Australian equity investors have shifted towards high conviction and the momentum is likely to continue as traditional core strategies have come under pressure from low cost and passive index offerings, according to a Zenith Investment Partners’ report.
The firm’s research study of the asset class found 24 per cent growth in the funds under management (FUM) of its rated Australian equity high conviction funds, while FUM of core funds declined by four per cent.
However, Zenith said that despite the decline, core remained the dominant style among its rated fund managers.
Also, Zenith’s head of equities, Quan Nguyen noted that this shift, along with separately managed accounts, reflected investors’ expectations regarding greater excess returns for their active fees.
“Fund managers are naturally responding to this heightened demand by offering more of these products,” he said.
With an increase of the use of a core/satellite approach within portfolios, Zenith said it predicted that this shift would gain further momentum over the next few years.
According to the study, the average high conviction fund outperformed the average core fund by 0.78 per cent per annum after fees over the ten years to March, 2018.
Also, investors typically paid a higher annual fee for investing in a high conviction fund, averaging 1.18 per cent compared to 0.89 per cent for core funds.
At the same time, when equity markets declined one per cent high conviction funds fell by 0.91 per cent on average, compared to core funds which declined by an average of 0.94 per cent, it said.
