Half of small cap managers fail van Eyk review
An increasing number of small cap managers are introducing unwarranted performance fees, which are pushing up overall costs for investors in smaller company products, according to van Eyk.
Several managers were screened out of the researcher’s 2006 Australian small company review because it did not believe their offerings supported their high fee levels.
Commenting on the findings, van Eyk acting head of fund manager research Dr Jerome Lander said managers used performance fees to boost their revenue base, while their funds under management grew from a low level.
“We do not recommend small company managers charge hedge fund-like fees unless we know they are worth it,” he said.
Another revelation was that many small cap managers had large factor biases, which would affect relative performance more so than skill, especially over a short time period.
“For example, managers with a large industrials bias may strongly outperform if resources underperform, whereas a manager with a strong value and quality bias may predictably outperform in a down market,” Dr Lander said.
As part of its review, van Eyk assessed 22 managers based on their staff, processes and business management.
Only 11 managers made it through the formal screening process, six of which received a recommended rating.
A number of newer managers were eliminated due to concern over portfolio construction and risk management practises.
The review considered Australian fund managers with an exposure to smaller Australian companies, generally holding stock with a market capitalisation of between $100 million and $2 billion.
Recommended for you
Insignia Financial intends to be the leading wealth manager by 2030 as it moves away from acquisitions to achieve $200 million in cost savings per annum over the next five years.
Count chief executive Hugh Humphrey is keen for the firm to be a leader in the new world of advice as the industry generates valuable businesses post-Hayne royal commission.
Four individuals, including three senior staff from Canaccord Genuity, have collaborated to launch their own Western Australian wealth management firm.
Thematic ETFs are beginning to gain ground among advisers seeking to enhance portfolio diversification and tap into specific growth themes, according to leading ETF providers.
