Forager Funds shines with 89pc return in bumper year for investment

A couple of value funds and a growth fund shot the lights out in the hotly contested Mercer Investment tables for the 2020-21 year.

Forager Funds Management CEO Steve Johnson. Picture: Hollie Adams

A couple of value funds and a growth fund shot the lights out in the hotly contested Mercer Investment tables for the 2020-21 year, while some of the most differentiated stock pickers have consistently achieved returns well above their benchmarks over longer periods.

Steve Johnson’s Forager Funds topped the one-year return category for the second quarter running.

The Forager Australian Value fund made a cracking one-year return of 89 per cent before fees in the year to June 30, albeit some way below an exceptional 128.1 per cent return in the year to March 31 when the post-Covid rebound in the sharemarket had an outsized impact on small caps.

Michael Goldberg’s Collins Street Value Fund scored an equally impressive second place with an 88.5 per cent return, thanks in no small part to a surge in uranium stocks. First Sentier (formerly Colonial First State Global Asset Management) Australian Equities Geared – Growth, led by Dushko Bajic, was third with an 80 per cent return.

For the June quarter, First Sentier was the best-performing fund with a 22.3 per cent gain.

Collins Street was third with 16.6 per cent and Forager was sixth with 15.7 per cent.

A persistently high performance is everything in funds management.

First Sentier Australian Equities Growth was the top-ranked fund for both three and five years, with outstanding returns of 24.5 and 26.7 per cent per annum, respectively – well over twice as much as the benchmark returns of 9.8 and 11.3 per cent. Bennelong Core Equities, Bennelong Concentrated Equities and Hyperion Australian Growth – run by Mark Arnold and Jason Orthman – have also been consistently high performers.

Bennelong Core returned 18.8 per cent for five years, while Bennelong Concentrated made 18.5 per cent. Hyperion Growth made 18 per cent annualised over five years.

A common feature of the best-performing funds over five years has been high “tracking errors”.

That means they don’t “hug” the benchmark and are truly active.

Forager has also done reasonably well over the long term with a 10-year return of 14.2 per cent versus 9.4 per cent per annum for its benchmark All Ordinaries Accumulation Index.

A 28.5 per cent rise in the Australian sharemarket in the year to June 30 will be remembered as one of its biggest, broadest and most consistent performances in living memory.

 

After diving 10.8 per cent in 2019-20 as the Covid-19 pandemic and lockdowns threatened economic growth and corporate profits, the local market built on its fastest-ever bull market, which began in March last year amid unprecedented monetary and fiscal policy stimulus.

The ASX 300 share index’s surge in 2020-21 narrowly edged out a 24.2 per cent rise in 2006-07 to record its best performance since inception in 2000.

The broader All Ords rose 26.4 per cent, beating a 25.4 per cent rise before the GFC. It was the best financial year gain for the All Ords since a 43 per cent rise in 1986-87.

“It’s been a year to be nimble, with market sentiment changing dramatically for different sectors of the market,” Forager’s Mr Johnson said.

“While the past year’s returns have been sensational, the fund’s 10-year return of 14 per cent per annum is a better reflection of the excellent outcomes we have achieved for investors.”

Mr Johnson said he did well out of buying “recovery stocks” and travel stocks when they were cheap and, more recently, “growth stocks that had temporarily fallen out of favour”.

Forager Australian Value saw four of its stocks subject to takeovers during the 2021 financial year.

The biggest by far was Mainstream Group – where Forager was the biggest institutional shareholder for five years – and the final takeover price was seven times more than the fund’s initial entry price.

The upper quartile (top 25 per cent) average fund return of 33.4 per cent for the year to June 30 was almost 5 per cent above the benchmark, while the median fund beat it by 2 per cent.

At an individual stock level, CBA was the largest stock contributor over the financial year, followed by ANZ, Fortescue, BHP, NAB and Westpac.

Banks reaped the benefits of a strong economic recovery, in particular an improved outlook for bad debts and overall asset quality, as the predicted loan losses from the pandemic failed to materialise.

Materials was also a leading contributor to index returns, buoyed by the Chinese economy’s rebound and resulting high iron ore prices.

Ronan McCabe, head of portfolio management for Mercer in the Pacific, said the last 12 months were a story of two halves.

“While the second half of 2020 was a strong period for quality and growth managers, as markets rallied from the March 2020 Covid lows, the last six months of the financial year have seen a recovery in value stocks, and in particular, financials and materials,” said Mr McCabe.

Originally published as Forager Funds shines with 89pc return in bumper year for investment