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One upgrade, one downgrade in S&P’s Australian-Equity Value peer group

12 Aug 2011
From

Standard & Poor’s Fund Services today released its value peer group as part of its Australian Equities Large-Cap sector review. We upgraded the PM Capital Wholesale Australian Share fund to three stars, but downgraded the AXA Wholesale Australian Equity Value Fund, which is managed by Bernstein, to three stars. We affirmed our five-star ratings on the Perennial Value Shares Wholesale Trust and Tyndall Australian Share W Portfolio. In total, we affirmed our ratings on nine funds, downgraded one, and upgraded one.

Portfolio manager Paul Frost joined PM Capital in 2009 following a short-term period of disappointing absolute and relative performance for this fund. Mr. Frost has made a strong start and we believe that he is well-suited to PM Capital’s less constrained style of value investing. We’ve also been encouraged by improved stability within the wider team.

“We have lowered our rating on the AXA W Australian Equity Value Fund to three stars, based on a reduced level of overall conviction. While we continue to have a strong regard for Bernstein’s well-established value approach, the analyst team dedicated to the local strategy is comparatively small relative to peers and has been affected by recent turnover. This may be reducing the manager’s effective opportunity set as the team builds back to full capacity,” said S&P Fund Services analyst James Gunn.

As is generally the case with this peer group, performance has been quite diverse, reflecting broad interpretations of the value style and a less benchmark-aware focus compared with some other styles. While there are some common expectations for what a value manager should deliver, understanding specific manager characteristics, such as where portfolio exposures are typically concentrated, is critical.

“Market conditions in 2010 were not overly conducive to most value strategies, although some of the less constrained managers performed particularly strongly. Relative performance has generally improved in 2011, which is not surprising given the prevailing market conditions,” Mr. Gunn added.

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