Riding out the global equities storm

The international funds of Australian fund managers have suffered an horrendous 12 months to the end of May 2003, with an average return across the universe of 105 funds of negative 20.58 per cent.

Data provided by research houseAssirtshows that for the period, international managed funds ranged from a best return of just under a positive one per cent, to a worst of close to negative 40 per cent.

The worst fund based on the performance figures was theColonial First StateGeared Global Share Fund, which returned negative 39 per cent.

This was followed by the Westpac Investor Choice Sustainability International Share fund, which returned negative 32.4 per cent.

The only funds in positive territory were theDeutscheStrategic Value and Global Equity Opportunities funds, which returned positive 0.6 per cent and 0.3 per cent respectively over the period.

This made Deutsche the best performing manager, on the average performance of its international funds, over the past 12 months.

ThePM CapitalAbsolute Performance Fund,Wilson HTMMFS Global Equity Fund, theHunter HallGlobal Ethical Trust and both thePlatinum Asset ManagementInternational Brands and International funds were also among the best in weathering the international storm, returning more than negative 10 per cent.

The data showed that the worst performing manager on the average performance of international funds was, though only fielding one fund,Perpetual, with its Fidelity Perpetual International Fund posting a negative return of 28 per cent.

This was followed byAMP, with the average returns of its Global Growth Opportunities, Multi Manager Global Share and Sustainable Future International Share funds at negative 26.9 per cent.

Assirt head of ratings Kathleen Cave says the performance figures over the 12 months show the differential between growth and value managers, with more value managers outperforming over the period.

She also says those managers that made use of hedging or currency hedging, or have had a high proportion of their assets in cash, also managed to measure up over the year to the end of May.

Deutsche Asset Management head of absolute return strategy Glenn Poswell confirms this, saying that Deutsche’s funds were able to outperform largely due to the currency hedging the manager has in place.

Platinum Asset Management portfolio manager James Simpson also says that “a large chunk” of the outperformance the manager has experienced can be put down to its currency position.

Simpson says this, combined with good stock picking, especially in Europe, allowed the manager to hold up through what he describes as a difficult 12 months.

Assirt associate director Rebecca Jacques says the fact that funds with a process that involves hedging have outperformed is to be expected.

“This comes as no surprise, as traditional long only equity funds have a limited tool kit available to them,” Jacques says.

“In particular, most of these funds are benchmarked against a market index and as such are constrained to be fully invested and long-only invested.”

But despite these funds measuring up well against their peers in the international asset class, the general international performance figures still won’t make investors happy, though some believe the worst is over.

BTchief economist Chris Caton says that a turnaround has already occurred, and those who have been waiting for it have already missed it.

“It has passed the time to get back in,” he says.

Caton says that when looking at returns over a 12-month period, the performance figures will always lag behind the market, and the figures to May are picking up the worst of the downturn and masking recent growth.

“The 12-month numbers don’t look flash, but in the past two or three months investors should have done well. They are basically getting back what they lost over the past 10 months,” Caton says.

Deutsche Asset Management international equities investment specialist Bill Barbour agrees.

“The easy money has been made. If you weren’t there when the markets rebounded you have already missed out,” Barbour says.

He says that it will be tough going for fund managers from here on because not all companies are going to do well and managers will have to be quite specific in their stock selection.

Caton says that despite the fact “it gets trickier from here” to make easy money from international markets due to a rise of 30 per cent from its low point, there is definitely value in international share investing.

Cave agrees, saying that price/earnings ratios seem to show there are opportunities out there in the market, and some fund managers are taking them up.

She says it is still difficult to make short-term tactical decisions in the market, given that it is hard to say when the market has hit the bottom.

Barbour believes international equities are still “a necessary evil” because a diversified portfolio requires exposure to different market sectors.

He says they definitely look positive when compared to bonds over the next 12 months, with a “global economic meltdown” required for a bond portfolio to outperform shares over that period.