There are nearly 7,000 managed funds vying for the hard earned savings of Australian investors. Only a few ever reach the dizzying heights of becoming mega funds. Kate Kachor looks at the giants of the funds management industry.
Above the massive pack of Australian managed funds soar the icons of the funds management industry. These are the big guns of the industry, powered by the rivers of money flowing into them from Australian consumers. These funds can be huge revenue drivers for managers who have built them up from scratch.
In superhero style outfits under the banner of “Mega Funds” stand Colonial First State’s Equity Imputation fund, Macquarie’s Cash Management Trust and BT’s Split Growth fund to name a few.
These funds, coined as the celebrities of the industry – constantly seen in magazine advertisements, television commercials and mentioned at dinner parties – are the envy of every medium returning fund manager. The funds have become such a powerful force in the industry that they are brands unto themselves.
So what is the reason behind these funds success?
Is it because they have the right brand power where clients immediately recognise names when their adviser rolls fund names off his/her tongue?
Could be. However, even more powerful than word of mouth from advisers is the visual marketing aspect to win over the investor.
BT are already on track having tried to grabbed our attention with the girl next door appeal from Melinda Howes. The Commonwealth Bank has coined a phrase which has been passed down the generations as to ‘Which bank?’ and the Colonial First State has taken a similar approach to BT through the talking head.
But perhaps it is history that has created the booming success of the mega funds and loyalty in the investor. Maybe it a case of time in rather than timing the market that leads to accumulation of billions.
Both Macquarie’s Cash Management Trust and Colonial First State’s
Imputation fund have been around for more than a decade.
Macquarie has been steady in its growth over the past few years growing from just below $6 billion last year to a staggering $6.8 billion this year.
Colonial’s imputation fund has ballooned almost 35 per cent the past year to $2.8 billion from last year’s figure of $2.1 billion.
Colonial has had a great run of performance over the past few year’s under chief executive Chris Cuffe and Australian equities chief Greg Perry. It has been the fund to watch after bagging three Money Management Fund Manager of the Year awards, in 1996, 1998 and 1999.
Cuffe says the group’s successful mega fund has been driven by consistent management.
“This fund has been consistently managed through the 11 years, and we have stuck to our knitting,” he says.
Perpetual’s Industrial Shares fund has also had a good run this year, adding a further $230 million on last year’s figure of $1.5 billion.
The BT Equity Imputation Fund on the other hand fell from its pedestal as the biggest retail Australian equities fund earlier this year following uncertainty over ownership last year and a poor one year performance figures. This time last year, the fund stood at $1.75 billion and it now stands at just below $1.7 billion.
But who really knows what is making these funds balloon. All that is certain is that they are taking their investors money and making dollar signs shine from their corporate coffers.
But does size really matter? Assirt senior research manager Patrick Bennett says no.
Bennett, who has had many of the above funds under a microscope says it is not really the size of the fund that the investors should be looking at but the level of performance. He says many of the mega funds find it difficult to out-perform their benchmarks, but instead find themselves at a slight plateau. He says they can also have difficult maintaining performance.
“It really depends on the performance of the fund, or the recommendations the researchers have placed on a particular fund,” he says.
“Size is not very important. Advisers have comfort if a fund is big as it makes it easier to advise their client towards it. But there are a number of reasons why the inflows and growth will lag or continue to surge.”
“The cash management trusts like Macquarie, Commonwealth and ANZ have been around for a while, since the 1980s, and they are becoming increasingly popular now days.
“BT funds depend on performance by building and maintaining the size of its products. The down side with this is that the bigger the fund gets the harder it is to out perform previous years.
“Colonial First State has become big and size has shown a wealth of performance.”
Macquarie Cash Management – 6780.22 – – – – 1999 – 5960.77
Commonwealth Cash management trust – 4038.67 – – – – 1999 – 3252.70
ANZ V2 PLUS – 3510.45 – – – – 1999 – 3287.38
Colonial First State Imputation Fund – 2803.68 – – – – – – – 1999 – 2225.25
MLC Masterkey Super GS Bal – 2179.59 – – – – – – 1999 – N/A
BT International Fund – 2018.36 – – – – – – – – 1999 – 1478.89
Perpetual Industrial Share – 1796.30 – – – – – – 1999 – 1564.40
BT Equity Imputation Fund – 1698.63 – – – – – 1999 – 1706.16
National Australia Trustees CF A1 – 1408.70 – – – 1999 – 1181.00
Commonwealth Rollover Fund Capital Secure – 1179.50 – – – – 1999 – 1464.80
Source: Assirt
Better to move slowly when managing a mega fund
Being a mega fund can be a double edged sword for the fund manager. While the funds can be very profitable due to economies of scale, a recent study by Intech suggests size can be detrimental to performance.
The Intech survey assessed 41 Australian shares managers over a four year period, ending late last year. It found that there is a progressive deterioration in a fund manager’s performance when funds under management increases.
It also found that the negative effect is more pronounced for growth-oriented managers, managers with a small cap bias, and those with heavy turnover in their portfolios.
This negative effect of size was found to be progressive, and that relative performance fell away markedly once the manager’s funds under management were in the range of 2 per cent to 2.5 per cent of market capitalisation. In other words between about $10 billion and $13 billion.
However, not all managers suffer the negative size effect to the same degree.
The effect was less marked among managers who turned over their portfolios relatively slowly. Indeed, low turnover managers suffered significantly less negative impact at higher levels of funds under management.
