'Activeness' dips across large-cap sector
Financial advisers should rethink the benefits of value-style share funds as active management falls across the Australian large-cap share funds sector, according to Morningstar's latest sector wrap.
While focusing on investment style has produced strong results for large cap investing in recent times, the spread between styles narrows over the long-term, Morningstar stated.
"Value-style fund managers adopt various processes which deliver varying outcomes," the review stated.
"Investors and advisers therefore need to be mindful of the underlying holdings to ascertain the likely path of returns and whether or not a particular strategy fits with an overall portfolio and risk profile."
According to Morningstar, there has been a fall in the "activeness" of large-cap Australian share funds over the past 12-15 months due largely to a number of fund managers whose portfolios have become "meaningfully less different than the index".
Understanding the role of an investment strategy in portfolio is critical, and simply assembling highly-rated managers can duplicate style exposures and reduce diversification, the review stated.
Morningstar added that advisers should favour funds with discounted base fees, high watermarks that cannot be reset, and longer crystallisation periods.
As part of the sector wrap, Morningstar awarded four strategies a gold rating, 12 a silver rating, and 23 a bronze rating.
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