Australian equities highly cyclical
The sharp rotation in market leadership over the past 12 months has highlighted that the Australian equity market is very cyclical in nature, according to Zenith’s Australian Shares – Large Companies Sector Review.
Additionally, the average actively managed Australian shares – Large Companies fund on Zenith’s Approved Product List (APL) endured its toughest relative period over the past 12 months, despite generating an 18.1 per cent return, the report said.
The firm’s senior investment analyst, Quan Nguyen, said the analysis identified “several unexpected outcomes over this period” as it was a time when the average rated fund in this sector underperformed the benchmark by approximately two per cent.
“Looking back over the seven-year period from March 2010 to March 2017, this result was an extreme outcome, active large cap funds, on average, generated positive excess returns on a rolling one year basis in virtually all observations over that time frame,” he said.
Zenith’s analysis also found that the actively managed Australian equity funds under Zenith’s coverage tended to have a bias toward higher quality companies and that the quality outperformed the benchmark over the longer term.
As far as resources were concerned, the average fund maintained a significant underweight to this sector over the period.
Also, the active managers tended to hold higher allocations to the small companies segment.
Zenith’s analysis concluded that some funds that were significant beneficiaries of the market conditions and were the winners last year were also some of the biggest losers the year before.
Zenith also said it began the coverage of Australian Shares – Large Companies Separately Managed Accounts (SMA) and identified five platforms that it believed had sufficient capabilities in administering SMAs.
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