Boutiques best in Australian large caps

Boutique fund managers have dominated the highest rated category awarded by Lonsec as part of its review of the large cap Australian fund sector.

The ratings house’s review assessed 39 funds and awarded six its top category rating of ‘Highly Recommended’, of which five were boutiques.

Receiving the highest rating were the Ausbil Dexia Australian Active Equity Fund, Citigroup Australian Equity Trust, Investors Mutual Australian and Industrial Shares Fund, IOOF/Perennial Value Shares Trust, and Tyndall Australian Share Wholesale Portfolio, with Citigroup being the only non-boutique among the half dozen.

Lonsec said the trend in its award ratings emerged because boutiques are generally established by highly qualified and experienced professionals who have left larger fund managers, usually have a closer alignment with investors interests, and are often more efficiently managing capacity constraints.

The review also revealed other developments in the Australian large cap sector including the introduction of multiple-portfolio manager structures. Under this set up analysts are given only a portion of the fund to manage in order to increase the accountability of the investment team. The ratings house believes the prevalence of these practices are an attempt to duplicate the successful processes of Perpetual and remained cautious about the suitability of the framework for each manager.

Another trend to emerge was the conscious effort made by fund managers to retain their key staff. Lonsec found that many managers are now implementing real or ‘shadow’ equity schemes in order to make existing employment contracts more appealing to key personnel. The ratings house said these arrangements would become more popular to prevent staff from joining rival firms or starting up funds management operations of their own.

Fund manager overseas research trips were also found to be on the rise, a phenomenon supported by Lonsec due to the increasing importance placed on offshore revenue by Australia’s largest corporations.