Justin Tay

Equity market neutral funds significantly outperformed the Australian equity market for the 12 months ending February 2016 according to Zenith Investment Partners latest Market Neutral Sector Review.

Commenting on the review, Justin Tay, Zenith’s lead analyst on the Market Neutral sector said, “Although there was a wide level of dispersion in the performance of the peer group the median return for Zenith rated funds was 9.5%, comparing favourably to both the sector benchmark (Bloomberg AusBond Bank Bill Index) and the Australian equity market (S&P/ASX 300 Accumulation Index), which returned +2.3% and -13.5% respectively”.

Tay noted: “The volatility of fund returns, as measured by Standard Deviation, was approximately half of the Australian equity market’s volatility at 6.2% compared to the S&P/ASX 300 Accumulation Index of 12.7%.”

Tay went on to explain: “The past year represented a return to form for market neutral strategies, which contrasts against 2014 where a number of managers struggled to generate returns commensurate with previous historical averages. This was due to a challenging investment environment, largely driven by low levels of performance dispersion within the investable universe.”

Tay added: “Zenith’s expectation at the time was that the challenging investment environment would be transient and would normalise over the short to medium-term, which has indeed been the case over the past 12 months.”

“In this year’s report, Zenith analyses the long-term risk/return characteristics of equity market neutral strategies. Specifically, we assess the performance, drawdown and correlation of equity market neutral strategies against all the major asset classes at both a global and Australian level. We then build on this analysis by exploring the impact of an allocation to an equity market neutral strategy on investor portfolios”, concluded Tay.

Summary of the Zenith 2016 Market Neutral Sector Review:

From an initial universe of 11 products:

• 4 were rated “Highly Recommended”
• 4 were rated “Recommended”
• 1 was rated “Redeem”
• 2 were “Not Rated”

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