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Jan 22

Active Management Struggles in 2008

The Morningstar rankings for all major asset classes were released this week and once again, the results do not look particularly promising for active managers in the fixed interest and property securities asset classes.

Some of the more interesting outcomes for investment returns at the end of 2008 include:

Fixed Interest Results…

  • Vanguard and Barclay’s Australian Fixed Interest index funds were the 4th and 5th best performers amongst 35 local bond managers in 2008 (and 5th and 6th best out of 27 managers over the last 7 years)
  • Vanguard’s International Fixed Interest index fund ranked 3rd amongst 22 international bond managers in 2008 (and 1st out of 14 managers over the last 7 years)
  • Vanguard’s International Credit Securities Index fund ranked 3rd out of 16 diversified credit managers in 2008 (and 1st out of 12 managers over the last 7 years)

Property Results…

  • Barclays, State Street, and Vanguard’s Property Securities Index funds ranked 13th, 12th, and 16th out of 36 local property securities managers for 2008 ( and 9th, 8th, and 13th out of 28 managers over the last 7 years)
  • Vanguard International Property Securities ranked 1st out of 26 global property security managers (and 4th out of 18 managers over the lst 3 years…which is the effective life of this asset class in Australia)

These results are help form quite a compelling argument in favour of using index funds for investing in the fixed interest and property securities asset classes. In fact, the index managers beat most of the active managers amongst the international equities asset class whether hedged or unhedged.

The only asset class where most active managers beat the index managers in 2008 was Australian Shares. This category was led by Advance Imputation fund which held a very high proportion of cash in its portfolio which clearly aided it return amongst its peers.

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