Aust equities specialist funds more appropriate in current climate

Australian equities specialist funds may be more appropriate for some investors in the current economic climate, according to van Eyk Research.

The research house said that these type of funds were potentially more attractive than long-only funds, because they include variable beta, equity multi-strategy and equity market-neutral investment styles.

“The flexible specialist styles allow fund managers to employ many investment tools and techniques in different market environments,” said senior analyst Chris Bigg. “They can generate alpha from a wider opportunity set due to their ability to short sell and use derivatives. This enables them greater scope for generating returns in sideways trading markets. They are also able to vary their net market exposure to protect capital in falling market environments.”

Bigg added that the performance of variable beta funds had demonstrated the capacity to generate superior long-term returns compared with long-only strategies, through protecting the downside in weak market environments and participating in the upside during strong market environments through actively managing net market exposure.

Findings from a recent sector review found that over the three-year period to December 2009, the group of specialist managers exhibited much lower volatility than the S&P/ASX300 while on average significantly outperforming it.

“Importantly, the variable beta managers have outperformed the S&P/ASX300 index 80-100 per cent of the time when it has generated a negative monthly return,” said Bigg. “This reflects what investors should anticipate in general from these managers: positive returns that may lag the S&P/ASX300 index in strong markets but significantly lower losses in falling markets.”