van Eyk Research has released its 2014 Australian Equities Review –as it enters the final stages in its highly-anticipated 2014 Fixed Income Review.
According to the review, value managers have significantly outperformed growth and style-neutral managers over the last three years with lower levels of risk, however, investors should brace themselves for extremely challenging economic conditions ahead.
A number of fund managers who participated in van Eyk’s latest Australian Equities Review believe there are still some pockets of value left in the market but the general consensus is that the market is fair-to-fully valued.
Robert da Silva, van Eyk’s head of manager research and deputy chief investment officer said the majority of large cap value managers, and various style-neutral managers, agreed that the valuations of the big banks had become stretched. Broadly, defensive and high yield stocks appeared to be at full, or near full, value.
“There continues to be a flight to quality and yield stocks, which can deliver growth at the micro level within the context of sub-par macroeconomic growth,” da Silva said.
Despite being underweight the financial sector, large cap value managers posted some stellar returns for the year to June 30, 2014. Growth managers, on the other hand, were comfortable being overweight banks, despite acknowledging the sector was at, or approaching, full value.
Value and growth managers in the large cap space were relatively optimistic on the materials sectors, notwithstanding the battering that mining companies have taken in the past few years. Both groups maintained overweight positions greater than 4 per cent.
In the small caps space, most managers were unwilling to rotate into the materials sector and held an underweight position due to the Small Ordinaries Index’s composition of poor quality mining and mining services companies.
In total, van Eyk considered 98 strategies across both the large cap and small cap universe with four large cap managers and four small cap managers receiving the firm’s highest rating of “AA” while 22 large cap and nine small cap managers were awarded an “A” rating.
Of the 98 strategies considered, 56 strategies participated in the review.
van Eyk’s research team, which is headed by da Silva, is currently in the middle of the 2014 Fixed income Review. The results of the Fixed Income Review are scheduled to be released in coming weeks.
Pre-screening is also underway for the 2014 International Equities Review.
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