The macroeconomic reset over the past year has fueled exceptional levels of uncertainty in investment markets through 2022.
Investors experienced remarkable returns through the back end of 2020 and into 2021, driven by extraordinary amounts of monetary stimulus. Price agnostic buyers in the market distorted the pricing of assets, and ultimately risk.
Moving into 2022, financial markets were woken by the truth of the real economy as supply chain disruptions, the Ukraine war, and the forgotten phenomena of inflation bit back. Fund managers had to figure out how best to price risk for a commensurate return, faced with extremely volatile market movements in the immediate term, while trying to balance those risks against longer term objectives. Interest rate volatility and equity market movements have been riotous.
There haven’t been many times through history where temperament, capability, and proficiency have been tested more.
Throughout 2022 we have been researching different strategies across a broad range of fund managers, predominantly based in Australia and New Zealand, but also in Europe and the US. The key risk the portfolio managers have been focused on, and continue to be focused on, is inflation. A number of fund managers we have spoken to are also zoning in on how that flows through to borrowing costs and corporate earnings. If active managers cannot add value in this environment going forward, when will they?
Key trends in the New Zealand market over the past couple of years include the continued growth of exchange traded funds (ETFs), a greater allocation to more illiquid assets, and a positive focus on sustainability and decarbonisation.
ETFs are no longer just passive index-based approaches but include smart beta and actively managed strategies.
Several retail-focused fund managers have direct investments in private companies, though small due to fund liquidity constraints. An increasing number of fund managers are also walking the talk when it comes to measuring their own carbon footprint as a business, let alone the carbon emitted from the underlying investments in their managed funds.
As we approach the end of the year Research IP is once again recognising the best fund managers in the New Zealand market. The Fund Manager of the Year Awards are back for 2022…in person! After two years of virtual events, the Awards are to be held live in Auckland on Wednesday, November 16th.
Previous winners of the major Fund Manager of the Year gong include Milford Asset Management (2021), ANZ Investments (2020), and Fisher Funds Management (2019).
As in previous years, we want our awards to be inclusive, so please have your say in the Adviser and Investor Choice Awards. Voting is now open!
Access to the RIPPL Effect reports is here.
5 Comments
I did a short piece on Active v Passive investment for a U3A group last month. The evidence could not be clearer that it is extremely difficult for any active manager to outperform, other than over very short timescales. This can be very clearly seen by looking at SPIVA- the S&P Active Versus Passive index.
If we look at Large Cap. US funds, we see the following figures for the %age of active managers who beat the index over 10 years was 89.38% and over 15 years, 90.03%(to 30th June '22). I have other figures for medium and small cap. funds.
One quote from Warren Buffett sums it up well; "Most investors, both institutional and individual, will find that the best way to own common stocks is through and index fund that charges minimal fees. Those following this path are sure to beat the net results(after fees and expenses) delivered by the great majority of investment professionals".
Yup, very hard to have an edge in large cap US stocks (I think Buffett is underperforming the index since the GFC), much easier in less followed corners of the market, e.g. Aussie small cap managers have ~50% chance of beating the benchmark.
I think to beat the market you have to invest differently from the market, e.g. highly concentrated, hold cash, short stocks, trade options etc etc. For this reason SPIVA tends to focus on funds that don't use these tools hence it's no surprise they underperform on average.
Challenging times indeed. We'd certainly be interested in anything you have on this topic. Are you able to send it through (and anything else relevant) to info@research-ip.com? Thanks, Andy
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