A new report indicates that only a quarter of Australian active equity fund managers managed to outperform the market in the past year. This highlights the growing challenges faced by the industry as it competes with the increasing popularity of cheaper exchange traded funds. The S&P Dow Jones Indices Australia scorecard revealed that 74 per cent of Australian equity funds underperformed the S&P/ASX 200 Index’s total return of 10.3 per cent in 2023.
The average return for these active funds, including dividends, was just 7.5 per cent. Looking at a longer timeframe, the report showed that 87 per cent of funds had underperformed over the past 15 years. Sue Lee, head of index investment strategy at S&P Dow Jones Indices, described the active fund performance as “underwhelming,” noting that the financial market has become more professionalised, reducing the information edge that active managers once held.
Several prominent funds experienced significant underperformance, including Ten Cap, Airlie, and WaveStone, which lagged the index by 10 per cent or more. Hyperion Asset Management’s Australian growth companies fund, a Brisbane-based money manager, underperformed the S&P/ASX 300 Accumulation Index by 39.5 per cent. Other funds, such as ECP’s growth companies fund and Bennelong’s Australian equity fund, also significantly lagged their benchmarks.
Despite the challenges, there were some bright spots. Sixty per cent of active Australian real estate investment trust funds outperformed, marking their best relative results since 2013. Perpetual chief executive Bernard Reilly acknowledged the structural shift towards passive funds but argued that the market wouldn’t become entirely passive, as price discovery requires active management.
