Mercer investment tables show strong returns from leading funds

Leading Australian equity fund managers continue to achieve returns well above their benchmarks, as recent strong performers continue to march up the Mercer investment rankings.

Mercer’s Investment Performance Survey of fund managers in the Australian sharemarket for the June quarter shows annual returns for the top 10 ranging from 18.7 to 31.5 per cent before fees.

Leading Australian equity fund managers continue to achieve returns well above their benchmarks, while some recent strong performers continue to march up the ranks.

Mercer’s closely-watched Investment Performance Survey of fund managers in the Australian sharemarket for the June quarter shows annual returns for the top 10 ranging from 18.7 to 31.5 per cent before fees, versus 11.9 per cent for the S&P/ASX 300 index.

Robert Gregory’s boutique Glenmore Australian Equities Fund hit the top with a 31.5 per cent return for the coveted one-year time frame, and also stands out over longer time frames.

On an after-fees basis, over the past five years, Mr Gregory’s fund has returned more than 15 per cent per annum – about twice as much as its benchmark All Ordinaries Accumulation Index.

Glenmore Asset Management portfolio manager Robert Gregory. Picture: Supplied

Manny Pohl’s ECP AM All Cap slipped to second rank with a 29.1 per cent return for one-year, and is still in seventh place for five-year returns. Smallco Broadcap, led by Andrew Hokin, came in third with a 26.2 per cent one-year return. Selector High Conviction was fourth with a 20.5 per cent return.

Deep value specialist Steve Johnson lifted his Forager Australian Value fund to fifth place for the one-year time frame with 19.9 per cent return. Forager has been on a roll in recent years with a return of 10.1 per cent per annum over five years versus 7.2 per cent for the benchmark.

Hyperion Australian Growth was sixth with a one-year return of 19.5 per cent.

Manny Pohl’s ECP AM All Cap came in with a 29.1 per cent return for one-year. Picture: Richard Gosling

The growth fund run by Mark Arnold and Jason Orthman is still hard to beat for long-term performance, with a five-year return of 13.3 per cent per annum.

Rounding out the top 10 for the one-year time frame were Auscap Long Short Australian Equities, Platypus Australian Equities, Tribeca Alpha Plus and Arcadian Australian Long Short Equity.

Rising star Glenmore Asset Management has been a very consistent performer since the fund’s inception in June 2017.

Robert Gregory is no stranger to the top of the performance tables. In his time at CBG Australian Equities fund, the boutique consistently ranked in the top quartile of investment returns in the Mercer survey. CBG was awarded the Best Boutique Australian Equities Manager of the year in 2013.

Glenmore is a concentrated long-only growth fund for wholesales investors.

Gregory’s bottom-up research aims to find high-quality small-mid cap growth companies that are at an early stage of their business cycle and show a “material divergence versus underlying value”.

His fund typically holds about 20 to 30 stocks. It has done exceptionally well from the likes of MMA Offshore, GQG Partners, Hub 24, Pinnacle Investment Management and Whitehaven Coal.

It also owns shares of iron ore and lithium play Mineral Resources, as well as a number of consumer discretionary retailers including Universal Stores, Retail Food Group, Nick Scali and Collins Foods.

“The style of the portfolio is more focusing on mid-cap stocks that have the ability to generate really strong earnings growth over a three-to-five year time horizon,” Mr Gregory told The Australian.

“My main focus is finding companies with attractive valuations and good earnings growth … perhaps if inflation fell and interest rates started to be cut by the RBA, it might make some sectors look more attractive, but macro is not a big driver of the investment process.”

For ECP AM the biggest drivers of its All Cap Fund performance for the one-year period, in terms of its active stock picks, were GQG Partners, Hub24 and Nuix.

Forager Funds Management CEO Steve Johnson. Picture: Hollie Adams

ECP partner and portfolio manager Jared Pohl says GQG’s exceptional investment performance and highly effective distribution footprint have enabled it to steadily accumulate funds under management

“We’ve always believed the market undervalued this business, pricing it at a multiple similar to its competitors despite its superior qualities,” he said. “We capitalised on this mispricing, and even with the recent re-rating, we still consider GQG to be undervalued.”

Hub24 has also experienced a re-rating as the market becomes less concerned about fund flow momentum. Attractive margins and increasing operating leverage still make a compelling outlook.

“Our investment thesis remains unchanged: we anticipate HUB will capture significant market share from the incumbents, and they are executing this strategy effectively,” Mr Pohl said.

He said Nuix has successfully addressed some of the issues that previously hurt its performance.

“The company’s latest results clearly demonstrate its ability to upsell to existing customers and attract new ones, a capability that was previously obscured by the accounting complexities of multi-year deals and the transition to consumption based pricing.”

In his view, the current macroeconomic environment is much better suited to active management now that rates are higher than they were, stock selection and position sizing are increasingly more important than they were in a declining or low rate environment.

Robert Gregory’s boutique Glenmore Australian Equities Fund hit the top spot.

Similar to most of the leaders in Mercer’s performance tables this quarter, Smallco’s Broadcap All Cap is a quality growth fund with investments concentrated in about 25 stocks. It can invest in large caps, but 10 per cent of the portfolio’s value is invested in companies with a market cap under $1bn.

“As inflation took off and interest rates started rising, we gravitated towards those quality names,” Smallco portfolio manager Craig Miller said. “So longer duration plays – anything that has earnings coming at some stage in the future – we’ve tended to avoid.

“We do play those, and we would play those, we just haven’t in the last little while.”

But Smallco is more bottom-up than top-down in its approach.

“We’re very much about looking at stocks, but we found that as interest rates rose, some of those longer duration names – the risk associated with them has outweighed the potential return.”

Smallco likes “asset light” businesses, such as those tied to software and the internet businesses.

Some of its best contributors to performance in the past year included Altium, Audinate and WiseTech, but the fund has also had some exposure to Australian banks.

It does have shares in some of the big resources companies, but is “reluctant” to invest in mining companies because of the “difficulty of forecasting where earnings are going”.

The Broadcap fund has a little over $300m in FUM and is “kind of at capacity”, Mr Miller said.

He said it has been “challenging” in the past 12 months to find good opportunities at reasonable valuations in the market.

“Those quality growth businesses have been bid up.”