Value and long/short managers are tipped to reign in the Australian equity performance surveys, even as some concentrated managers defied their underlying beta source in the volatile markets of December and January.
Even though January saw most managers take a stumble, David Carruthers, principal at Mercer Investment Consulting, said late last month there would be a turnaround in relative performance between manager styles in 2008.
“Value managers, and long/ short funds which have lagged in the bull market should start to come through. The GMO Long/Short Equity Trust is a case in point,” he said.
That fund, already bottom of the first quartile against its long-only peers over the last three years, leapt to equal second with a 0.7 per cent showing in December, while the market shed 2.7 per cent.
“The managers who were simply riding on momentum have been caught out. What you really want to see now is which managers will sustain,” Carruthers said.
One manager defying the trend against long-only is SG Hiscock, whose concentrated SGH 20 Fund equalled GMO’s long/short fund during December, to ensure a survey-topping 50.1 per cent return for the year.
Robert Hook, head of the Australian equity portfolio at SG Hiscock, said overweight positions in BHP and Rio Tinto were big contributors. Hook said the fund had been underweight financials and property.
“We just thought there were companies with better earnings growth elsewhere,” he said. “We’ve never had an LPT.” Hook said energy companies such as WorleyParsons and health companies like Ramsay and CSL had helped sustain the fund during December’s downturn.
Another long-only concentrated fund hoping to defy beta in 2008 is Lazard Asset Management’s Select Australian Equity Fund, a value-biased product which along with Lazard’s benchmark-aware fund finished in the bottom five of all local share funds for 2007.
Rob Prugue, Australian chief executive at Lazard AM, was vocal against what he perceived to be overpriced companies like BHP during 2007. In January he was somewhat vindicated, and said much of last year’s relative underperformance had been clawed back. “Value managers are better at preserving capital in a correcting market than they are at accumulating capital in an excessive bull,” he said.
For the month of December, Lazard Select has had the sixth best return of an Australian equities manager – zero.