Value still tips balance but style gap shrinking

The valuation gap between growth and value stocks has narrowed significantly both domestically and globally, research-houseAssirtclaims after completing its annual managed fund review.

The survey, spanning the 12 months ending June 30, also argues that those “managers with strong stock selection capability, strict valuation discipline and a bias to smaller companies” will be in the best position to add value going forward.

The review showed that the best performing asset classes over the past year were listed property and fixed interest, with active specialist managersDeutsche,Colonial,UBSandZurichthe standout property performers.

Small cap managers also delivered impressive returns due to their stock selection ability and relatively small fund size, withEquity Trusteesposting 21.98 per cent,GMO14.5 per cent andInvestors Mutual10.5 per cent for the financial year.

As with small caps, value managers performed best in Australian equities while growth managers continued to struggled but to a lesser extent than previous year, withTyndall(3.35 per cent), GMO (2.78 per cent) andPerpetual(2.57 per cent) gaining positive returns for the period. This was particularly impressive given the median Australian equities manager underperformed the S&P/ASX 300 Accumulation Index by 1.1 per cent after fees.

There were no surprises in international equities, despite the global equity market rebound from their pre-Iraq war lows, with the MSCI World ex Australia Index (unhedged) returning -18.5 per cent, although currency hedging lifted the index’s returns to - 4.5 per cent.

The best performers in this sector, creeping over the benchmark but still not into positive territory, were active managersWilson HTM(- 1.7 per cent) andHunter Hall(- 2.1 per cent).

The environment for property will become more challenging for managers to extract value from security selection according to Assirt, coupled with more yield driven performance, and emerging signs of economic recovery in the US should prompt a more defensive stance for cash and bonds.