Aussie Small Caps heavy amongst falling stars
The January FE Crown recalculations saw some previously high-flying funds come crashing down, with 16 funds having their ratings drop by three or four Crowns as compared to the August determinations.
This would suggest that they struggled across one or more of the key determinants of Crown Ratings, being stock-picking, consistency of performance against benchmarks and risk, over the last three years.
The APSEC Atlantic Pacific Australian Equity, Long Tail Partners No 1, Premium Asia Property and SG Hiscock ICE all recorded the largest decreases, plummeting from five Crowns to just one.
The ICE fund was the largest of these, having had $718.6 million in funds under management at 31 January 2018, when the Crown calculations occurred.
SG Hiscock chairperson and managing director, Stephen Hiscock, pointed to the fund’s underlying goals in explaining its poor Crown Rating performance.
“The fund is performing in line with expectations and maintains strong support from researchers and the market at large,” he said.
Hiscock emphasised that the fund was designed to outperform in down markets but was likely to lag in stronger markets. As Australian small and mid-cap equities have generally performed well over the last three years, this could partially explain ICE’s fourth quartile performance over that period.
He also said that the “key focus” of the trust was five and 10 years returns, which were “both excellent returns in absolute and relative terms.” The Crown Ratings focus on three-year performance.
There were a further 12 funds to fall three spots, from either five Crowns to two or four Crowns to one.
Of these, Investors Mutual Limited (IML) was the only fund manager with more than one offering to plummet that badly. Both its Australian Small Companies and Future Leaders funds slumped from five Crowns to two.
Other large funds with over $150m assets under management to experience this level of slump were Montgomery’s Montgomery, Hyperion’s Small Growth Companies, Aberdeen’s Australian Small Companies, Smallco Investment Manager’s Broadcap and Yarra’s Emerging Leaders Direct funds.
The majority of the funds to fall in the ratings were from the Australian mid/small caps equity sector, with ten out of sixteen dropping three or four crowns. This was surprising compared to the overall sector, which was one of the highest performing across the equities universe.
The sector had 16.67 per cent more funds receive five crowns more than the average, 10 per cent more receive four crowns, and 8.67 per cent less earn the bottom two ratings than average as well.
IML small caps portfolio manager, Simon Conn, suggested that strong returns within the sector from short-performance stocks that went against the manager’s investment focus could explain why its funds had underperformed against the benchmark.
This could offer guidance on why the two IML funds, which belong in the Australian small/mid cap equities sector, saw their ratings dive.
“The recent surge in ‘hot’ concept stocks has led the ASX Small Ords to surge higher in the last few months,” Conn said.
“While the short-term performance numbers for IML’s small and mid cap funds are well below their benchmark returns at the moment, we believe it is essential to remain true to our investment philosophy of holding quality stocks trading at attractive valuations.”
Conversely, 23 funds jumped three or four Crowns from the August calculations to February’s.
The AMP Capital Specialist International Hedged Share I, Challenger Guaranteed Income, Ophir Opportunities Ordinary, Regal Australian Long Short Equity, Regal Long Short Australian Equity and Supervised Global Income funds all went from one Crown in last August’s calculations to five Crowns now.
AUTHOR
Hannah Wootton
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