Constellation Capital Management has loosened the constraints on its Australian equities mandate with Zurich Financial Services (ZFS), following demands from research houses and dealer groups for a less benchmark-aware offering.

The number of stocks in Constellation’s portfolio, which has exclusive retail distribution through ZFS, fell from 40-50 to 30-40 under the overhaul completed a few weeks ago. “We were looking for something a bit more conviction-oriented, the purer stockpicking approach which we’ve had a lot of success with on the international equities side [through Nick Bratt’s thematic team at Lazard Asset Management],” said ZFS investment specialist, James Holt. Backtesting had indicated a more concentrated Constellation portfolio’s tracking error had increased from 3-5 per cent to 3-6 per cent, Holt said, producing an improved information ratio and a “standard deviation that didn’t alter that much”. ZFS’s Australian equity fund, managed wholly by Constellation, has amassed $441 million under management during its two years of operation. The 24 months to June 30 were not a great time for value-biased managers like Constellation, whose flagship Australian equity portfolio returned 21.8 per cent during that time, against 25 per cent for the ASX 300, to finish 94th on the Mercer sector survey. However over five years the manager rises to 10th place. “The thing we like about Constellation is that they are as true to label as you can get,” Holt said.