Small cap managers below benchmark in 2016
Australian small cap managers underperformed the benchmark in 2016 and were dragged down by “the powerful rebound in small cap resource stocks”, according to the study by Zenith Investment Partners.
Zenith’s senior investment analyst, Quan Nguyen, explained that although underweighting resource companies had provided small cap managers a strong outperformance tailwind over recent years, this trend reversed in 2016.
The company’s Australian Shares – Small Companies Sector report also found that fees were another “hot topic” in recent years as the market saw an increase in popularity of the low cost index products.
“Managers charging higher fees often face pressure to reduce their overall free load to clients regardless of whether the fund has been able to meet its objectives,” he said.
“Despite short-term underperformance, the majority of our small cap managers have justified their fees due to strong excess performance over our medium-term assessment window.
“That is, higher fees may not necessarily be an adverse outcome for investors, as long as strong excess returns are generated correspondingly.”
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