Research house Lonsec’s most recent review of the Australian equities market has shown active fund managers produced better results than index or passive managers.
Lonsec’s analysis covered a variety of investment horizons and active managers beat their counterparts each time.
Over a one-year period, active managers generated a post-fee average annual return of 5.45 per cent, while the S&P/ASX300 ACC Index produced a return of 5.30 per cent.
The results were even more positive over three, five and seven-year periods with active managers delivering returns of 16.24 per cent, 7.34 per cent and 2.95 per cent for the respective periods, versus returns of 14.70 per cent, 6.48 per cent and 2.02 per cent from the index.
“The results from the active managers within our peer group clearly show the benefit of careful selection of fund managers,” Lonsec senior investment analyst Peter Green said.
“The case for supporting active management is evident across most time frames and these results highlight that it can be worthwhile paying for active professional large-cap stock pickers.”
Despite the results of the review, Lonsec admitted it remained difficult for investors to determine outstanding fund managers from those considered mediocre.
Lonsec revealed it used several different characteristics when assessing a manager. They include looking at its financial stability and viability and evaluating items such as ownership structure, staff culture and the quality of its management.
Lonsec said the people employed by the fund manager were also important and an assessment must be made as to their experience and passion for the job, whether they had the courage of their investment convictions even if they differed from the rest of the market, and if they had the ability to admit and correct a mistake if one had been made.
Investment philosophy is another key ingredient in the make-up of an outstanding fund manager. Here, whether the manager has a clear and well-articulated investment philosophy regarding the value it can provide is a key component.