Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Strong finish for fund performance
Pictured: Kirby Rappell
Big super funds are likely to have had their best calendar year since at least 2000, according to preliminary figures from SuperRatings. The median fund balanced option returned 15.5 per cent in the 12 months to December 31, making it the best year since the research firm began tracking this index in 2000.
But calendar years are not financial years and financial year returns are what members “eat”. There has been one better financial year over that period, according to Kirby Rappell, SuperRatings’ research manager. It was 2006-07, when the median return was 15.7 per cent. Prior to the establishment of the current index, there was also a better financial year measured by SuperRatings: 1996-97, when the median return was 18.0 per cent. The actual return in 2012-13 was 14.8 per cent. The worst calendar year performance was minus 19.7 per cent in 2008.
Despite being behind in early December, funds benefitted from the late “Santa rally” to be up an estimated 0.9 per cent for the month.
SuperRatings said last week: “The performance of listed equity markets was the key driver of this recovery in the second half of December. Both Australian and international equity markets recovered strongly to finish positive for the month. The S&P/ASX 200 Index closed higher in five out of the last seven trading days to end the year, and finished December up 0.6 per cent. Markets across the globe also recovered strongly, with the MSCI World ex-Australia Index recording a 2.1 per cent gain for the month. The fall in the Australian dollar over the month also assisted international equity returns for those funds that remain in an unhedged position.”
