GLOBAL market jitters in the past year derailed the performance of Australian share funds, which produced the worst returns since the global financial crisis.
The median Australian share fund delivered losses of 6.9 per cent last financial year, erasing some of the strong double-digit returns of the previous year.
Even so, the median performance of the country's fund managers was largely in line with the 7 per cent fall recorded by the S&P/ASX 300 Index in the year to June 30, according to figures compiled by Mercer.
Returns over a longer horizon show the sharemarket rout of recent years continues to hurt investors, with the median of Australian share funds up 5.9 per cent on three years, but down 3.1 per cent over five years.
The performance of investment managers is critical for the allocation of tens of billions of dollars in retirement savings by the nation's superannuation funds.
Income-style funds which invest in stocks with a reliable dividend stream fared better in a falling market. Overall returns were down 1.4 per cent while 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 of overseas share funds fell 1.5 per cent per cent, slightly outstripping the 0.5 per cent fall in the benchmark index, the Mercer figures showed.
The top performer was the Anton Tagliaferro-backed Investors Mutual, which delivered returns of 2.3 per cent for the year, outperforming the benchmark by more than 9 percentage points. Over three years, it returned 10.7 per cent.
With about $1.6 billion under management, the value manager had to be even more selective on the stocks it backed. It steered away from key cyclical stocks and so-called "value traps" of Myer, Billabong and Seven West Media.
"We've had the view since the GFC, 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 returns over three years, reporting gains of 12.4 per cent.
Fund chief Paul Cuddy said he looked for a tradeoff 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."
With a longer-term horizon, Mr Cuddy said tough macro-economic conditions were masking attractive opportunities in some sectors.
Of the long-only funds that disappointed, Legg Mason Australian Value Equity Trust fell 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 heavily exposed to retail, media and energy stocks were among the worst performers. Healthcare and utilities with low levels of debt and Telstra provided the best returns. Banking stocks, a traditional mainstay for fund managers because of their high dividend levels, also outperformed the broader market.
Frequently Asked Questions about this Article…
How did Australian share funds perform in the last financial year?
Australian share funds had a tough year: the median fund delivered losses of about 6.9% in the last financial year, the worst returns since the global financial crisis and broadly in line with the S&P/ASX 300 Index’s roughly 7% fall to June 30 (Mercer data).
What are the longer‑term returns for Australian share funds (3‑ and 5‑year)?
Over longer horizons the picture is mixed: the median Australian share fund was up about 5.9% over three years, but down roughly 3.1% over five years, showing the recent market rout has dented multi‑year performance.
Which types of funds fared better during the market fall?
Income‑style funds — those that focus on stocks with reliable dividend streams — fared relatively better, with overall returns down about 1.4% for the year. Hedge funds returned losses of around 5% over the same period.
How did overseas (international) share funds perform compared with their benchmark?
Overseas share funds also posted negative returns: the median overseas share fund fell about 1.5% for the year, slightly worse than the benchmark index’s roughly 0.5% fall, eroding much of the prior year’s gains.
Which fund managers outperformed and what drove their outperformance?
Anton Tagliaferro‑backed Investors Mutual was the top performer for the year, returning about 2.3% and outperforming the benchmark by more than 9 percentage points (three‑year return ~10.7%). Investors Mutual had been selective, avoiding cyclical stocks and so‑called 'value traps' such as Myer, Billabong and Seven West Media. The Bennelong Concentrated Australian Equities fund also posted strong three‑year gains of about 12.4%, driven by a focus on high‑quality companies that can deliver earnings above expectations.
Which funds and strategies disappointed investors this year?
Some long‑only value funds underperformed: the Legg Mason Australian Value Equity Trust fell about 14.5% over the financial year, while Independent Asset Management reported a significant decline of around 27.4% over the year. Funds heavily exposed to retail, media and energy stocks were among the weakest performers.
Which sectors helped or hurt fund returns during the downturn?
Sectors with heavy exposure to retail, media and energy were among the worst hit. By contrast, healthcare and utilities companies with low debt levels — along with Telstra — provided some of the best returns, and traditional banking stocks (valued for their dividends) also outperformed the broader market.
What do these results mean for everyday investors and superannuation savings?
The performance of fund managers matters because it influences the allocation of tens of billions in retirement savings by superannuation funds. The report suggests careful manager selection, attention to sector exposure and consideration of income‑style or high‑quality stock approaches — strategies managers like Investors Mutual and Bennelong used to navigate the difficult environment.
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