This is the first time van Eyk has awarded an AA rating in Australian equities since 2009.

An AA rating means van Eyk has high confidence in the manager outperforming its benchmark over a three year period compared to other managers in the review.

van Eyk considered 46 strategies in this review and in addition to the two AA ratings, awarded 14 A ratings, 15 BB ratings and 10 B ratings. Five strategies were either screened or refused review.

Head of Ratings Matthew Olsen said the two AA-rated funds, the Fidelity Australian Equities Fund and the Goldman Sachs Australian Equities Wholesale Fund, were superior to the other funds in the review in terms of the experience and skill of their investment teams and the research resources available to them.

A key difference that sets the better managers apart is their willingness and ability to look for unique insights into stocks and industries by regularly visiting the company, its customers and suppliers in person, seeking out non-traditional sources of information and cross checking that information with other sources.

“We believe that managers who are willing to go that extra mile will have the edge on their competitors,” Mr Olsen said.

The better rated managers were also chosen based on their ability to perform in the expected market climate ahead. van Eyk believes macroeconomic conditions will be particularly important to the performance of Australian equity strategies in the next two to three years. Managers who are best at assessing economic conditions will have an advantage.

“While the majority of the rated managers can be described as ‘bottom up’, understanding whether the economic recovery is sustainable and its potential influence on industries and companies will be critical,” Mr Olsen said.

Similarly, with the Australian share market dominated by finance and materials stocks, the ability to choose the best companies within these sectors will also be particularly important and van Eyk has favoured managers who showed strength in analysing those sectors.

The depth of fund manager financial models and valuations was also reviewed in detail.

“We spent considerable time during the review meetings actually walking through fund manager analyst’s financial models to query the manager on how they developed the assumptions underlying their forecasts and valuations. The better managers could back up their assumptions with detailed and proprietary fundamental research at both the stock and industry level,” Mr Olsen said.

van Eyk’s long term strategic recommendation is for a balanced fund to have a 28 per cent weighting to Australian equities.

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