Lonsec releases its Large Cap Australian Equity Sector Review

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Lonsec’s review of the Large Cap Australian Equity Fund sector encompassed 36 active funds within the peer group considered “mainstream” funds. Of these, 10 attained Lonsec’s top rating, Highly Recommended, including the Integrity Australian Share Fund, Ausbil Australian Active Equity Fund and Solaris Core Australian Equity Fund.

Five new funds were added to Lonsec’s Large Cap Australian Equity universe in this review, including the CFS Australian Share Core Fund, Ironbark Karara Australian Share Fund and the Perpetual Concentrated Equity Fund.

Sector observations

Market environment

The Australian sharemarket, as measured by the S&P/ASX300 Accumulation Index, delivered a modest gain of 1.9% over the 2010 calendar year. Andrew Scifo, Investment Analyst responsible for this review, commented, “The market could best be described as lacking direction in 2010, with large deviations in month to month performance.”

“In the absence of a broad sharemarket rally, individual stock picking proved to be critically important, with global macro-economic factors contributing to sharemarket volatility during the year.”

The second half of 2010 saw the re-emergence of a strongly performing resources sector. “Resources outperformed relative to industrials, and small and mid-cap stocks outperformed relative to large cap stocks,” said Scifo.

Australia is not immune to global events and uncertainty surrounding the macroeconomic environment is expected to cloud the outlook in 2011.

“The key macro factors likely to impact the Australian market this year include the recent events in Japan, impediments to US recovery, China‟s inflationary pressures, ongoing European debt issues and the high AUD (for exporters),” observed Scifo.

Fund performance

There was a large divergence between top and bottom performing funds across the peer group, with no trend of fund outperformance based on investment style alone.

“A key factor influencing fund performance during 2010 was the disparity in returns delivered by small, medium and large cap stocks,” commented Scifo.

“Some of the better performing funds for the year exhibited a bias toward smaller stocks.”

Inflows and funds under management

The trend towards low cost, passive alternatives in Australian equities continued in 2010, with retail fund flows towards active strategies being relatively flat.

“The increasing popularity of ETFs and availability of SMAs has created increased competition for the traditional managed fund,” said Scifo.

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