Mercer’s Quarterly Sector Survey has identified three sub-universes of targeted volatility, socially responsible investing and long short, which saw their relative performance better than the index during the first quarter of 2020.
The survey found 2020’s first quarter was challenging in absolute terms, but in relative terms, the median manager’s underperformance for the quarter compared to the benchmark was marginal and an improvement over the previous market correction in Q4 2018.
During the quarter, managers continued to focus on higher-quality companies with more defensive earnings which performed better. This included Hyperion Asset Management, First Sentier Investors (Australian Equities Growth team), Bennelong Australian Equity Partners and Greencape Capital.
At the same time, the top-quartile funds for the full year were generally overweight healthcare, consumer staples and communication services while the narrowing of outperformance to defensive sectors in the quarter has resulted in a swift pullback in stocks across most of the other sectors, particularly energy and real estate (Santos, Oil Search, Scentre Group), which saw the largest declines.
According to the survey, the quarter was also notable for the increase in capital raisings in Australia, as corporates sought to bolster their balance sheets so as to better withstand a period of business contraction, or even to prevent insolvency in more extreme cases.
Mercer also found the negative return of the ASX 300 index in the first quarter of 2020 was greater than the last major correction experienced in the fourth quarter of 2008, during the Global Financial Crisis.