The average multi-manager fund outperformed Australian shares — relative to the S&P300 Accumulation Index — only 71 per cent of the time over rolling one-year periods up to September 30 this year, according to a Chant West survey.
The average improves to 93 per cent over a rolling three-year period, but, even then, only six of the 10 funds had a 100 per cent success record in beating the index, according to Chant West.
It found funds that struggled most were, not surprisingly, those with a strong value bias in their portfolios unsuited to a market where growth was rampant.
Even when surveyed funds did manage to beat the “rapidly-climbing” Australian share market, they only did so by relatively small margins.
Over one year, for example, most funds were unable to match the index, and the average excess return of the group was -1.0 per cent, and over three years just 0.4 per cent above the index — insufficient to cover fees.
More challenging market conditions overseas gave the funds a greater chance to shine relative to the MSCI World Ex Australia Index.
Over rolling one-year periods to September 30, 2006, the average fund beat the benchmark index 86 per cent of the time, and very close to 100 per cent of the time over three-year periods.
The average excess return of the 10 managers over one year was a modest 0.2 per cent, but over three, five and seven years it was a more meaningful 1.5 per cent per annum, 2.3 per cent per annum and 2.0 per cent per annum respectively.
This suggests that in “normal market conditions and a reasonable timeframe the multi-manager model does indeed deliver added value”, the survey said.
“Over full market cycles they add value relative to the markets they invest in and, from the other measures we use, we know that they do so at lower risk than the average single manager product.
“The second message from the statistics is that most of the added value is derived when market returns are normal, neutral or even negative.
“In other words, multi-manager structures tend to ride with the upswings when markets surge and cushion investors from the worst of the damage when markets fall.”
