Two new funds were added to Zenith’s Recommended List, and one fund was upgraded to Highly Recommended.

Also, this year Zenith sub-divided the sector into Mid Cap Funds and Small Cap Funds, in recognition of the different characteristics and diverse risk / return profiles these funds offer.

As part of this year’s Small Cap Funds Review, Zenith examined the issue of ‘fund capacity’.

“In the relatively small Australian equities market, capacity is an important point to consider when selecting a managed fund,” said Angela Burmeister.

“The reason this is important is simple: high levels of Funds Under Management (FUM) can limit the ability of the manager to enter or exit a stock at the desired market price, impairing performance.

“Excessive FUM levels are particularly pertinent in the small cap sector, given the inherently lower liquidity of these stocks.”

With this in mind, this year Zenith undertook capacity studies for a number of funds where higher levels of FUM are a potential concern. This was considered from both a strategy  specific and a firm-wide standpoint, and national research provider examined the managers’ ability to generate excess returns against their historical levels of FUM.

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