Downturn offers fund managers significant outperformance opportunities

Conditions in equity markets over the next few years will allow fund managers to outperform by a significant margin, according to van Eyk Research managing director Stephen van Eyk.

However, van Eyk cautioned that merely having the opportunity to outperform and actually doing so were often two different things.

Addressing the Sixth Annual van Eyk conference this week, he said fund managers would need to have not only the skill to perceive the opportunities, driven by high volatility, but the willingness to apply these opportunities in a portfolio.

“It’s hardly likely that a management team that has been closely aligned to the index for years will suddenly perceive great opportunities and apply them efficiently.

He compared the current period to the downturn between 2001 and 2003, when top fund managers added substantial value over the period and bottom fund managers lost value, the difference peaking at about 14 per cent in 2003.

One reason for this is that downturns produce a huge difference in profit outlooks depending on how conservative companies happen to be at the time of the downturn, van Eyk said.

Another reason is that variations in sector performances across the market are often extremely wide, so thematic opportunities abound.

Access to capital is also restricted in a downturn, so excessively geared companies or small capitalisation companies usually experience huge price decreases, he said.