Macro events cloud equities outlook in 2011

Despite the Australian sharemarket (as measured by the S&P/ASX300 Accumulation Index) only returning a modest gain of 1.9 per cent over the 2010 calendar year, Australia remains vulnerable to recent global events, with continued uncertainty surrounding the macroeconomic environment expected to cloud the outlook in 2011.

This was one of the key findings to emerge in Lonsec’s latest Large Cap Australian Equity Fund sector review, which included 36 active funds within the peer group that it considers ‘mainstream’ funds.

According to Lonsec investment analyst Andrew Scifo, last year’s Australian sharemarket could best be described as “lacking direction in 2010, with large deviations in month to month performance”.

Scifo said the second half of 2010 saw the re-emergence of the resources sector, which outperformed relative to industrials, and small and mid-cap stocks outperformed relative to large cap stocks.

“A key factor influencing fund performance during 2010 was the disparity in returns delivered by small, medium and large cap stocks,” Scifo said. “Some of the better performing funds for the year exhibited a bias towards smaller stocks.”

Another trend to emerge last year was the continued move towards low-cost, passive alternatives in Australian equities, with retail fund flows towards active strategies being relatively flat.

“The increasing popularity of exchange-traded funds and the availability of separately managed accounts has created increased competition for the traditional managed fund,” Scifo said.

However, looking forward, Scifo warned that the key macro factors likely to affect the Australian market this year include “the recent events in Japan, impediments to US recovery, China’s inflationary pressures, ongoing European debt issues and the high Australian dollar [for exporters]”.