Markets continue to be volatile and these funds provided a better overall performance

Mercer’s latest performance data shows continued resilience among the country’s active fund managers despite still-volatile market conditions in the September quarter.

Mercer says the median fund returned 0.6 per cent before fees while the ASX 300 Total Return index rose 0.5 per cent.

Mercer’s closely watched investment performance rankings show the median active fund manager beat their Australian shares benchmark in the June quarter, although absolute returns remained slim.

Continuing a run of outperformance for active fund managers in the local sharemarket since the start of the Covid-19 pandemic, the median fund returned 0.6 per cent before fees, according to the latest Mercer investment survey. The S&P/ASX 300 Total Return index rose 0.5 per cent.

Another volatile quarter for global markets highlights the need for careful stock selection and diversification as soaring inflation forces central banks to lift interest rates and reduce liquidity.

After rising as much as 9.1 per cent in the first two months, amid hopes that US inflation and economic growth would slow enough to allow the US Federal Reserve to slow the pace of its aggressive interest rate increases, which have pushed shares down sharply since April, the Australian shares benchmark gave it all back in September. That followed a hawkish Jackson Hole speech from Fed chairman Jerome Powell, more aggressive interest rate rises, and spillovers from a crisis in the UK bond market that stemmed from an overly stimulatory budget from the UK government.

However, it was nowhere near as challenging as the June quarter, when the median active fund manager lost 11.2 per cent before fees as the benchmark plunged 12.2 per cent.

The brutal June quarter sell-off came as US inflation overshot expectations and central bank policy rates soared from record lows, led by the Fed as it kicked off the global rate rising cycle in March.

The median manager has beaten its benchmark every quarter since early 2020.

In the past year, the median fund manager lost 6.1 per cent versus 8 per cent for the benchmark.

The upper-quartile managers beat their benchmark by 5.4 per cent and the lower quartile managers underperformed by just 0.3 per cent.

That extended a positive skew evident since mid-2020 for the one-year performance horizon.

The upper quartile has outperformed by more than the lower quartile has underperformed on a three-year basis since the end of last year, and also since early last year on a five-year basis.

The five top-performing funds in Mercer’s table for the year to June 30 are Lazard Select Australian Equity, Lazard Australian ­Equity (Benchmark Unconstrained), Australian Eagle Long Short, Regal Australian Long Short Equity Fund and Devon Australian Fund.

Rounding out the top 10 are Lazard Australian Equity, Katana Australian Equity Fund, Perpetual Wholesale Share-Plus, Chester High Conviction Fund and Investors Mutual Equity ­Income.

Lazard Select Australian Equity leads Mercer’s top-five performing funds to the end of June.

First Sentier Australian Equities Geared – Growth ranks first in the “long-only” category over five years, but 80th over one year, as growth stocks sagged more than most after a long period of outperformance. Other top-ranked long-only funds over five years include Katana Australian Equity Fund, Panther Trust Australian Shares, Australian Eagle Growth and Hyperion Australian Growth.

Hyperion Australian Growth is 82nd over one year, with a minus 29.7 per cent return.

But value funds have been mixed recently.

Collins Street Value ranks No.1 over three years, but 72nd over one year and 85th over three months.

Forager Australian Value improved to second place over three months, but is ranked 79th over one year and 72nd over five years.

Dimensional Australian Value ranks 59th over five years and 12th over one year.

The top-performing sectors over the one-year period were energy, utilities and materials.

The main detractors were technology, consumer discretionary and real estate.

Over the past three months, healthcare, tech and energy were the largest outperformers versus the benchmark, while the utilities sector was the worst performer.

Mercer Asia-Pacific portfolio manager Shannon Reilly said the continued outperformance of ­active funds seen in the previous financial year in a challenging environment had been encouraging.

“The first quarter of the financial year saw more of the volatility that plagued markets in the second half of the previous financial year,” he said.

“Pleasingly, over the quarter the median Australian equities manager has remained ahead of the market, despite the challenges of high inflation and a risk-off sentiment, preserving strong longer-term index relative returns.”

He said investment managers for the most part appeared to successfully navigate the August reporting season, adding value as companies simultaneously reported strong earnings and uncertain guidance for the year ahead. And with macroeconomic conditions expected to drive returns going forward, active management may become increasingly important to total equity market returns.

“Active investment managers may be better placed to find companies that can navigate a prolonged inflationary environment, high interest rates and low levels of consumer confidence,” he said.

While inflation remains high, the outlook for markets is likely to be quite different from those of the past decade.