High-risk funds lead the pack in non-Australian equities
While next to no international equities funds have outperformed their sector average while maintaining low volatility, more than half have beaten their peers for those investors willing to stomach above-average volatility.
Money Management analysed the funds in equity sectors outside Australia and found that not many of their members had managed to achieve the much-sought-after combination of better-than average returns and low volatility over the past five years.
However, between 56.3 per cent and 87.5 per cent of funds in the five international equity sectors we examined had produced above-average returns at a higher risk than their average.
The best-performing sectors with above-average volatility were the ACS – Equity North America sector and the ACS – Equity Asia Pacific Single Co sector.
Seven of eight funds in the ACS – Equity North America sector outperformed the sector average with above-average volatility, while all but three funds in the ACS – Equity Asia Pacific Single Co sector were producing returns with above-average volatility.
The table below shows the total funds outperforming their sectors with high volatility for all the equity sectors outside of Australia.
|
(Equities) |
Total funds
|
Outperformance, high volatility |
Outperformance, high volatility |
|
Global |
167 |
94 |
56.3% |
|
Asia Pacific ex Japan |
18 |
11 |
61.1% |
|
Asia Pacific Single Co |
14 |
11 |
78.6% |
|
Europe |
3 |
2 |
66.7% |
|
North America |
8 |
7 |
87.5% |
Fund researcher Stephen van Eyk said volatility in non-Australian equities stems from changes in the global market and could prove advantageous for “astute” managers.
He gave the example of when China made it difficult for residents to move capital out of the country and noted this was a turning point for volatility in Asian equities.
“There are very limited investment opportunities in China outside property and cash. So, the Chinese people started spending the money on high priced imports as a store of value.”
A fall-out result of this was surrounding Asian economies booming relative to their size.
“At the same time the Federal Reserve was gradually cutting back on liquidity, while of course less Chinese liquidity was supporting global markets. So, increased volatility was almost certain, and this is what happened.”
For investors wanting to take advantage of volatility in the market, van Eyk advises it would be worth seeking active managers over passive. However, he recommended investors be cautious in doing so, though, as although the times may suit active management, other times may not.
“I think you have to pick your eras for active versus passive management,” he said. “You can go for years with active managers outperforming when things are not going straight up and then years when they don’t outperform.”
Recommended for you
As ASIC chair Joe Longo pushes firms to prepare for the upcoming mandatory climate disclosure regime, what skills are necessary if firms are looking to expand their ESG teams?
First Sentier Investors has announced it will close four of its Australian investment teams amid a simplification of the business, with $14 billion expected to be returned to investors.
Over 90 finalists have been chosen to compete at the 36th annual Fund Manager of the Year Awards, to be held in Sydney on 13 June.
Clients may be asking their adviser whether there is still value in the US technology names after their rally, but Fidelity International’s Lukasz de Pourbaix believes they can still offer upside.
