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Mar 22

The Best Australian Share Funds don’t achieve their Alpha Targets

Source: van Eyk, Morningstar

The above chart contains some performance statistics of a list of Australian share funds with at least a 5 year track record and were awarded an A-Rating by van Eyk this month. The A-rating is the second highest possible rating van Eyk award with the highest being AA…no Australian share fund achieved an AA rating in this latest review so this table is effectively the highest rated Australian share funds. I must point out that Integrity, Solaris, and Sigma have funds that were also A-Rated but they do not make the table due to a short performance history.

Before I provide any analysis I’ll provide some background to this simple table. The performance was measured over 5 years using monthly figures. So if a fund only had a 5 year track record, then the “total number of 5 year periods” is 1. If a fund has a 6 year track record, then the “total number of 5 year periods” is 13 because we have 13 separate rolling 5 year numbers due to monthly data. The table shows the number of 5 year periods where the fund outperforms the ASX200 as well as its stated alpha target.

Unfortunately, of these 9 highly rated funds, only 2 funds, Fidelity and Ausbil Dexia, have exceeded their alpha target more than 50% of the time. Fidelity’s Australian share fund has exceeded their alpha target (2.5%) every single rolling five year period since their inception which is absolutely outstanding and an absolute credit to this team. Fidelity started around the start of the new bull phase in 2003 and have obviously had to endure the GFC as well as its choppy recovery.

Ausbil, whose performance figures started around mid-1997 also have outstanding results. Whilst 60% of the time they have exceeded their alpha target they have exceeded the ASX200 index 100% of the time when looking at their 5 year rolling average.

Whilst Alphinity (formerly Challenger) has shown near decent numbers (49%) in terms of achieving their alpha target, I don’t group Alphinity in the same league as Fidelity and Ausbil because most of their strong performance occurred during the 1990s when they were possibly the best Australian share manager around and their performance since 2003 has been nothing short of abysmal…unfortunately this is a fund whose performance track record has effectively died in recent years.

As for the rest, it looks like considering their alpha target in terms of performance expectation is a complete waste of time. Most are nowhere near achieving this target and several managers haven’t achieved one single rolling period in excess of their target. I wonder how the fund managers feel continually failing to achieve their target…must be depressing. 

Anyway, at least all nine managers have outperformed their index, over 5 year periods, more than half of the time…well, at least before platforms fees, retail fees, adviser fees, etc!

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