Market neutral equity funds have strongly rebounded in 2017, with an average return of 9.3 per cent across rated funds against -3.1 per cent return delivered in 2016, prompting Zenith Investment Partners to create a new sector benchmark.
According to the firm, despite the impressive performance last year market neutral funds still fell short of mainstream equity benchmarks, such as the S&P/ASX 300 Accumulation Index and the MSCI World ex Australia $A (Unhedged).
The new market neutral benchmark, which would track the performance of an Australian market neutral strategy on a passive and exposure-neutral basis, would aim to provide a better comparison for performance, in contrast to the Reserve Bank of Australia (RBA) Cash Rate often used by fund managers, according to Zenith.
Also, the new benchmark would challenge the relevance of the risk-free RBA Cash Rate as a performance benchmark as the market neutral fund managers typically took on greater risk and had higher performance potential both equity investing and gearing.
Furthermore, the new Zenith benchmark would be expected to provide a higher hurdle rate for comparison, given its higher sensitivity to market neutral fund performance in comparison to the cash rate.
Zenith’s senior investment analyst, Quan Nguyen, said: “We believe this will allow our adviser clients to make more meaningful comparisons of performance and risk in their discussions with clients.”...