Which sectors are best balancing returns with risk?
Half of all equity peer groups in the Australian Core Strategies universe do not have a single member that has generated above-average returns with below-average volatility in the recent past, FE Analytics data shows.
Money Management reviewed all the equity sectors to find out which proportion of funds have achieved better than average returns with volatility over the past five years.
While no sector was a particular standout, the strongest sector was ACS Equity - Australia Equity Income where 16.7 per cent of funds have produced strong returns at a low volatility rate. That said, one-third of the sector’s members have returned less than the average fund with higher volatility.
The four funds with this optimal combination of returns and volatility were Microequities High Income Value Microcap, IML Equity Income, Merlon Australian Share Income and Russell Australian Shares Enhanced Income.
In the ACS Equity – Australia, 7.5 per cent of its 200 members have above-average total returns and below-average volatility for the past five years. But 43.5 per cent are worse than the average fund on both measures.
The ACS Equity – Global sector also has lacklustre results in this research, with only two of its 167 members – or 1.2 per cent - producing good returns at a low risk rate. The two successful global funds were Ellerston Global Equity Managers and CFS Acadian Global Managed Volatility Equity.
The Asia Pacific ex Japan sector has no members with the desired combination of returns and volatility; neither did the peer groups focusing on single Asia Pacific countries, Europe, global small and mid caps, North America and specialist equities.
However, the infrastructure equities sector had the highest percentage of funds underperforming at high volatility as two-thirds of its 27 members fell into this category. None of its members were making better-than-average returns and volatility.
|
Sector
|
Total funds |
Good performance, low volatility |
Good performance, high volatility |
Bad performance, low volatility |
Bad performance, high volatility |
|
Australia Equity Income |
24 |
16.7% |
25.0% |
25.0% |
33.3% |
|
Emerging Markets |
26 |
11.5% |
57.7% |
7.7% |
23.1% |
|
Australia Small/Mid Cap |
70 |
8.6% |
42.9 |
0.0% |
48.6% |
|
Australia |
200 |
7.5% |
43.5% |
5.5% |
43.5% |
|
Infrastructure |
27 |
3.7% |
25.9% |
3.7% |
66.7% |
|
Global |
167 |
1.2% |
56.3% |
10.2% |
32.3% |
|
Asia Pacific ex Japan |
18 |
0.0% |
61.1% |
0.0% |
38.9% |
|
Asia Pacific Single Co |
14 |
0.0% |
78.6% |
0.0% |
21.4% |
|
Europe |
3 |
0.0% |
66.7% |
0.0% |
33.3% |
|
Global Small/Mid Cap |
14 |
0.0% |
71.4% |
0.0% |
28.6% |
|
North America |
8 |
0.0% |
87.5% |
0.0% |
12.5% |
|
Specialist |
17 |
0.0% |
47.1% |
5.9% |
47.1% |
The fixed income asset class proved better, with four of nine funds in the mortgages peer group producing good returns at a low volatility. Zero per cent of funds in this sector underperformed with above-average volatility.
The global strategic bonds and diversified credit sectors were the next strongest, with 25 per cent and 10.8 per cent of funds respectively performing in that top quadrant.
Despite four of the 39 funds in the diversified credit sector performing well at low volatility, the other 33 were equally split between performing well with high volatility, underperforming with low volatility, and underperforming with high volatility.
Australian bonds were among the worst performers, with only five of 59 funds coming out on top, while only one of 36 funds in the global bonds sector did so.
|
Sector
|
Total funds |
Good performance, low volatility |
Good performance, high volatility |
Bad performance, low volatility |
Bad performance, high volatility |
|
Mortgages |
9 |
44.4% |
22.2% |
33.3% |
0.0% |
|
Global Strategic Bonds |
4 |
25.0% |
25.0% |
50.0% |
0.0% |
|
Diversified Credit |
37 |
10.8% |
29.7% |
29.7% |
29.7% |
|
Inflation Linked Bonds |
11 |
9.1% |
45.5% |
18.2% |
27.3% |
|
Australian Bond |
59 |
8.5% |
62.7% |
11.9% |
16.9% |
|
Global Bond |
36 |
2.8% |
61.1% |
5.6% |
30.6% |
|
Australia / Global |
15 |
0.0% |
60.0% |
13.3% |
26.7% |
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