Share funds take stock of tough market conditions

GLOBAL market jitters over the past few months have taken the shine off the full-year returns of Australian share funds, with many managers struggling to outperform the broader market.

By InvestSMART · 15 Jul 2011

By InvestSMART ·
15 Jul 2011

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GLOBAL market jitters over the past few months have taken the shine off the full-year returns of Australian share funds, with many managers struggling to outperform the broader market.

The median local share fund gained 12 per cent in the past financial year, largely tracking the 11.9 per cent gain recorded by the broader S&P/ASX 300 index, according to figures complied by Mercer.

Investment management performance is critical for the allocation of tens of billions of dollars in retirements savings by the nation's superannuation funds.

Fund managers that looked for value across individual stocks were among those that substantially outperformed the market and were able to hold on to gains.

BlackRock's long-short fund was the best performer out of more than 130 funds tracked by Mercer, returning 29.4 per cent over the year. As the name suggests, long-short funds both buy and short-sell stocks in their portfolios.

Of the more conventional long-only funds, newcomer Continuum Capital Management came out on top with a 25.7 per cent return.

Continuum's Brett McElwee said the strong return was achieved by reacting quickly to market trends, switching between sectors frequently although in a disciplined way.

"What we do is not try to pick the next dip or rally in the market," Mr McElwee said.

"Our approach is to detect changes in the market and be as responsive as we can be to those changes."

In January, stockbrokers were tipping the benchmark S&P/ASX 200 index to finish the calendar year in the mid-5000s.

But recent forecasts are deliberating whether the 5000-point barrier can be breached, with the market falling around 10 per cent since April, haunted by persistent debt fears in the US and Europe, growth concerns in China and weak consumer confidence domestically.

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Frequently Asked Questions about this Article…

How did Australian share funds perform over the past financial year?

According to Mercer’s figures in the article, the median local share fund gained 12% over the past financial year, largely tracking the broader S&P/ASX 300 index, which rose 11.9%.

Which share funds were the top performers in the period covered?

Mercer’s data showed BlackRock’s long-short fund was the best performer, returning 29.4% over the year. Among conventional long-only managers, newcomer Continuum Capital Management posted a strong 25.7% return.

What is a long-short fund and why did BlackRock’s long-short fund stand out?

A long-short fund both buys (goes long) and short-sells stocks in its portfolio. The article notes BlackRock’s long-short fund stood out in Mercer’s sample of more than 130 funds by delivering a 29.4% return over the year.

What investment strategies helped some fund managers outperform the market?

Managers that looked for value in individual stocks and were able to hold on to gains outperformed. The article highlights that Continuum’s Brett McElwee credited quick, disciplined reactions to market trends and frequent sector switching for strong returns.

Why does fund manager performance matter for superannuation and retirement savings?

The article explains investment management performance is critical because superannuation funds allocate tens of billions of dollars in retirement savings, so manager returns directly affect retirees’ outcomes.

How have recent global and domestic issues affected Australian share market forecasts?

The piece says the market has fallen around 10% since April amid persistent debt fears in the US and Europe, growth concerns in China and weak domestic consumer confidence. That decline has made forecasters question whether the S&P/ASX 200 can breach the 5000-point barrier this year.

What did Continuum Capital Management say about its investment approach?

Continuum’s Brett McElwee said the fund doesn’t try to pick the next dip or rally. Instead, their approach is to detect changes in the market and be as responsive as possible, switching between sectors frequently but in a disciplined way.

How many funds did Mercer track and how does that context help everyday investors interpret performance data?

The article notes Mercer tracked more than 130 funds. For everyday investors, that breadth means the reported median and standout returns reflect a large sample of managers, so individual fund performance should be compared with these broader benchmarks when evaluating results.