The last earnings season was mixed, with only about half of the Australian companies that reported enjoying a stronger result than expected compared to consensus. Much of the FY19 consensus EPS upgrades came from companies outside the Top 10. By way of example Charter Hall Group’s interim results helped drive a stunning 11.75% gain in August, giving the company a A$5.9 billion market capitalisation.

Most Australian equity funds have tracking error constraints to market capitalisation weighted indices and therefore don’t have enough of a meaningful exposure to performance by companies outside the Top 10. The SPIVA® Australia Scorecard for the period ending 30 June 2019 once again shows that Australian equity actively managed funds are being outperformed by the S&P/ASX 200 Accumulation Index (S&P/ASX 200) with over 93% underperforming the market index for the year.

For Australian equities smart beta approaches such as equal weight offer investors alternatives to active management and have proven their worth on both risk, return and cost of implementation.

MVIS Australia Index (MVAUSTRG) vs.
MVIS Australia Equal Weight Index (MVMVWTRG)

Source: MV Index Solutions.

About the Author:

Arian Neiron is Managing Director and Head of Asia Pacific at VanEck Australia. He is responsible for the strategy and day-to-day operations of VanEck's Asian Pacific business. Prior to joining VanEck, Arian was a partner at boutique consulting firm Sunstone Partners, specialising in Asset and Wealth Management. Arian has a Bachelor of Commerce from Curtin University and a Diploma of Financial Services.

The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.