Fewer than 5% of funds investing in Australian stocks have been able to consistently beat their rivals in each of the past three years, research by Money Management has found.
The past three years have presented some very distinct conditions for investors to navigate. In 2019, the bull market was yet to be tested by Covid and loose monetary policy pushed stocks to all-time highs, only for 2020 to leave investors facing a global pandemic, lockdowns and surging stocks before 2021’s re-opening trade gave way to concerns about higher inflation.
Against this backdrop, Money Management looked for funds in the ACS Equity Australia, ACS Equity Australia Equity Income and ACS Equity Australia Small/Mid Cap sectors that were able to make top-quartile returns in each of these years.
Of the 380 funds that resided in these three peer groups, just 13 – or 3.4% – were ranked among the top quartile for their returns in 2019, 2020 and 2021.
All 13 of these funds can be seen in the table below, ranked by the total return over the full three three-year period examined in this research (the average return of each sector is also included, in bold). Nine funds are in the ACS Equity Australia sector, three are from ACS Equity Australia Small/Mid Cap and just one from ACS Equity Australia Equity Income.
Source: FE Analytics
SGH Emerging Companies came out on top thanks to a return of 125.3% over the three years in question, compared with an average of 75.6% from its peers in the ACS Equity Australia Small/Mid Cap sector.
The $304 million fund, which had been managed by SG Hiscock’s Adrian Di Mattina since its launch in 2001, focused on companies with a market capitalization of less than $500m at time of purchase. SG Hiscock argued that there were more stock selection opportunities, less fund manager competition and better prospects for growth in this part of the market.
Top holdings included Hong Kong-based game software company Animoca Brands, wealth management platform Praemium and gold exploration and production firm Capricorn Metals.
In a recent update, Di Mattina cautioned that the market might be in for a rocky time in early 2022 owing to higher inflation, interest rate hikes, labour market tightness, supply chain disruption and geopolitics – a prediction which appears to be playing out.
“Nevertheless, we expect the share market to move higher later this year after a correction,” he added.
“At some stage, slower economic growth should pave the way for monetary authorities to pause any rate increases, maintain very low-interest rate settings and provided plenty of financial liquidity. We expect governments to favour economic growth over inflation. This means more negative real interest rates and higher share markets.”
Performance of fund vs sector in 2019, 2020 and 2021
Source: FE Analytics
The only other funds on the list to make more than 100% over the past three years while staying in the top quartile also resided in the ACS Equity Australia Small/Mid Cap sector – Pendal MicroCap Opportunities and UBS Australian Small Companies.
Most of the consistent top-quartile funds this research identified are relatively small, although three run more than $1 billion: the $1.9 billion Bennelong Concentrated Australian Equities, $1.7 billion Ausbil Australian Active Equity and $1.1 billion Bennelong Australian Equities funds.
The only ACS Equity Australia Equity Income fund making top-quartile returns for three years in a row was the Microequities High Income Value Microcap, which focused on some of the smallest companies in the market that offered the potential for very high growth.
