Navigator research has released its annual review of Australian equity funds, rating 67 Australian equity funds from 33 fund managers.
Navigator research has released its annual review of Australian equity funds, rating 67 Australian equity funds from 33 fund managers.
Stuart Fechner, Navigator research manager said, this is a select group of managers and represents many of the better Australian equity funds available.
"The primary objective was to identify quality managers and funds. The funds were assessed against qualitative factors related to each fund manager, their investment team and process as well as performance and risk characteristics," said Stuart.
Eight funds from five different fund managers were awarded a five star rating, the highest rating available. These included funds managed by:
- Barclays Global Investors
- Citigroup
- Perpetual
- UBS
- Vanguard
According to Stuart, these managers generally have large, experienced investment teams, whose key members appear highly capable and skilled and often demonstrate superior company and industry insight during meetings. In addition, the funds managed by these investment teams generally have a good long-term track record compared with their performance objectives.
A number of funds were also upgraded this year, including funds managed by:
- BT
- PM Capital
- Portfolio Partners
While reasons differed between managers, they currently have a good sized and stable investment team combined with a well structured investment process.
The ratings for some funds declined, with Australian equity funds managed by:
AMP, Deutsche and ING all slipping from four stars to a three star rating largely reflecting departures from their investment teams.
A number of managers were rated for the first time this year, and received a rating of three stars of more. They included:
- Hunter Hall
- EQT SGH
- 452 Capital
Plus
- new funds from Challenger and Portfolio Partners
During the review a number of interesting observations were made. Including:
- Cash Holdings
After a period of very strong returns on the Australian share market, a number of larger, value style managers such as Investors Mutual and Maple-Brown Abbott substantially increased their cash holdings.
"This reflects their view it is getting more difficult to find suitably valued investment opportunities and as a result they are positioning their portfolios more defensively," said Stuart.
- Fund Capacity
A number of the larger Australian equity managers have recently experienced a substantial increase in funds under management. This is often partly related to good performance in recent years and brings into question their ability to continue to add value.
This includes Colonial First State, Perpetual, UBS, Barclays, Schroders, Investors Mutual and IOOF/Perennial Value.
Stuart commented that while this is undeniably important, it is more important to select a manager with strong investment capabilities. Investors should not be solely focussed on capacity issues.
- Brand & Boutique Managers
Mr Fechner commented further: "The rise of ‘boutique’ managers has continued throughout 2004, with the continued growth of established boutiques such as Hunter Hall and Investors Mutual, and the consolidation of newer boutiques such as 452 Capital."
"These boutiques have had strong performance, differentiated product offerings and the presence of high profile portfolio managers such as Anton Tagliaferro at Investors Mutual and Peter Morgan at 452 Capital," he added.
"At the same time, a number of the larger and more established ‘brand’ managers such as Perpetual have continued to generate very strong performance for their funds."
"Fund ratings should not be considered in isolation, but in conjunction with the more detailed report and information that is available to financial advisers when they are assessing and selecting funds for a client’s portfolio", said Stuart.
Full details of the research are available to advisers who use Navigator, enabling them to better assess the potential of specific Australian equity fund investments for their clients.
Stuart Fechner is available for interview on 0407 839 080.
Attached - Rating methodology
- Rating definitions
For further information, please contact:
Simon Morgan, Group General Manager, Public Affairs
Phone - (03) 9829 8892
Mobile - 0407 966 632
Notes to editors:
- Aviva Australia is a group of two specialist financial services companies: Navigator and Norwich Union Life Australia Ltd. Portfolio Partners, the Australian funds management arm of Aviva plc, is a sister company. Through these companies we provide products and services in the areas of wealth creation, wealth management and wealth protection for more than 300,000 customers throughout Australia.
- Globally, Aviva Australia is part of Aviva plc, the world’s seventh largest insurance group, the largest insurer in the UK and one of the top five life companies in Europe. Aviva was formed in May 2000 through the global merger of CGU plc and Norwich Union plc.
- Aviva is the world’s seventh-largest insurance group and the biggest in the UK. It is a leading provider of life and pensions products to Europe and has substantial businesses elsewhere around the world. Its main activities are long-term savings, fund management and general insurance. It has premium income and investment sales from continuing operations of A$68.32 billion, and more than A$488 billion of assets under management (as at 1 July 2003). The group has more than 59,000 employees and 25 million customers worldwide.
- The information in this document reflects Norwich Union Life Australia Limited's ('NULAL')/Navigator Australia Limited's ('Navigator')/NULIS Nominees (Australia) Limited's ('NULIS') understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances. The securities advice or information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision on the basis of the advice above, a prospective investor needs to consider, with or without the assistance of a professional adviser whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances.
- Applications to invest in a financial product issued by NULAL/Navigator/NULIS or any of its related entities must be made by completing the application form attached to the applicable Product Disclosure Statement ("PDS"). A PDS is available from Aviva or your financial adviser. Investors should consider the PDS before making an investment decision or deciding to continue to hold a product.
Rating methodology
The aim of Navigator’s research arm is to provide a valuable and reliable service to financial planners by identifying and monitoring quality managers and funds.
As part of this service, Navigator research reviews each asset class on an annual basis and produces individual managed fund ratings based on the characteristics, performance and risk of those funds.
Ratings are formulated under a rigorous program of comprehensive fund manager visits, quantitative assessment of performance data and an extensive peer review process.
The assessment criteria allocates 60 per cent of the rating to qualitative factors related to the fund manager and investment process, and 40 per cent to quantitative performance and risk factors. Qualitative factors are weighted more heavily as Navigator Research believes positive quantitative results are more likely to be achieved if the fund manager, investment process, investment team and the fund itself all exhibit strong features.
The sector review is conducted annually and the ratings are updated monthly. Each month the additional performance is incorporated into the quantitative calculations and any significant changes to the investment team or process are reflected in the qualitative factors.
Rating definitions
The final ratings are based on a five star system, with any fund rated three stars or higher considered to be ‘investment grade’. The definition of each rating is as follows:
| ***** | A superior quality fund indicating a very strong fund manager, investment process and performance history. |
| **** | A very good quality fund indicating a strong fund manager, investment process and performance history. |
| *** | A good quality fund indicating a capable fund manager, investment process and/or performance history. |
| ** | A poor quality fund indicating a weak fund manager, investment process and/or performance history. |
| * | A very poor quality fund indicating a very weak fund manager, investment process and/or performance history. |
| Hold | The fund is under review and new investments should not be made into the fund until a new rating is issued. |
| Not Rated | The fund is monitored by Navigator Research but has not been assigned a star rating, generally due to an insufficient performance history or it being a multi-manager fund. |