Mercer survey shows strong year for share funds

Ten share funds earned returns of more than 30pc as many outstripped indexes, according to Mercer rankings.

Share funds have enjoyed a strong year.

Selector High Conviction Fund, run by Brisbane-based DDH Graham, has taken out the top spot in the Mercer Investment Surveys for 2019, with a 39.2 per cent return before fees.

Philip King’s Regal Australian Long Short Equity Fund came second with a 38.2 per cent return while Manny Pohl’s ECP Asset Management was third, with a 36.4 per cent gain.

Selector High Conviction was also the pick of the crop over three and five years, scoring impressive returns of 22.8 per cent and 19 per cent per annum in those periods.

The past year saw exceptionally strong returns from a range of funds, with 10 earning more than 30 per cent.

However, median managers made 23.8 per cent, no better than the benchmark S&P/ASX 300.

The S&P/ASX 300 index surged 18.8 per cent last year as central banks embarked on their biggest shift toward easier monetary policy since the global financial crisis, boosting investor sentiment and equity valuations. The index’s total return of 23.8 per cent from the market was the best in a decade.

Mercer’s Australian equities researcher, Yee Hou Seck, said the December quarter saw the best performance from median managers last year, relative to the benchmark.

“On a full-year basis, the median manager finished up in line with the benchmark, recovering from negative alpha during the first two quarters of the year,” he said.

The top quartile funds for the year were generally overweight healthcare, materials, consumer discretionary, industrials and information technology.

The S&P/ASX MidCap 50 Index continued to outperform the S&P/ASX 300 in the December quarter.

The rally in mid cap stocks this quarter was driven by the likes of Xero, BlueScope Steel and Virgin Money, while BHP and Macquarie Group were among the large cap stocks driving the index.

“Those without exposure to these stocks suffered relative to the index,” Mr Seck said.

On a one-year basis, those stocks were also the leading performers, in addition to Wesfarmers, Transurban and Fortescue Metals Group.

The broadening out of sector returns, such as the rally of stocks in previously out-of-favour industries such as oil exploration and building materials – including Santos, Beach Energy and BlueScope Steel – helped the median fund managers.

“For example, both growth funds like ECP Asset Management and Hyperion Asset Management, and value managers like AllianceBernstein have achieved top quartile returns in 2019,” Mr Seck said.