Sixty percent of large cap managers failed to beat the index over the past year according to the 2016 mid-year review by Dow Jones of active versus passive investing, while over five years almost 70 per cent of managers couldn’t match the major index.

The results were better if investors had given their money to a small or mid-cap manager. Although just over 61 per cent failed to beat their benchmark index over a year there was some good news if investors allowed them more time to generate returns.

Over a five year time frame about 62 per cent of fund managers in small and mid-caps did better than the index. Small and Mid-Cap stocks have been fertile ground for investors looking for growth over the past few years with the poor performance of the four major banks and miners such as BHP Billiton and Rio Tinto dragging down the large cap index.

The worst performance, however, came from active managers of global shares, bonds and property trusts with more than 8 out of 10 funds across all three asset classes failing to do better than their relevant benchmark index.

How does this relate to your portfolio?

Australian Private Capital’s patient strategic asset allocation approach to portfolio management lowers costs through reducing trading costs, maximising the use of the 50% capital gains tax discount and where prudent, using franking credits to the investor’s advantage.  These aspects of our philosophy are designed to improve net rates of investment return over the long term.  Another benefit of this approach is the capturing of small company and value company sector returns that are better than the broader market,  when they occur.  As the table below illustrates, when specific sectors ‘have their time in the sun’, it usually happens quickly.  Therefore by applying a patient approach to portfolio management, rather than trying to ‘time markets’ or ‘pick the winners’, will tend to reward the investor over time.


Category 6 Months 1 Year 3 Years
S&P ASX 300 Index (Total Return) 10.43% 11.79% 6.57%
Australian Large Companies 11.79% 12.92% 7.10%
Australian Value Companies 23.49% 28.92% 8.54%
Australian Small Companies 8.73% 14.58% 6.24%