The top-performing Aussie equity funds for FY22-23

We all know that 2022 was a tough year for investors. Inflation and interest rates took off, previously impervious risk assets derated, and many fund managers lost money.

Of the 87 Aussie equities-focused managed funds listed on Livewire's Fund Database, 61% (53 funds) lost money in 2022. Meanwhile, 15% (13 funds) delivered negative returns of more than -20% during the year.

Things steadied in the back half of last year, however, and off a low of around 6,400 in September, the ASX 200 rallied back above 7,000 and even challenged the 7,600 level in early February.

Over the past 12 months, of the more than 100 funds now listed on Livewire’s Fund Database, you could count on one hand those with negative performance. Meanwhile, the top 5 for overall performance (across both small and mid/large cap) all delivered returns north of 20%. 

So, which fund managers led the pack in FY22/23? Livewire has crunched the numbers and uncovered the five best-performing funds from the past year. 

How we compiled these lists

How did we compile the best-performing Aussie equities funds for this list? Glad you asked. We crunched performance figures from Morningstar so that you can sort the excellent funds from the adequate.

These Aussie equities funds are all listed on the Livewire 'Find Funds' menu (top right-hand side of your page). It should be noted that this is not an exhaustive list of all Aussie equities funds domiciled in Australia. There are others that are not listed in Livewire's 'Find Funds' marketplace.

The filters we used were:

• In the “Fund type” box, select “Managed Funds”

• In “Asset Class”, select “Aussie equities"

• We then manually filtered results based on 1-year returns.

The Results

Please note that we have gone one step further by manually separating out the top 5 performing funds for each of the large-to-mid-cap, and small-to-mid-cap categories. 

Top performing large to mid-cap funds

Top performing small to mid-cap funds

Note: It should not be lost on anyone that in many instances, the strong performance in FY22/23 was recovering what was given up in 2022. Furthermore, fund performance is typically viewed over longer timeframes than one year (i.e. three-year and five-year rolling periods). Past performance is not a reliable indicator of future return. 

The tables above simply capture the best-performing Aussie equities funds, in their respective categories, for the past 12 months. All data is supplied by Morningstar. If you would like to conduct your own research into top-performing funds, you can do so by clicking here.

Major themes

In 2022 it was the value managers that performed best, generally speaking, whilst growth managers struggled. 

This time around it was generally the growth managers towards the top of the overall performance list. The only value manager to feature was Allan Gray, which came in at #5 on the best-performing large to mid-cap managers. 

And whilst small-cap managers took out the top two spots, mid and large-cap managers dominated the middle part of the top 10. 

Top performing large-to-mid cap funds

#1 Merlon Concentrated Australian Share Fund

The fund is a portfolio of what Merlon considers to be undervalued companies constructed without regard to index weights. The portfolio manager is Neil Margolis. The top 10 holdings, as per the May monthly fact sheet, were as follows:

Differentiating features of the fund (from the Merlon website)

• Deep fundamental research. This is where we spend the vast majority of our time and ultimately how we expect to deliver superior risk-adjusted returns for investors.

• Portfolio diversification with no reference to index weights. The benchmark unaware approach to portfolio construction is a key structural feature, especially given the concentrated nature of the ASX 200 index.

• Sustainable income: Potential for consistent and sustainable income by investing in undervalued shares expected to deliver an attractive dividend stream, supported by strong underlying cash flows.

The fund aims to outperform the benchmark on a total return basis over the medium to long term. The Fund typically holds 25-35 stocks and has a minimum investment timeframe of at least five years.The Fund has outperformed its benchmark on 1, 3, and 5-year timeframes. 

#2 Auscap Long Short Australian Equities Fund

The fund targets strong absolute risk-adjusted returns, looking to invest in companies that are considered to generate strong cash flows and to be trading at attractive prices. The investment team has over 50 years of combined experience in the financial services industry from leading investment managers and global investment banks. The investment team are significantly co-invested in the Auscap funds.

The fund aims to generate strong absolute returns in excess of the Benchmark, being the All Ordinaries Accumulation Index, and is managed by Tim Carleton.The fund has outperformed over three-year, five-year, and 10-year periods. 

#3 Hyperion Australian Growth Companies Fund

Hyperion Asset Management has two Australian equity-focused funds, both of which made it into the top 10 overall. 

The Hyperion Australian Growth Companies Fund seeks to achieve medium to long-term capital growth and returns by investing in proven, high-quality Australian companies listed on the ASX. The fund aims to achieve a total return exceeding the S&P/ASX 300 Accumulation Index over a five-year horizon.

#4 Lazard Select Australian Equity Fund (W Class)

The Lazard Select Australian Equity Fund is a highly concentrated portfolio that will hold between 12 and 30 "best ideas." It is an actively managed portfolio that typically invests in Australian equities that Lazard believes are trading below their intrinsic value. 

It is a high-conviction portfolio with high active share and low beta characteristics over time. The fund’s objective is to achieve total returns (including income and capital appreciation and before the deduction of fees and taxes) that exceed those of the S&P/ASX 200 Accumulation Index by 5% per annum over rolling five-year periods.

#5 Allan Gray Australia Equity Fund – Class B

The fund seeks to provide a long-term return that exceeds the S&P/ASX 300 Accumulation Index (Benchmark).

