“Growth assets enjoyed a healthy Christmas rally and closed out the year on a resoundingly strong note,” said Morningstar Senior Research Analyst Julian Robertson.

“Market conditions meant that value-style share funds did best over the December quarter, while income-seekers continued to chase Australian listed property in a falling interest rate environment. Among fixed income funds, credit and emerging market exposures did particularly well, reflecting the more benign investment backdrop in the final quarter of the year.”

Key Findings

• Value-style fund managers did best on average among the large-cap Australian share funds, although most of their growth counterparts also outperformed the index. Just over half (55 of 102) of large-cap Australian share funds managed to beat the market in the final three months of 2012.
• Value-style options also came out on top in the Australian smaller companies category, the 6.10 percent quarterly return easily outpacing the S&P/ASX Small Ordinaries Index’s 2.04 percent. The market’s result was hampered by the poor performance of small resources companies, which fell 8.95 percent over the quarter. Only four of the 46 options in this category were unable to beat the index.
• The major international sharemarket sectors to post positive gains in the December quarter were financials, consumer discretionary, and industrials, reflecting the improved outlook for banks and the broader economic environment. Value-style funds were again the best performers in general. Forty-six of the 73 international share strategies outperformed the index over the three months.
• The December quarter was another excellent one for Australian listed property, which gained 6.95 percent and ended the year with a 32.79 percent gain. This was easily the best-performing major asset class, driven largely by investors’ thirst for income in a falling interest rate environment. Active fund managers however again failed to beat the index in general over this three-month period and all other trailing periods in this survey. 
• Many Australian fixed income funds had a favourable three months, 25 of the 44 in this survey outperforming the UBS Composite Bond Index’s meagre 0.21 percent. Fund managers with tilts to credit did best as credit spreads narrowed in a risk-on environment. This was echoed in global fixed interest, where credit-related securities and emerging market debt did well.
• The returns from multi-sector growth funds were reasonable, the average return 3.82 percent for the final quarter and a creditable 15.71 percent for the 2012 calendar year.

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