Is it worth choosing an ex-20 fund?
With Australian stockmarket performance dominated by the largest firms such as CSL and BHP, some investors are choosing to get a diverse portfolio via an ex-20 fund.
Ex-20 funds offer investment in the ASX 300 but typically exclude the largest 20 companies such as the big four banks, biotech CSL, utility Telstra and retailer Woolworths.
Instead, they tend to give greater emphasis to small and mid-cap stocks.
Jason Kururangi, investment manager at Aberdeen Standard Investments, said the Aberdeen ex-20 fund was created following client demand.
“We already had a large-cap fund and a small-cap fund so this sat in the middle as a blend of the two. Clients wanted alpha but also to offset the volatility associated with small-caps,” he said.”
“It gives investors exposure to some high-quality businesses within the ASX that people may not have heard of or realised were listed which is an opportunity for alpha.”
There was also the opportunity for stocks to be upgraded to the largest companies in due course as was the case for Goodman Group and Aristocrat.
“Goodman Group was upgraded to top 20 in June last year and we had a year to exit it so it made sense to hold onto it and we exited in small chunks. This June, Aristocrat was upgraded so we have the same issue, a year to exit, it is good that we have that flexibility in the fund.”
Performance
There were currently five ex-20 funds available to Australian investors; Aberdeen Standard Ex-20 Australian Equities, Antares ex-20 Australian Equities, Bennelong Ex-20 Australian Equities, BetaShares Australian Ex-20 Portfolio Diversifier ETF and Yarra Ex-20 Australian Equities, according to FE Analytics.
The best-performing fund over one year to 30 June was the Bennelong fund which returned 8.8% versus losses of 5.8% by the Australian equity sector, within the Australian Core Strategies universe, and of 8% by the ASX 200. (The Antares fund was only launched in October 2019 so doesn’t yet have a one-year track record.)
Performance of ex-20 funds versus Australian equity sector and ASX 200 over one year to 30 June 2020
Bennelong was also the best-performing funds since the start of the year to 30 June with losses of 0.2% compared to sector losses of 3% and ASX 200 losses of 10.4%.
Over a longer three-year time period, the Bennelong, Aberdeen and BetaShares funds had all outperformed the Australian equity sector and the ASX 200 with returns of 27%, 17% and 16.5% respectively.
As to where performance was coming from at the moment, Kurungai said: “The landscape has shifted in terms of where growth is coming from, investments being made into technology have grown exponentially.
“More recently, we have seen big moves in the travel and energy sector as there is less travelling and less manufacturing demand. We are slowly seeing it come back but it won’t get back to normal levels and will be in doldrums for some time.”
Performance of ex-20 funds versus Australian equity sector and ASX 200 over three years to 30 June 2020
AUTHOR
Laura Dew
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