With the Australian share market dominated by banking and resources heavyweights, Australian investors need to think beyond active and market-cap strategies in Australian equities, according to VanEck.
While factor investing, a popular method used by active managers and smart beta approaches, had been an effective way to achieve excess returns over the long term in global equities, the same strategies used in Australia had not achieved outperformance.
Arian Neiron, VanEck's chief executive and managing director - Asia Pacific, said: “While single factor strategies work in global markets, in Australia they don’t work so well as the universe of companies is too small, too concentrated and there is a lack of variability over time.
“A concentrated market means that the lion’s share of performance is attributed to mega caps, limiting stock diversification and performance attribution to companies smaller than these mega-caps. BHP alone represents 11% of the ASX 200, which skews the performance of the overall share market.”
Stock and sector concentration and the limited size of the Australian equities universe were the reasons for factors such as ‘quality’, ‘value’ and ‘growth’ factors had not achieved outperformance in Australia, according to the VanEck whitepaper.
“The ASX 200 is also concentrated in sectors; financials and resource companies account for more than 50% of ASX 200 exposure,” Neiron said.
“This small size...