Most active Australian equities managers have been failing to beat the index, as research from Standard & Poor’s in March showed, but one manager has delivered outperformance over not only one and three years, but five years as well.
Aviva Investors’ Nick Pashias, deputy head of equities and portfolio manager of the Elite Opportunities Fund and the Australian Resources Fund, said the outperformance was attributable to their contrarian approach against a market with high correlations between sectors.
“Within sectors, the correlation is very high so everything within a particular sector looks like its competitor,” Pashias explained.
“The other issue is even the correlation between sectors is very high. In that environment it’s very hard for active managers to add value, you really have to go against the herd, or take on risk in that environment to generate return.”
The Elite Opportunities Fund is a concentrated product, owning no more than 30 companies.
“You have to be having active positions in that portfolio in order to differentiate yourself from the market and I guess pleasingly we have been able to do that in a positive way,” Pashias said.
The Elite Fund, described by Pashias as an “aggressive fund”, has outperformed by at least 4 per cent each year since inception, including by 8 per cent in 2008, when the financial crisis broke.
While some managers may elect to have a large holding in cash during market slumps, Aviva claims to not have a view if the market is going up or down, but rather continues with its fundamental, bottom-up investment philosophy in trying to buy solid stocks cheaply at any point in time.
“I run Elite as fully invested product … so even in 2008 when markets fell significantly the cash weighting in the fund was very low, it was the stocks that we owned that performed better that helped us generate the return,” said Pashias.
“It wasn’t just betting on cash versus the market.”
Aviva can hold a maximum of 5 per cent of its portfolio in cash.