Australian share funds well positioned to capture offshore growth, says Zenith
Quan Nguyen
Zenith has just released its 2015 Australian Large Companies Sector Review, and once again, the managers on Zenith’s Approved Product List (APL) have performed strongly.
Notwithstanding the subdued level of global and domestic growth over the last 12 months, the S&P/ASX 300 Accumulation Index returned 10.2% for the 12 months ending 30 April 2015, and the average manager on Zenith’s APL outperformed the index by approximately 0.3%, net of fees.
In summarising the findings of the review, Quan Nguyen, Senior Investment Analyst, and Zenith’s lead analyst on the sector noted the global environment Australian managers are increasingly working within.
“The globalisation and interconnectivity of markets in general means that the average Australian listed company doesn’t just do business in Australia. Where a company is listed versus where a company does business and generates revenues is a concept that the majority of Australian equities managers are fully embracing, particularly given Australian economic growth has been relatively benign.
Looking at the S&P/ASX300 index, broken out by sources of revenue on a regional basis for example, while Australia accounts for the vast majority of those revenues (just over 60%), the Asia Pacific region accounts for nearly 10%, USA for 8% and China for 6%.”
Nguyen also noted how active managers within the sector had positioned portfolios to not only capture Australian economic growth, but also global growth. “Zenith amalgamated the top 10 overweight positions from our rated managers (as at 30 April 2015), and broke down the source of revenues of the holdings by region. In contrast to the S&P/ASX300 index, over 30% of revenues were coming from the US, nearly 20% from Asia Pacific, 19% from Europe and 18% from Australia.
Active Australian equity managers are clearly positioning their portfolios to capture economic growth offshore.”
Nguyen went on to add “While our source of revenue analysis for Australian equities companies certainly points to diversification benefits, we aren’t suggesting that Australian equities can replace an investor’s direct exposure to global equities. Zenith continues to advocate that a well-diversified equities component in portfolios includes both Australian and global equities.”
Nguyen noted: “As part of the review, Zenith surveyed all managers on forward looking prospects. In aggregate, the Australian equities managers we reviewed identified the S&P/ASX 51 to 100 segment of the market as being the most attractive for the next 12 months.”
Summary of the Zenith 2015 Australian Shares Large Companies Sector Review:
From an initial universe of 191 Australian equity Large Cap funds, the ratings outcome for Zenith’s APL for the sector was as follows:
- Highly Recommended – 9 funds
- Recommended – 55 funds
- Approved – 27 funds
Zenith 2015 Australian Large Companies Sector Review
Over the twelve months to 30 April 2015, the Australian equity market (as represented by the S&P/ASX 300 Accumulation Index) generated a return of 10.2%. The Australian equity market continues to provide strong absolute returns for investors over the medium-term with the benchmark index rising by approximately 59.6% since the beginning of 2012; an annualised return of 14.2% p.a.
Managers on Zenith’s Approved Product List (APL) have also performed strongly over the most recent twelve month period, with the average manager outperforming the S&P/ASX 300 Accumulation Index by approximately 0.3%, on a net of fees basis.
In this year’s sector report, Zenith considers the composition of the domestic benchmark and examines the impact of changing macroeconomic factors which can result in certain segments of the market being overrepresented. We discuss the importance of active management when key sectors in the market become overrepresented in the benchmark.
Furthermore, given the relatively benign growth present within the Australian economy, this report considers the extent to which Australian companies generate revenue from offshore markets, and provides an analysis as to how active domestic equity managers are positioning their portfolios to capture economic growth offshore.
Looking forward to the next 12 months, Zenith notes that, in aggregate, managers have identified the S&P/ASX 51 to 100 segment of the market as being the most attractive.
The report also includes a look through analysis of sector and market cap segment exposures, details on the new funds added to the Zenith Approved List, and all fund ratings changes.
