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Active Australian equity funds outperforming trackers

09 January 2018 By Hannah Wootton

Assets once deemed as “safest” may not be the safest in the future as flexibility will be key for the bond market, according to Eaton Vance.
The average Australian equity active fund has beaten index trackers in returns over the last 10, five and three years, data from FE Analytics shows.

Active funds outperformed funds tracking the ASX 200 in the Australian equity sector in the ten years to 30 November, 2017, with the average annualised returns of active funds in that period exceeding those of trackers by 0.73 per cent.

Annualised returns of active funds vs tracker funds in Australian Equities sector

They also consistently outperformed tracker funds over other time periods. The annualised returns of active funds beat those of tracker funds by 0.80 per cent over the last five years to the end of last November, by 1.14 per cent over the last three years, and by 0.91 in the last year.

AMP chief economist, Shane Oliver said that active funds’ excess returns relative to the index over the last decade reflected the fact that the case for using active funds in the Australian share market had traditionally been strong.

This contrasts to the United States, where active funds are known for struggling and investment in passive funds has been on the rise.

Oliver believed that the situation in Australia had been different as there were less analysts combing through the market for opportunities than in the US.

“This has resulted in a less efficient market where it’s easier for active managers to add value,” he said.

“That said, investor interest in passive investing in Australia has also been on the rise,” he added.

The success of active funds may be impacted though, as the active management space becomes increasingly contested in Australia.

There are now more active managers in Australian shares than there are stocks in the ASX 200, as boutiques and foreign fund managers offering funds focussed on Australian shares have ballooned in the last decade, Oliver said.

“This could have the effect of making it harder for individual active funds to add value because someone else has already found the opportunity before them.”

Oliver also warned that the excess returns relative to the index that active funds in Australia have enjoyed over the last decade may come at a cost, though.

“Investors need to also make sure that the excess return from an active fund covers the higher fees active managers usually charge,” he said.