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SQM Research Ratings Update
August 2020
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Value has been Crushed!
Rob da Silva – Head of Research

We take a quick look at Australian Equity Managers (Large-Cap) and how Growth has performed versus Value, both through the Covid-19 Crisis and in the longer term. The news is not good (for value proponents).
The analysis covers 25 of the largest Growth funds and 25 of the largest Value Funds totalling just under $20 billion of Funds Under Management (FUM). The information is derived from SQM’s Funds Explorer Tool which in turn is powered by Morningstar data.

The Covid Crisis
The chart below tracks the daily average TRI of the 25 Growth funds and the 25 Value funds, along with the daily S&P/ASX 300 Accumulation Index as a market comparison. The TRI (Total Return Index) is the fund’s unit price with distributions reinvested in a manner that essentially creates an accumulation index of investment value. The time span covers a symmetric period of 130 days before the trough (on 23rd March 2020) and 130 days after the trough (ending on 31st July 2020).
It is clear that over this timeframe Growth has outperformed the market by a decent margin and has outperformed Value by a country mile!


Here are the numbers:
Return Comparison From 15-Nov-19 to 31-Jul-20
  Growth Value S&P/ASX 200
Total Return -6.92% -17.08% -11.38%
Excess Return 4.46% -5.70%  
Growth minus Value 10.16%    
That is over 10% difference in what is roughly three-quarters of a year – very disappointing for those who thought Value was due to have a resurgence.
You might have believed that Value should have outperformed during the downleg and perhaps lagged in the recovery. Wrong! Value has lagged markedly in both periods – see below.

The Crash
Return Comparison From 15-Nov-19 to 23-Mar-20
  Growth Value S&P/ASX 200
Total Return -25.08% -29.31% -25.43%
Excess Return 0.36% -3.87%  
Growth minus Value 4.23%    

The Recovery

Return Comparison From 23-Mar-20 to 31-Jul-20
  Growth Value S&P/ASX 200
Total Return 24.24% 17.29% 18.85%
Excess Return 5.38% -1.56%  
Growth minus Value 6.94%    

Has Value done better over the longer-term?  Not particularly – it has had some sporadic and mostly short-lived episodes of outperformance over the last 15 years. The majority of the time has seen Growth dominating, with the last couple of years seeing a veritable explosion in its advantage over Value.

(The chart shows Growth’s performance relative to Value, when the line is moving up, Growth is outperforming Value, and vice versa. The red arrows highlight the most significant episodes of Value outperformance) 


The table below summarises the performance statistics of the 25 Growth funds versus the 25 Value funds:
Total Returns 12-Months to 31-Jul-20  
  Growth Value Difference
Max 16.45 -4.12 -20.57
Top Quartile 1.43 -12.36 -13.79
Median -5.29 -16.17 -10.88
Bottom Quartile -10.00 -19.01 -9.01
Min -16.84 -23.38 -6.55
The last 12 months have been brutal, with Value underperforming materially across the entire spectrum – from bottom quartile to top quartile and beyond.
While this period has been particularly harsh, the results have been poor over three years:

Total Returns 36-Months to 31-Jul-20  
  Growth Value Difference
Max 14.37 6.79 -7.58
Top Quartile 11.16 1.10 -10.06
Median 6.13 -0.58 -6.71
Bottom Quartile 4.44 -1.65 -6.08
Min -2.52 -3.37 -0.86
…and 5 years:
Total Returns 60-Months to 31-Jul-20  
  Growth Value Difference
Max 12.72 6.39 -6.33
Top Quartile 8.16 2.95 -5.21
Median 6.64 1.69 -4.95
Bottom Quartile 4.65 0.85 -3.80
Min -1.64 -0.63 1.01
…and even 10 years:
Total Returns 120-Months to 31-Jul-20  
  Growth Value Difference
Max 15.17 9.02 -6.15
Top Quartile 10.29 7.19 -3.10
Median 7.52 6.26 -1.26
Bottom Quartile 6.33 5.57 -0.76
Min 3.21 4.93 1.72
…and 15 years! (you get the idea).
The Value “factor” has been researched, recognised, and accepted by academia for many decades now. It has been a well-established and successful investment style for some of the world’s best investors going back to Benjamin Graham.  At SQM Research we feel that Value is not dead, but for the time being it has been taking a helluva beating!
More on this topic next month.

Recently Published Reports

SQM Research's Top 5 SQM Rated Funds* - 31 July 2020

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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 - 31 July 2020
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SQM Research's Market Benchmarks - 31 July 2020

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Ratings Table
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For further information: 
Rob da Silva - Head of Research, SQM Research - Tel: (02) 9220 4606   Email:
Louis Christopher - Managing Director, SQM Research - Tel: (02) 9220 4666  Email:

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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:
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 * 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.

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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