Opportunity knocks for investors

New research suggests there are emerging opportunities for investors in the Australian equities concentrated sector.

A review undertaken by investment research house van Eyk studied over 14 fund managers that were high conviction stock pickers with potential for higher returns than core Australian equity fund managers.

Historically, this sector has been disappointing for investors because of fund managers’ high fee levels in comparison to those of core Australian equities managers.

Nigel Douglas, van Eyk’s head of investment research, said there are likely to be better opportunities in the equities concentrated sector (those fund managers typically holding less than 30 stocks).

“Increased sector and stock level dispersion in the Australian share market will provide opportunities for fund managers in this sector to deliver their high alpha (excess return) targets (generally around 5 per cent above benchmark).” Douglas added that the sector is “well suited to the current financial environment”.

The study found that fund managers which “incorporated top-down or macro analysis to help identify sectors were well suited for the market conditions that characterised the past three years”. Douglas noted “critical sector calls had been to overweight commodities and underweight financials”.

Douglas said well-informed fund managers have the opportunity to buy companies well below their assessed intrinsic value because of opportunities created by the systematic sell-down across equities markets.

“This is resulting in a larger role for these types of fund managers in investor portfolios, although investors need to be aware that there can be higher short-term volatility of returns,” Douglas said.