Managers struggle in volatile environment

Fund managers struggle to add value in periods of market volatility, one analyst says.

Tuesday, July 19th 2016, 6:00AM

by Susan Edmunds

MJW has released its latest investment survey, which shows the returns from core Australasian share managers ranged from 19.2% to 24% for the year to June 2016.

Quay Street achieved the top return of 24.0% for the year with Milford close behind at 23.8%.

But the median manager return was 21.6%, compared with an index 12.9%.

In global share markets, only five managers were able to beat the MSCI over the 12 months.

Mark Weaver, of MJW, said when there was disruption or volatility in the market, managers' numbers that had previously consistently been positive tended to turn negative.

None of the manager surveyed had added value during the month of June, he said.

The same thing had happened during the global financial crisis.

“Managers who had consistently added value over time then were not. You never got all the managers losing value in all the sectors but that is what I had in front of me.”

Weaver said it could be because in a risk-off environment, managers who had taken some risk previously – and been rewarded for it – found they still had risk on the table when things turned south, which affected their performance.

“In most instances they are ahead but when they get whacked, they get whacked.”

He said managers would invariably get back on track. “It comes down to the question of whether on a net basis over time they are ahead and largely they are.”

John Berry, of Pathfinder Asset Management, said it was sometimes a question of timing.

“If you have an investment view the first decision is ‘when do I put this position on?’, the second and equally important decision is ‘when do I unwind the position?’. Defining the circumstances that will change your view can be very challenging.”

But he said there were also issues with benchmark tracking.

“There are several ways a fund manager can add value - through investment selection, downside protection and currency management. Whether the manager is active, passive or smart beta, the more the manager follows the benchmark, the less value they can add. For example - active managers whose allocations vary little from their benchmark, are fully invested all the time and don't manage currency exposures are really just a closet index tracker fund. After fees they are unlikely to outperform the market.”

Tags: Active v Passive funds management