By Zoe Fielding
VALUE-oriented fund managers perform best in a bear market, according to new Australian equities manager research from a major platform provider.
The assessment, carried out by Navigator, looked at the five-year period to the end of March 2005, comparing fund performance to overall Australian market performance measured by the S&P/ASX 200 Accumulation Index.
In that 60-month timeframe, the market provided positive returns in 37 months, and negative returns in 23 months.
The research found six of the 10 Australian equity funds that performed best in the negative market periods operated under value investment strategies.
Navigator research manager Stuart Fechner said value oriented managers typically purchased stocks that were out of favour with the market or cheaply priced due to short-term influences. He said these types of stocks tended to hold their own, or at least fall less than many other stocks in negative markets.
“Seeing a good number of value managers listed within the top 10 as performing well when the market is negative is pleasing, as it tends to indicate that they are true to label in adhering to their stated ‘value’ investment philosophy,” he said.
Fechner said Investors Mutual’s Australian Share Fund, which topped the list, outperforming the market in each of the 23 negative months, was one of the deeper value managers.
Next best was Perpetual’s Concentrated Equity Fund, with outperformance in 20 months.
Morningstar’s head of consulting Anthony Serhan said while value funds had outperformed over the medium-term, in stronger markets, for example in June 2004, some of the value funds underperformed.
Serhan said understanding a fund manager’s investment strategy would help explain performance in different markets, but he warned against chasing short-term returns by weighting portfolios with particular investment styles.
“There is a risk in chasing some of the better performers that you build in style biases that will not provide the full diversification you are looking for,” he said.
