All Ords changes pave the way for fund manager comparisons
Proposed changes to the All Ordinaries Index will allow better comparisons of fund managers and their claimed styles, according to industry pundits.
Proposed changes to the All Ordinaries Index will allow better comparisons of fund managers and their claimed styles, according to industry pundits.
Speaking at a seminar on changes to the index, WM Mercers head of investment re-search Russel Clarke says the changes will give investors a better idea of the performance of fund managers in relation to their stated style.
"Managers can be more fairly assessed against their styles with the appropriate benchmark as it caters for the needs of active and passive managers," Clarke said.
A fund manager's ability to grow value can easily be seen and better assessment of risk can also be undertaken, according to Clarke, who says management fees will drop as a result.
The changes to the index include expansion to 500 companies with market capi-talisation as the only eligibility requirement. The All Ordinaries will remain and operate as an umbrella price index with six benchmark sub indices. These will include the ASX 20, ASX 50, ASX 100, ASX 200 and ASX 300.
The new All Ordinaries will fill a headline index role but will be too large to be an effective benchmark for investor performance.
The ASX 200, which currently comprises 94 per cent of the market is likely to become the default benchmark over time.
Also addressing the seminar, Lend Lease Investment Management's Les Balzer says the current benchmarks cause a mismatch that affects customers.
Balzer says the All Ordinaries has about 250 stocks while a median manager has only 50, which causes disparity.
Going to one of the sub indices like the ASX 100 would be more useful says Bal-zer as it would reduce the gap between the benchmark and reality and provide more realistic opportunities.
AUTHOR
Jason Spits
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