Active managers fail to prove their worth

The average Australian active fund manager failed to outperform the index after fees over the past financial year, according to the latest Mercer research.

The Australian market returned 13.1 per cent over the 2009-10 financial year. While the average active manager did outperform the market by half a per cent, the impact of fees led to underperformance.

Active funds did outperform the index over three and five years, albeit not by huge margins. Active managers returned -6.2 per cent over three years, compared to the index's -8.0 per cent, while over five years active managers returned 5.6 per cent compared to the index's 4.5 per cent.

The results for active managers in offshore markers weren't much better over the past financial year. The MSCI World Index (ex-Australia) returned 5.2 per cent compared to the average active manager's 5.7 per cent.

Mercer said the median active manager’s 0.5 per cent outperformance for the past financial year was well below the long-term average out performance of around 1.3 per cent per annum.

“The choice of manager was again important for the year. An upper quartile manager have produced a return of at least 15.3 per cent, while a lower quartile manager would have returned less than 12.3 per cent for the year,” the Mercer report states.

The top five performing Australian share managers for 2009/10 were Perpetual Ethical, Hyperion Growth, Alleron, Schroder Opportunities and Orbis/SM.

The bottom five performing managers for the year were GMO Long/Short, Acadian Long/Short, Macquarie Income, JM TPS Growth and Parker.

By comparison, Perpetual Ethical returned 38.2 per cent, with the remaining top five all returning more than 20 per cent, while the bottom five returned between 3.8 and 8.5 per cent.