“The flexible mandate of the variable beta peer group has continued to show its strengths since our last review, particularly in terms of cushioning investors on the downside. We noted a majority of managers in that group rotating net exposures to relatively low (i.e. defensive) levels in recent periods as a reflection of their forward assessment of sideways and uncertain markets, at a time where returns to cash (Australian dollars) were also relatively attractive,” said S&P Fund Services analyst Michael Armitage.

Incremental improvement of risk-management staffing, protocols, and systems at certain firms has raised the bar for the sector as a whole, in our view. Within our peer-relative framework, we view highly those teams that have an appropriately skilled/experienced and most importantly, independent investment risk manager, and/or have invested time and money in systems designed to elevate unintended risks.

Mr Armitage added: “We have noted a number of managers making what we would consider positive changes to “product features”, such as around prime brokerage and custody arrangements, valuation protocols for hard-to-price securities, or performance fee calculations.”

We continue to be impressed with the Equity Income funds, and deem both the format in general and the quality of managers on offer in the peer group to be broadly underappreciated by the marketplace as a potential core Alternative Equity allocation.

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