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In this edition of the newsletter, SQM Research has compared the performance of the Australian equities managers, value Vs Growth and also managed futures Vs long/short funds. This comparison was conducted over Q4 20128 to Q1 2019 – encapsulating a very sharp correction and an equally strong recovery. Funds in each category are subject to a selection criteria consisting of factors such as (but not limited to) size and track record length. S&P/ASX 300 is used as the benchmark.
The index recorded the best risk/return profile for the period, but value outperformed growth.
The index recorded the best risk/return profile, but Managed Futures Funds outperformed Long/Short Funds.
Putting it altogether:
Given the negative returns in the period, Sharpe Ratios become redundant. It is clear that alternatives strategies like the managed futures and long/short funds reduced volatility, but also achieved lower returns.
In aggregate of the three month of Q4 2018, the ASX300 returned -8.56% while managed futures returned the highest with -3.62%, providing 4.94% outperformance. Growth funds performed the worse with an underperformance of 3.62%
Where the alternatives sector lagged the markets was in Q1 2019 (3M returns), where managed futures underperformed by 8.99% and Long/Short funds underperformed by 6.66%. The trends lead us to believe that in times of equity market stress such as Q4 2018, particular alternatives style funds, managed futures in this instance, did provide defensiveness.
SQM Research's Top 5 SQM Rated Funds* for March 2019
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* 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 March 2019
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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
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.
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.