While active international share fund managers generated strong returns over the three years to 30 September this year, they did not do as well as the benchmark used to measure their relative performance, according to research house Zenith Investment Partners’ “2014 Global Sector Review”.
The global equities yardstick used by the international share managers is the MSCI World Index in Australian dollars and over the three years ending September 2014 it produced an annualised return of 22.1 per cent.
In comparison, the median manager in Zenith’s review generated a return of 21.2 per cent a year over the same period, representing a difference of 0.9 percentage points.
The result means 22 out of 37 funds, or 59 per cent, underperformed the benchmark.
“The impact of a quality bias and the level of emerging markets exposure are probably the two most prevalent themes across a broad range of investment nuances and styles that we cover in the report,” Zenith head of research Bronwen Moncrief said when identifying reasons for the underperformance.
“From an intuitive standpoint it would appear obvious that higher-quality companies would outperform lower-quality companies, and that has certainly been the case over the long term.
“But this has not been the case in recent years. In fact, lower-quality stocks have outperformed higher-quality stocks, and this has had a negative impact on managers with a quality bias in their portfolios.”