The majority of New Zealand share managers retained their benchmark-beating reputations over 2014, according to a new Mercer report.
“Of the 11 managers in our survey benchmarked to the NZX50 Index, close to all outperformed, though the spread of outcomes was reasonably wide,” the Mercer survey says.
David Scobie, Mercer NZ senior consultant and author of the study, titled ‘Powered up: the state of play with New Zealand share managers’, said most local equities fund managers have consistently beat their respective NZX benchmarks over most time periods.
“New Zealand is a fruitful place to be actively managing stocks,” Scobie said. “Alpha is achievable.”
The Mercer results tally with other manager surveys, including a 2013 Melville Jessup Weaver report , that found the New Zealand share market has historically rewarded active management.
Scobie said the high quality of New Zealand institutional fund managers combined with the “quirky” nature of the local share market could partly explain the consistent outperformance.
Over 2014, those managers with a higher weighting to Australian stocks, particularly unhedged exposure, suffered in comparison to more ‘pure’ NZ equities funds, the Mercer report says.
“Exposure to smaller cap stocks as a whole was not well rewarded in 2014 as the market preferred to focus on higher quality earnings,” Mercer says.
Scobie said managers with low-to-zero Xero holdings also did well in 2014 as the stock plummeted, reversing the 2013 experience.
Despite the strong performance of local share managers, the Mercer report found many were reviewing capacity constraints in light of the two large NZ equities mandates currently in the market.
Both of the mandates, on offer from AMP Capital and the New Zealand Superannuation Fund, were “expected to be near or above $250 million”, the report says.
“All managers will have different capacity issues depending on factors like investment style or process,” Scobie says. “Usually, the portfolio managers themselves know better than anyone if capacity is starting to affect performance.”
Last week, for example, the Devon Alpha Fund, which invests in a concentrated portfolio of 10-15 Australasian shares, closed to new money after reaching about $120 million under management.
In a 2013 Mercer paper ‘Keep your eyes on the size’, Scobie put the closed-to-new-money point for “large cap or all cap managers” at between 0.5-1 per cent of the market capitalisation in developed countries such as the US, UK and Australia.
According to the latest market data, the NZX equity market is valued at $96.5 billion.
Mercer research feeds into its multi-manager selection process, which currently has Devon, Harbour and Milford as underlying NZ equities managers.