Key Points

    • We note that Australian equities core managers have delivered better risk-adjusted returns during Covid- 19 and performed better compared to peers.
    • We find that investors may allocate a high proportion of portfolios to core managers as they look to capture the best balance on growth and cheapness.
    • We conclude that core active managers need to improve their upside and downside payoffs from their bets.

      Australian Equities Core Managers – Have Delivered better Risk-adjusted Returns during Covid-19

      Many investors and asset allocators break their equity managers across various style such as Growth, Value and Core. While Value managers generally have portfolio companies that exhibit cheapness (lower PE, lower book to price than the market), growth managers often focus on earnings, cashflows and asset growth. Their portfolios also have companies that generally exhibit higher growth than the index. Core managers on the other hand, look to capture the best of both worlds by picking both Value and Growth companies or those that appear well balanced on growth and cheapness. This explains why certain investors refer Core managers as GARP – Growth at Reasonable Price. This style classification is useful to investors as it provides a simple framework for checking diversification in a multi-manager portfolio. It allows one to better understand the context for short-term under and over performance.

      Performance Behaviour and Role in Client Portfolios

      Generally, investors tend to seek diversification across style in their equity portfolio. This approach means they do not have to guess which style does better as they are exposed to all types of stocks, and therefore the portfolio should prove resilient in either Value or Growth favored environments. Our analysis shows that this is generally true for Core managers when compared with style specific managers. For this reason, many investors allocate a substantial portion of their portfolio to Core managers.

      Australian Core Equity managers have Managed Covid-19 Period better based on Risk- adjusted Returns:

      How did Australian Core managers perform during stressed periods? To answer this question, we review the Risk-adjusted returns of 60 core managers. We use a commonly referred measure called information ratio. Information ratio measures the unit of active returns (excess return relative to the benchmark) to the unit of active risk (tracking error).


Exhibit 1: Risk-adjusted performance of Core Australian Equity Managers

ANalyst Analyst Insight – Australian Equities Core Managers

Exhibit 1 shows that the performance of the median core manager in Australian shares was 0.34 during Covid-19 crisis. This highlights a healthy result as investors have been rewarded the active risk taken. During the GFC and Euro-zone crisis, the median information ratio was 0.22 and -0.1, respectively.


Australian Core Equity managers have Managed Covid-19 Period with similar downside protection to previous crisis

How have these managers performed from an up-side, downside perspective? Upside capture ratio is a measure that indicates the percentage of market returns captured by a manager during an up market move. The downside capture ratio is a measure that indicates the percentage of returns captured by a manager during a down-market move.

Daily returns data analysis shows that the median Australian equities core manager has delivered 98.3% of the down market move during the Covid-19 crisis period. While this number is indicating a better downside capital protection than passive funds, it could certainly be higher. The downside protection statistic is very similar to Eurozone Crisis and GFC.

The upmarket capture is very similar during Covid 19 period and Eurozone crisis period. Both are much more superior to the GFC experience but not better than the market. When the skewness (distribution) of downside and upside capture is considered, Australian core active managers have much work to do to improve the upside and downside pay-offs from their bets.


Exhibit 2: Up market and Down market Performance of Australian Core Equity Managers

Analyst1 Analyst Insight – Australian Equities Core Managers

Amongst the distribution of 60 managers, it is important to remember that there are managers that have delivered very strong payoffs. If you are interested in exploring the managers that excel based on upside and downside performance perspectives, contact us at


About the author

Jay Kumar is an independent analyst and founding director of Foresight. He has over 25 years of experience in investment research, analysis and management. Jay gained his investment specific experience at the Reserve Bank of Fiji, Morningstar, ING Investment Management and ANZ Wealth.

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