Australian fund managers aren’t as skilful as their track records suggest, Inalytics research is claiming, but that’s not news for AustralianSuper chief investment officer Mark Delaney. The London-based investment skills consultancy firm’s most recent research concludes that an excellent investment track record by Australian funds managers overstates their investment skills and has the potential to mislead investors. Australian funds managers’ excellent performance all comes down to one key decision, the research suggests, to underweight in listed Real Estate Investment Trusts (REITs). “When we first did the numbers, it revealed that two thirds of managers outperformed their benchmark.
This is a remarkable result by any standard, and one that sets the Australian industry apart from its peers around the world,” according to Inalytics founder and CEO, Rick Di Mascio. “But the fact that most of this outperformance can be attributed to fund managers being underweight in REITs certainly takes the gloss of their performance in terms of the key measures of investment skill. This may have been intuitive to industry participants in the past, but until now has never been quantified.”’ For AustralianSuper’s CIO, Mark Delaney, the research isn’t surprising. “The research itself is interesting, it’s pretty consistent with what some of our analysts have done as well,” he said.
The Inalytics research examined 62 mandates, representing just over half the industry. The research discovered that 42 of the 62 mandates outperformed the ASX between 30 April 2006 and 31 December 2010. The research said generally managers add value from their positive decisions – overweighting – but are most likely to destroy value through their negative bets.. Inalytics’ most recent research, Separating luck from skill amongst Australian Equity Managers, helped inform AustralianSuper where Australian fund managers are outperforming, said Delaney. “In the period where the REITs sold off very aggressively, it did help. It was a large driver of active manager outperformance. As valuations have normalised the performance of active managers has come back a little,” commented Delaney.
The Inalytics team labelled the results as unique, explaining that it is highly unusual for managers to add value from both positive and negative bets. “The comparison with international managers could not have been more striking,” the report read. “The conclusion from this research is that there is skill, but not necessarily as unique or strong as the track records would suggest. Also track records serve to flatter some managers, while others display the same characteristics of skill that we find elsewhere.” The report asserts that once the underweighting of REITs has been allowed for, the Australian funds management industry isn’t as unique; rather it looks similar to its peers around the world at least in terms of the key measures of skill. “Looking forward, it will be interesting to see what happens when REITs turn, as they inevitably will at some point, and what this means for asset owners when setting benchmarks and targets,” the report states.
