Higher beta managers shine

Australian fund managers are “beginning to adjust their beta to suit the market environment, although the skill remains in short supply”, according to Intech Investment Consultants.

An Intech survey found the best performing managers over the past three years to March 31 this year were those with betas above a common 1 while the worst have betas below 1.

A spokesperson said beta was “becoming one of the bigger differentiators between managers when assessing manager returns in a share market environment returning 26.4 percent per annum over the past three years.

He described beta as “essentially, the sensitivity of a manager’s portfolio to share market movements, with high beta being good in a rising market and bad in a declining market”.

“Naturally enough, the best managers in the Intech survey have had betas around 1.2, meaning their portfolios have been positioned to deliver 120 per cent of the market return, equating to more than 31 per cent per annum.”

Returns for the best surveyed performers for the three years to March 31, 2006, were Platypus (38.1 per cent), Ausbil (34.9 per cent) and Merrill Lynch Growth (33.2 per cent).

By contrast, the spokesperson said, the worst managers in the Intech survey had betas of around 0.9 or lower, “implying these portfolios are positioned for returns of less than 24 per cent per annum in such a strong market environment.

“Dyed-in-the-wool value managers like Investors Mutual, Lazard and Maple-Brown Abbott can be relied upon to have a beta less than 1.

“Accordingly, the last three years has not been the period for these managers to shine, regardless of their level of stock selection skill,” he said.