Volatility causes mixed year for Aussie large cap managers

Standard & Poor's has released its Australian equity large-cap sector report, which highlighted the fact that increased volatility in the sector had enhanced opportunities for outperformance, although some managers also found there was an increased potential for underperformance.

Seven of the 56 managers covered received the highest possible five-star rating. The 123 capabilities covered included 14 separately managed accounts (SMAs), and there were 13 upgrades across 10 managers and nine downgrades across seven managers. Seven funds remain ‘on hold’.

Aside from the increased dispersion in performances caused by heightened volatility, the report also found fewer managers were able to consistently meet long-term performance objectives, raising the question of whether the outperformance would be repeatable in a normalised environment, according to S&P Fund Services analyst James Gunn.

The report also observed a more active approach among managers in general, with selective participation in market recapitalisation contributing to strong performance.

“We continue to highly regard those managers sufficiently resourced and skilled to undertake their own in-depth research, while understanding both the benefits and limitations of external research,” the report stated.

S&P also remained wary of performance fees applying to broader-based portfolios in the absence of a significantly reduced management fee, or a meaningful limit on stated capacity.