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SQM Research Ratings Update
July 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.
 
 
Profile of the Largest Australian Small Cap Funds
 
This section takes a quick look at the profiles of the largest 63 funds in the Australian Equities Small-Cap category.  The time series analysis of returns covers the 5 years ending June 2019.

Style

Fund Size

Management Fee


Alpha – “Beating the Market”
 
It seems that small cap managers are reasonably adept at “beating the market”. The tables and charts below show that around 56% of funds have outperformed the market over 5 years, and 73% had a positive Sharpe ratio.
 
The “market” in this case is the iShares S&P/ASX Small Ordinaries ETF (ASX Code:ISO), a $103 million ETF that tracks the S&P/ASX Small Ordinaries Index. It charges 55 basis points and returned 8.72% over the 5 years to June 2019, compared to 9.26% for the S&P/ASX Small Ordinaries Index. This is an unsurprising under-performance of 55 basis points (i.e. the fee). It has a tracking error of a mere 26 basis points (0.26% 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 Small Cap Manager Cohort (63 funds) over 5 years to June 2019



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 under perform”.




Most Popular stocks in the Top 10 Holdings of the AEQ Small Cap Manager Cohort (63 funds)


Recently Published

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

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SQM Research's Market Benchmarks for June 2019

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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.
4.25 stars - Superior. Suitable for inclusion on most APLs.
4 stars - Superior. Suitable for inclusion on most APLs.
3.75 stars - Favourable. Consider for APL inclusion.
3.5 stars - Acceptable. Consider for APL inclusion.
3.25 stars - Caution required. Not suitable for APLs.
3 stars - Strong caution required. Not suitable for APLs.
Below 3 stars – Avoid or redeem. Not suitable for APLs.
Hold - Rating is suspended until SQM Research receives further information. A rating is typically put on hold for a period of two days to four weeks.
Withdrawn - Rating no longer applies. Significant issues have arisen since the last report date. Investors should consider avoiding or redeeming units in the fund..
 * The definitions above are not all encompassing and not all individual items mentioned will necessarily be relevant to the rated Fund. Users should read the current rating report for a comprehensive assessment.

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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