Australian investors are biased towards local shares and looking backwards, according to Mercer, which released its investment report ranking the best performing fund managers and sector results.

The Australian sharemarket fell 11% in 2011, with Mercer finding it underperformed in global markets after rising 1.9% in the 2010 calendar year.

In ranking the Australian shares fund manager results, Mercer found that despite poor returns in 2011, stock volatility did actually decline but that the difference between an upper and lower quartile manager was the smallest since the 2004 calendar year.

BlackRock L/S Equitised fund took top position for the best performing Australian shares manager for 2011, returning 6.5%, in a massive jump from 109th position last year while Parker Enhanced Leaders was second, up from 137th position last year, with 4%, and Regal L/S in third with 3.1%. Aviva Investors and Investors Mutual rounded out the top five.

The bottom five performing Australian shares managers for 2011 was surprising with a massive decline from Independent fund from second position last year to 145th this year with -21.2% returns. Concord, CFS Leaders, FSP Leaders and Legg Mason Value were also in the bottom five.

Nick White, Mercer's director of consulting said investors exhibit a home bias to Australians equities that have traditionally been rewarded.

"This suggests that investors may be focusing on the rear-view mirror when they should be forward-looking," said White.

In the overseas shares market, equities were down 5.3% both in Australian dollar terms and in local currency. The poor results were attributed to European Sovereign debt crisis uncertainty and issues with the global economy.

In sectors, telecoms and utilities were the top performers for the year, up 29.2% and 9.5% respectively, while IT returned the lowest with -24.9% returns.

The average manager allocation is heavily weighted towards financials with 38.4% in September 2011, up from 36.6% in December 2010, despite its posting a calendar year return of -4.4%.

In second position was materials with 25% allocation in September and a calendar return of -24.1% while third position was held by consumer staples with an 8% allocation and a return of -0.4%.

According to Mercer, the biggest change of the year in regards to fund manager allocations was the decrease in exposure to the materials sector with the money moving into the financials sector.