Value fund managers made a highly anticipated comeback in the first quarter of 2021, Mercer's latest analysis of Australian equities performance shows.
In the year to March 2021, the Australian Shares Investment Manager Performance Survey revealed the top five funds that delivered above-median returns are Allan Gray Australian Equity, Ausbil Australian Active Equity, ECP AM All Cap, Martin Currie Australia Value Equity and Perennial Concentrated Australian Shares.
Three out of the five, Allan Gray, Martin Currie and Perennial, are value strategies invested across the energy, financial and materials sectors, helping drive the index upwards.
Head of portfolio management for Mercer in the Pacific Ronan McCabe commented the latest findings show the recovery in value stocks.
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"While we don't know whether the current outperformance of value will be sustained, we do believe this approach has the potential to offer diversification of excess returns and enhance expected outcomes. Without exposure to value, investors may risk missing out on the benefits of that diversification," he said.
Value-style investing has suffered a prolonged period of underperformance, with many critics predicting its days are numbered.
"Our surveys have shown us over the years that value as a style has faced many challenges over the past decade, and these difficult market conditions in Australia may continue for some time," he said.
"After a protracted period of underperformance spanning over a decade, Australia is witnessing the strong performance of value factors seen elsewhere in the world."
The Lazard Australian Equity and Martin Currie Australia Real Income funds were two value strategies that fell below median returns for the period.
"Value, along with other return-enhancing factors such as quality, momentum, size and low volatility, is one of five key 'factors' that can be used when diversifying to ensure portfolios have exposure to a range of systematic return drivers," McCabe said.
Overall, Westpac, ANZ and NAB were the three largest contributors to the index's performance. Financials were the standout contributor, delivering 12.1% over the quarter, followed next by communication services and consumer discretionary.