International concentrated funds outperform diversified
International share funds with a concentrated approach have outperformed their diversified counterparts, in the 12 months to 30 September 2016, according to ratings agency, Zenith.
Zenith Investment Partners' international share sector review found that 70 per cent of the concentrated funds (which held less than 75 stocks) outperformed the MSCI world ex-Australia index.
The review also found that only 55 per cent of funds with greater diversification generated excess returns.
Senior investment analyst, Quan Nguyen said contrary to the belief that concentrated funds had higher volatility, Zenith found that they actually had less volatility.
"The volatility of the concentrated funds was marginally lower than that of the more diversified funds over the long-term," Nguyen said.
One of the key attractions to concentrated funds was that they contained a manager's best ideas, according to Zenith. Portfolio construction was also typically done without regard for the benchmark.
"Whilst on average, concentrated funds have performed better, the difference between the best and worst can be significant. As a result, Zenith continues to advocate the use of concentrated funds as part of a diversified international shares portfolio rather than as a standalone allocation."
Zenith's review was based on a universe of 175 products.
Recommended for you
Clime Investment Management has faced shareholder backlash around “unsatisfactory” financial results and is enacting cost reductions to return the business to profitability by Q1 2025.
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
