Median active fund manager underperforms

While the outperformance of the median active fund manager was highlighted last year, the picture has changed dramatically a year later, according to Zenith Investment Partners.

In announcing the completion of its 2011 Australian Large Cap Sector Review, Zenith Investment analyst Steven Tang said the median active manager had underperformed the benchmark by a fair margin and that the Australian market underperformed its global peers.

“It had been a difficult year for Australian active large cap managers in a relatively disappointing year for the Australian sharemarket,” Tang said.

Zenith attributed the median active manager underperformance to the strong outperformance of the materials sector and the failure of investors to differentiate between the growth prospects of companies, “as exemplified by the compression of price-to-earnings relatives in the market, making active stock picking tough.”

The company also said that the risk on/risk-off trade dominated the market, whereby macroeconomic news, such as fears of European sovereign defaults, caused broad-based sell offs in the markets, unrelated to fundamentals.

“However, despite the difficult year for both the median active fund manager and the Australian sharemarket, there are reasons to be optimistic,” Tang said.

“Specifically, the market is relatively cheap, Australian corporations are healthy and economic growth prospects remain strong,” he added.

The Zenith Large Cap Sector Review assessed 152 Australian large cap share funds and confirmed nine were rated highly recommended, while 34 received the recommended rating.