S&P Australian Equites Large-Cap review: more down than up

Standard & Poor’s Fund Services today released its second batch of peer group ratings in its 2011 Australian Equities Large-Cap sector review for Income, Multi-Manager, Quantitative, and Unconstrained funds. We affirmed most ratings in the peer groups, but downgraded three funds, upgraded one, assigned one new rating, and removed one fund from ‘On Hold’, reinstating its previous rating. One fund remains ‘On Hold’.

In our income peer group, we rated a number of funds as four stars. However, we downgraded two funds—BT Geared Imputation W and BT Imputation Sh W—to four stars from our highest five-star rating. While we consider the funds’ new portfolio managers Jim Taylor and Andrew Waddington to be strong investment professionals, we have not yet had sufficient opportunity to build our highest level of conviction in the pairing. Conversely, we upgraded the CFS Imputation Fund to four stars, primarily due to our strong confidence in the depth of the team’s industry and stock research, as well as improved stability under the leadership of Marcus Fanning.

“We did not identify a standout quantitative or multi-manager strategy, reflecting our modest conviction levels in these two peer groups. In the quantitative peer group, we downgraded the CFS Acadian Wholesale Australian Equity fund to three stars from four stars based on our lowered conviction in its ability to meet its performance targets,” said S&P Fund Services analyst James Gunn.

Mr. Gunn added: “Encouragingly, quantitative managers have generally delivered improved performance outcomes over the past 18 months, while demonstrating a strong focus on implementing new and unique signals to address the problem of the “crowded trade”, where a large weight of quantitative money chases the same investment themes. Nevertheless, we believe these enhancements need to be proven in a live environment over a longer period and currently we don’t believe one manager is necessarily ahead of the pack.”

We affirmed our three-star rating on the Pengana Australian Equities Core Fund, the only strategy in our unconstrained peer group.

We have now released ratings on eight of the 12 peer groups in our 2011 Australian Equities Large-Cap sector review. We will release the remaining four peer groups progressively over the next six weeks, followed by our key findings in the sector report.  Reports for all funds rated in the peer groups published today are now available on S&P’s subscriber website www.fundsinsights.com.

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