Telstra shares advanced 27 per cent between their 2018 low and high. But that was not the only call the actuary-turned-investor got right. Mr Woods also bought Asaleo Care at 73¢, capturing the benefit of its share price recovery after Asaleo found a buyer for the Australian Sorbent tissue and Handee paper towel businesses.
‘A little bit of a growth bias’
A switch into gold producer Resolute Mining because of its favourable hedging also paid off, as did exiting retail and technology shares at the most opportune time.
“It’s a little bit of a growth bias, a little bit of a large-cap bias and a bit contrarian compared to other managers,” Mr Woods said. “My personal theory is the market tends to overreact to news.”
He has never spent money on marketing, and emphasised Panther’s long-term track record over its one-year performance.
Not all managers fall within the scope of Mercer’s survey, and home-grown hedge funds such as John Hempton’s Bronte Capital and Robert Luciano’s VGI Partners posted returns of 20 per cent and 17 per cent after fees in 2018.
Wall Street experienced the worst December since 1931 in 2018, which spilled over into global markets and sending the S&P 500 to its worst loss since 2008.
The worst performer over the year was the Forager Australian Value fund, ranked 93rd after posting a negative 19 per cent return. It held a position in Freedom Insurance, the company which the royal commission exposed as misselling funeral cover.
Over the final quarter, the Plato Australian Shares Income Fund took out the long-only top spot with a loss of 6.5 per cent and the Yarra Ex-20 Australian Equity Fund was down the most in the long-only category at negative 18.4 per cent for the quarter. However, its benchmark, the ASX ex-20, fell by more than the broader equity index over the same period.
‘Continuing slowing’ should help
Of the global managers tracked by Mercer, Hyperion Global Equity was the top performer over the year, generating a 16 per cent return. That was despite a 10.1 per cent loss over the fourth quarter of 2018.
The MSCI World ex-Australia index fell 11.1 per cent over the fourth quarter and rose 1.5 per cent for the year, according to Mercer.
Hyperion Global portfolio manager Mark Arnold benefited from positions in Mastercard, Costco and Amazon, and a higher cash weighting, to defy the volatility that erupted late last year.
“Traditionally our style works best in slowing economic environments or really low-growth economic environments,” Mr Arnold said. “A continuing slowing, particularly in the US and to a lesser extent in China, that should help the fund outperform going forward.”
Hyperion took profits in some internet stocks when they were setting record highs early in the year and deployed those gains into businesses such as Costco whose share price it believed didn’t reflect the full benefit of Trump’s tax cuts.
“We think the transition from a high-growth economy, particularly in the US, to a lower-growth situation isn’t going to be that good for equity markets overall,” Mr Arnold concluded.
‘We didn’t have anything that went south’
Prasad Patkar, manager of the Platypus Australian Equities Fund, ranked third in the survey of Australian long-only fund managers over 12 months, pinned successful investing in 2018 partly on avoiding the companies that issued profit warnings. Second-ranked was the Selector High Conviction Equity Fund’s 5.5 per cent return.
“We didn’t have anything that went south. There were no landmines,” Mr Patkar said of Platypus’ performance over the latter part of the year. Still, he had a few near misses. “There were a few that we looked at very closely,” he said, such as developer Lendlease.
Platypus sold out of the retailers early, and the fund manager admitted that avoiding the banks was “enormously helpful”.
“One of the things that we regret is that we had a few listed fund managers,” he said, including Pendal and Pinnacle which suffered with the equity market correction despite having already de-rated (or ascribed a lower multiple by the market). “They were a drag in the fourth quarter.”
Mr Patkar concluded “it was a tough year”.
‘We did well at the start’
Bennelong Australian Equity Partners investment director Julian Beaumont described the year as reasonable but composed of two distinct parts. “We did well at the start but then struggled,” he said. Bennelong ESG Australian Equities took out the socially responsible investing category with a 2.9 per cent return.
Stocks in the portfolio that started the year well but then gave back that outperformance included gaming machine firm Aristocrat Leisure and plumbing supplies group Reliance Worldwide, he said.
CSL was a good overall performer for the asset manager’s concentrated fund, as was BHP Group, Mr Beaumont noted.
He said that the fund didn’t prioritise cash in the final quarter, preferring to stay fully invested. Like most managers, Mr Beaumont emphasised the long-term nature of investing, saying “even a year is pretty short term for us”.
Going into the new year, he’s relatively constructive on the market. “Valuations are relatively attractive,” although the Federal Reserve could be a source of volatility as it changes course on US monetary policy.
Over three years, the best ranked long-only Australian shares manager is Allan Gray Australian Equity with a 16.4 per cent average return, and over five years, Bennelong Concentrated Equities with a 14 per cent average return.
In the Australian shares universe, covering all categories including long-only over three years, the median manager among 128 funds has returned 6.6 per cent a year versus the index’s 6.7 per cent average advance.