and why?
Investors Mutual (backed by Anton Tagliaferro) was the best performer for the year, returning 2.3% and outperforming the local benchmark by more than 9 percentage points; it returned 10.7% over three years and ran roughly $1.6 billion. The manager avoided cyclical names and ‘value traps’ such as Myer, Billabong and Seven West Media. The Bennelong Concentrated Australian Equities Fund (managed by Paul Cuddy) had the highest three‑year return at 12.4%, reflecting a bias to high‑quality companies that can out‑deliver earnings expectations.
Which funds struggled the most during the period?
Some long‑only funds had disappointing results: the Legg Mason Australian Value Equity Fund fell about 14.5% over the financial year, and Independent Asset Management underperformed heavily, with returns down about 27.4% over the year.
Which sectors helped or hurt fund performance during the downturn?
Funds heavily exposed to retail, media and energy stocks were among the weakest performers. Sectors that provided the best returns included healthcare, low‑debt utilities and Telstra; banking stocks also outperformed the broader market, driven in part by their historically high dividends.
What do these fund performances mean for everyday investors and superannuation savings?
The report highlights that investment managers’ performance matters for allocation of the tens of billions of dollars held in superannuation. Manager style and sector exposure materially affected returns this year, and some managers see tougher macro conditions as masking longer‑term opportunities — so fund choice and understanding manager approach remain important for retirement savings.
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