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SQM Research Ratings Update
May 2019
Our Ratings & Fund Data Service covers Sector Reviews, Fund research & Quantitative analysis for about 9000 funds. For more information contact us today! Get the right information & insightful advice first from SQM Research.  To subscribe to our Ratings and Funds Data Service, click HERE.
 
 
SQM Commentary

Profile of the Largest Australian Equity Funds
 
This section takes a quick look at the profiles of the largest 163 funds in the Australian Equities Large-Cap category.
 
The time series analysis of returns covers the 5 years ending April 2019

 
STYLE
Sector No. of Funds FUM $mill
Equity Australia Large Blend 99 $31,435
Equity Australia Large Growth 29 $8,731
Equity Australia Large Value 35 $15,479
Grand Total 163 $55,645
 
FUND SIZE
Size $mill No. of Funds FUM $mill
0 to 200 99 $5,157
200 to 500 29 $8,487
500 to 1000 22 $16,419
over 1000 13 $25,582
Grand Total 163 $55,645
 
MANAGEMENT FEE
Management Fee No. of Funds Average Fee
< .0.50 22 0.30
0.50 to 0.70 16 0.62
0.70 to 0.90 38 0.84
0.90 to 1.10 55 0.98
> 1.10 33 1.60
Grand Total / Average 164 0.95

Vanguard Australian Shares Index                             0.18

Alpha – “Beating the Market”
 
The rumours of the death of active management seem a little premature. The tables and charts below show that around 45% of funds have outperformed the market over 5 years, using both raw excess return and Sharpe ratios.
 
The “market” in this case is the Vanguard Australian Shares Index, an $11 billion behemoth that tracks the S&P/ASX 300 TR Index. It charges 18 basis points and returned 7.37% over the 5 years to April 2019, compared to 7.55% for the S&P/ASX 300. This is an unsurprising underperformance of 18 basis points (i.e. the fee). It has a tracking error of a mere 15 basis points (0.15% p.a.) over the time. It matches the market very well.
 
It is a superior benchmark because it is a large “real” portfolio subject to all the normal operating conditions that money managers face in real life, which “virtual” portfolios (i.e. market indexes) do not face:


1.  Re-balancing
2.  Transaction costs
3.  Market Liquidity
4.  Market impact of fund transactions
5.  Transaction slippage
6.  Custodian costs and other operating expenses such as compliance


Performance of AEQ Manager Cohort (163 funds) over 5 years to April 2019
  +ve Alpha -ve Alpha Total Funds
Number 71 92 163
Avg Size 1.88 -1.78  
Percent 43.6% 56.4%  
       
  +ve Sharpe -ve Sharpe  
Number 74 89 163
Avg Size 0.15 -0.17  
Percent 45.4% 54.6%  


The chart below suggests manager skill (for this cohort) is more like a normal distribution. Many more managers have outperformed than suggested by popular headlines such as “95% of managers underperform”.



Most Popular stocks in the Top 10 Holdings of the AEQ Manager Cohort (163 funds)




 
SQM Research's Top 5 SQM Rated Funds* for April 2019

Click here to enlarge
* Any Funds in this table that have international investments will have different hedging patterns, from hedged to unhedged or variable hedging. This may have an impact on fund returns. Please refer to the Fund's product disclosure statement for details.
 

SQM Research's Top 50 ETFs for April 2019


Click here to enlarge

SQM Research's Market Benchmarks for April 2019

Click here to enlarge

Ratings Table
(Please note: In order to view individual ratings reports you must be subscribed to SQM Research Ratings research. To subscribe, click HERE)

For further information: 
Rob da Silva - Head of Research
SQM Research
Tel:      (02) 9220 4606
Email:
 rob@sqmresearch.com.au

Louis Christopher - Managing Director
SQM Research
Tel:       (02) 9220 4666
Email:  
louis@sqmresearch.com.au

 
About SQM Research 
SQM Research is an independent property advisory, ratings and forecasting research 
house which specialises in providing accurate property related advice, research and data to financial institutions, property developers and real estate investors. For more information please visit www.sqmresearch.com.au
 
Research Methodology
In general, the assessment approach adopted by SQM Research incorporates a combination of qualitative and quantitative research techniques to assess property investment products. Information generated is passed through the SQM Research assessment model at the completion of the assessment process. The assessment model generates a product score, which correlates to a specific star rating (out of a maximum of five stars). Each star rating covers a scoring range, allowing products to be ranked within quarter star increments.
 
Following are descriptions for each of the star ratings, which have been developed as a guide for dealer group research teams and investment committees:
4.5 stars and above – Outstanding. Highly suitable for inclusion on APLs.
4 stars to 4.25 stars – Superior. Suitable for inclusion on most APLs.
3.75 stars – Good. Consider for APL inclusion.
3.5 stars – Average. Consider for APL inclusion, subject to advice restrictions.
3.25 stars – Caution required. Not suitable for most APLs.
3 stars – Strong caution required. Not suitable for most APLs.
Below 3 stars – Avoid or redeem. Not suitable for APL inclusion.
Hold – The rating is currently suspended until SQM Research receives further information. A rating is typically put on hold for a period of 2 days to 4 weeks.
Withdrawn – The rating is no longer applicable. Significant issues have arisen, and investors should avoid or redeem units in the fund.
 
DISCLAIMER
The rating contained in this document is issued by SQM Research Pty Ltd ABN 93 122 592 036. SQM Research is an investment research firm that undertakes research on investment products exclusively for its wholesale clients, utilising a proprietary review and star rating system. The SQM Research star rating system is of a general nature and does not take into account the particular circumstances or needs of any specific person. The rating may be subject to change at any time. Only licensed financial advisers may use the SQM Research star rating system in determining whether an investment is appropriate to a person’s particular circumstances or needs. You should read the product disclosure statement and consult a licensed financial adviser before making an investment decision in relation to this investment product. SQM Research receives a fee from the Fund Manager for the research and rating of the managed investment scheme.
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