Global share markets are entering a protracted period in which active management will come to the forefront, MLC’s head of equities and acting chief investment officer, Jonathan Armitage, says.
MLC recently rejigged the fund manager line-up of its $1.2-billion Australian Share Fund, reducing the number of managers it employs and removing a passively managed component that had been in place since the start of 2012.
“We had eight managers in there, which included a passive component, and we’ve reduced that down to three,” Armitage says.
“The passive component was quite temporary. We introduced that at the start of this year. We took some money away from a manager and put it into a passive component.”
The fund is now managed by Bennelong Australian Equity Partners (BAEP), Antares Capital Partners and JCP Investment Partners. BAEP and Antares are new additions to the line-up. Antares manages 45 per cent of the fund, JCP 35 per cent and BAEP 20 per cent.
MLC has removed DFA Australia, Balanced Equity Management, Maple-Brown Abbott, Northcape, Northward Capital, Vanguard and Wallara.
Armitage says part of the earlier decision to award a passive mandate was driven by the fact that correlations between stocks moved very close to one, and active managers were struggling to add value. But that is now changing.
“We just felt that we were in a period where it was quite difficult for managers to differentiate themselves, and where stock-picking was pretty hard,” he says.
“We’ve reshaped the portfolio and we have added two new managers and kept one of the existing ones. We think that combination of managers is going to serve our clients well in the future because of the mix of the way they do things.”
From passive to active
Armitage says the portfolios run by each of the managers is “relatively concentrated” but they are not strictly constrained by style.
“Part of it is a continued view that active managers will, over the medium to long term, add value,” he says.
“The manager-of-managers structure is designed to produce funds that work in any market environment and [to] produce excess returns relative to the benchmark [irrespective] of what’s in vogue or in fashion or what’s going on in markets generally.
“Passive has its role to play, but in terms of what we’re trying to do in that fund, it was always quite a temporary piece of the fund, and I think over the next two to three years we’ll re-enter an environment where active stock-picking comes back to the fore.
“The economic pressures that you’re seeing separate wheat from chaff. And, in this environment where people get found out and where weak business models come under huge amounts of pressure, you get horrible profit earnings, you get bankruptcies, all those sorts of things. And, it’s exactly that sort of period when really good active managers perform well and earn their fees.
“Having been through quite a tough period for active managers over the past 12 or 18 months or so, I think over the next three to five years it’s likely to be a period when [active management] comes very much back to the fore.”