The fund employs the Allan Gray investment philosophy to search for investments, having regard to defined investment restrictions. Allan Gray Australia employs a long-term, fundamental bottom-up contrarian investment style that has a deep value bias.

Top performing small-to-mid cap funds

#1 Hyperion Small Growth Companies Fund

Hyperion Asset Management has two Australian equity-focused funds, both of which made it into the top 10 overall. 

The Hyperion Small Growth Companies Fund is made up of, what Hyperion considers to be, the best Australian small-cap companies with high growth potential and seeks to achieve long-term capital growth by investing in Australian companies primarily listed outside the S&P/ASX 100 Index.

The fund has outperformed its benchmark over five and 10-year periods, delivering 9.2% and 10.62% respectively to May 31, 2023 (vs 2.46% and 6.01% respectively for the benchmark S&P/ASX 200 Small Ordinaries Accumulation Index over the same periods).

The strategy uses quantitative and qualitative analysis, investing in small-cap, growth-oriented companies. The Fund is highly concentrated with roughly 15-30 stocks.

As per the Hyperion website, the fund’s investment portfolio holds companies that it considers to:

• Own high-quality business franchises

• Have above-average growth potential

• Have low levels of gearing

• Have earnings that should be sustained and grow in the long run

As per the most recent fund update (April), the top five holdings were as follows: 

Interestingly, as per the July 2022 fund update, the top five holdings were as follows:

#2 Lakehouse Small Companies Fund

The Lakehouse Small Companies Fund invests in fast-growing small companies listed in Australia and New Zealand. The companies Lakehouse invests in are described as "companies that most investors wouldn't have typically heard of. They’re much smaller, aren’t as widely followed, and have much more potential upside".

The fund will typically hold 15 to 30 high-conviction investments at a time and has a long-term time horizon. The Fund’s objective is to outperform the S&P/ASX Small Ordinaries Accumulation Index over rolling 5-year periods. The portfolio manager for the Fund is Donny Buchanan. 

As per the Lakehouse website, the fund is searching for companies that present the following characteristics:

• Strong positions in growing markets.

• Pricing power with customers and suppliers.

• Durable competitive advantages are grounded in scale, strong brands, network effects, or high customer switching costs.

• Aligned and experienced management teams with strong track records of capital allocation.

• Conservative balance sheets.

• Attractive valuations that afford upside to our estimate of fair value.

#3 First Sentier ex-20 Australian Share Fund

The fund's strategy is to invest in mid to small-cap companies that the Investment Manager believes are growing strongly and generating positive returns on capital. 

By tapping into the broader opportunity set of the S&P/ASX 300, the fund is able to diversify away from the larger financials and resources companies that dominate the S&P/ASX 20 Index and focus on medium to small cap, quality Australian companies that the investment manager believes have strong balance sheets, earnings growth and high or improving returns on invested capital. 

The investment objective is to provide higher, long-term capital growth with some income by investing in the broader set of Australian companies in the S&P/ASX 300, but outside the S&P/ASX 20 Index. To outperform the S&P/ASX 300 Ex S&P/ASX 20 Index over rolling three-year periods before fees and taxes. 

#4 Eiger Australian Small Companies Fund

The Eiger Australian Small Companies Fund provides exposure to a select, actively managed portfolio of stocks with a small-medium level of capitalisation listed, or expected to be listed, on the Australian Securities Exchange (ASX) and the New Zealand Securities Exchange (NZX).

Key features of the Fund (from the Eiger Capital website)

• Diversified portfolio: Provides access to a portfolio of small to medium-sized companies diversified across all sectors in Australia and New Zealand.

• Experienced investment professionals: Access to a specialist investment team with over 60 years of combined experience investing in small to medium companies.

• Robust investment process: Stringent research process driven by fundamental, in-depth and comprehensive analysis of a business’s operations and management.

• Access to growing companies and industries: The smaller companies market is comprised of many fast-growing businesses that capitalise on changing industry dynamics and innovation.

#5 Eley Griffiths Group Small Companies

Key features of the fund (from the Eley Griffiths Group website)

• Invests in shares of ASX & NZX listed companies that fall outside S&P/ASX 100 index

• Long-only portfolio consisting of 35-55 stocks

• Average market capitalisation as of 31 March 2023 ~$2B

• The Fund aims to outperform the S&P/ASX Small Ordinaries Accumulation Index over a rolling 3-year period.

• This fund is appropriate for investors with “High” and “Very High” risk and return profiles. A suitable investor for this fund is prepared to accept high risk in the pursuit of capital growth with a medium to long investment timeframe. 

Conclusion 

Congratulations to the fund managers who featured on the lists above, particularly Hyperion, which landed a spot on both the small and mid/large cap lists. 

As noted above, focusing on a single year, whilst interesting, is not a particularly robust way to select a fund manager and the exceptional performance in FY22/23 followed a pretty horrific (generally speaking) calendar 2022.

If we were to filter this data over a five-year period, the list would change significantly. So, for anyone doing research, make sure to consider longer timeframes and, in particular, the timeframes recommended by the managers themselves. 

This article was first published for Livewire Markets on Monday, 10 June 2023.