Five Aussie equities funds that shot the lights out in 2022

It would be an understatement to describe 2022 as difficult. Interest rates skyrocketed at a pace not seen in decades. Risk assets, once on a flight path "to the moon", plummeted violently back down to earth. And the market's kryptonite, inflation, re-emerged at levels not seen for more than 30 years. 

Unsurprisingly, professionals and punters alike had a rough time of it. After all, many (if not most) of the investors who have navigated such markets before have long retired. 

In fact, 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. 

But some managers thrived in the new market environment. 

After nearly a decade of Growth's dominance, Value once again enjoyed its time in the sun. While the S&P/ASX 200 Growth Index sunk -8.4% in 2022, the S&P/ASX 200 Value Index ended the year relatively flat at 0.1%, outperforming the benchmark's loss of -5.5% during the year. 

So which fund managers led the pack in 2022? Livewire has crunched the numbers and uncovered the five best-performing funds from the past calendar year. 

How we compiled this list

How did we compile the best-performing Aussie equities funds for this list? Glad you asked. Our interns worked voraciously day and night, crunching performance figures from Morningstar so that you, my dear reader, can decipher the excellent funds from the adequate. 

These Aussie equities funds are all listed on the Livewire 'Find Funds' menu. That is to say, 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 

Note: Fund performance is typically viewed over longer timeframes than one year (i.e. three-year and five-year rolling). The table above simply captures the best-performing Aussie equities funds 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 

As mentioned briefly in the introduction to this piece, Value shot the lights out in 2022. As such, all five of the funds that ranked on this list are Value funds. 

Sector exposures that dominated amongst these funds included energy, financials and consumer staples, with an obvious lack of positions in growth names that many investors had come to know and love over the past decade. 

Another common attribute of all these five funds was a position in Woodside Energy Group (ASX: WDS). Every fund on this list had a position in Woodside at the beginning of 2022 and remained invested in the oil and gas giant as of 31 December. It will be interesting to see if this continues throughout 2023.  

#5. Allan Gray Australian Equity Fund - Class B

Managed Fund

Allan Gray Australia Equity Fund – Class B

Australian Shares

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Allan Gray is the house of contrarian investment in Australia, having established itself over the past 15 years as the go-to for deep value. Led by managing director and chief investment officer Simon Mawhinney and portfolio manager Suhas Nayak, this Fund has outperformed its S&P/ASX 300 benchmark on an annual basis since its inception in October 2012, as well as over 10 years, three years and (obviously) one year, but has underperformed over a five-year period.

What's the difference between Class A and, as listed here, Class B? Well, investors in the Class A version of the Fund pay a base/management fee of 0.75% per annum, and a performance fee of 20%. Investors in the Class B version pay no base/management fee, but pay a performance fee of 35% on outperformance. 

Back in January 2022, the Fund was heavily overweight the unloved energy and materials sector, with 50% of the Fund's assets invested in these stocks (compared to the benchmark's  28%). Its top 10 holdings featured stocks such as Alumina (ASX: AWC), Woodside Energy Group (ASX: WDS), Newcrest Mining (ASX: NCM), QBE Insurance (ASX: QBE), Sims (ASX: SGM), Incitec Pivot (ASX: IPL), ANZ Group (ASX: ANZ), Origin Energy (ASX: ORI), Santos (ASX: STO) and NAB (ASX: NAB) - many of which benefited from rising inflation, the war in Ukraine and rising interest rates over the past year.  

Where is the team at Allan Gray investing now? According to the Fund's latest monthly update, energy and materials are still on the up, with 43% of the portfolio invested in these sectors. As it stands, 60% of the Fund's assets are concentrated within its top 10 holdings - which include the same stocks as the list above, apart from NAB, Origin Energy, Incitec Pivot, and Santos. Instead, Ansell (ASX: ANN), Westpac (ASX: WBC), Virgin Money UK (ASX: VUK) and Fletcher Building (ASX: FBU) were added to the Fund's top 10. 

#4. Merlon Australian Share Income 

Managed Fund

Merlon Australian Share Income

Australian Shares

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Coming in fourth on this list is the Merlon Australian Share Income Fund, which combines fundamental research with portfolio diversification and downside protection. The Fund invests in undervalued companies that provide sustainable and tax-effective income to investors. 

Led by lead portfolio manager Neil Margolis, the Merlon Australian Share Income Fund has outperformed its benchmark since its inception in September 2005, as well as over 10 years, three years and one-year periods, but has underperformed over a five-year period. 

Like Allan Gray, the Fund had large positions in energy and financial players at the beginning of 2022, contributing to its success during the year. Back then, its top 10 holdings included Woodside, Santos, Origin Energy, Ampol (ASX: ALD), Alumina, Westpac, QBE Insurance, Unibail-Rodamco-Westfield (ASX: URW), Coles (ASX: COL) and AMP (ASX: AMP). 

According to the team's latest monthly update, the Fund is now overweight financials ex-property (with more than 40% of the portfolio invested in the sector). Its top holdings include AGL Energy (ASX: AGL), AMP, Coles, Insurance Australia Group (ASX: IAG), Origin Energy, Qantas Airways (ASX: QAN), QBE Insurance, Suncorp Group (ASX: SUN), Westpac and Woodside. 

#3. Lazard Australian Equity Fund (W Class)

Managed Fund

Lazard Australian Equity Fund (W Class)

Australian Shares

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Lazard only offers three Aussie equities-focused funds, and all three made this list. Taking home the bronze is the Lazard Australian Equity Fund, which delivered a 12-month return of nearly 16% in 2022. 

Led by portfolio managers Rob Osborn, Dr Philipp Hofflin, Aaron Binsted and Warryn Robertson, this Fund has outperformed its S&P/ASX 200 benchmark on an annual basis over 10 years, three years, and one year, but has underperformed slightly since its inception in December 2002 and over a five year period. 

Like the other funds on this list, the Lazard Australian Equity Fund was overweight financials, energy and consumer staples at the beginning of 2022. It was underweight materials and healthcare. 

Back then, its top five holdings (top 10 not available) included BHP Group (ASX: BHP), ANZ, Westpac, Woodside and Rio Tinto (ASX: RIO). 

Thanks to Woodside's stellar performance (its share price lifted more than 60%), the fund substantially benefited during the year.  

In September, Hofflin nominated Woodside as his top pick if markets were to close for five years on the Rules of Investing podcast. 

"This company has a fortress balance sheet, they bought the BHP petroleum assets entirely with equity so they almost have no debt, and their breakeven cost is something like $12 a barrel of oil - in a world where Europe is buying gas at $500 a barrel and the Asian gas price is somewhere near $250 a barrel," he explained. 

According to the Fund's latest update, its top five positions include BHP Group, Woodside, Rio Tinto, Commonwealth Bank (ASX: CBA) and Santos. 

#2. Lazard Defensive Australian Equity Fund

Managed Fund

Lazard Defensive Australian Equity Fund

Australian Shares

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Ending the year with a silver medal is the Lazard Defensive Australian Equity Fund, which delivered a return of nearly 19% in 2022. This Fund is designed to provide tax-effective income for investors by investing in Aussie equities with sustainable and growing dividends (or cash - with the fund able to hold up to 100% cash if needed - this is rare, in case you were wondering). This allows it to reduce exposure to any drawdowns, like what we witnessed in 2022. 

Led by the same portfolio managers mentioned above, this fund has easily outperformed its benchmark (the Reserve Bank of Australia cash rate) over every time period since its inception in July 2012, delivering investors a 10-year annualised return of 10.26%. 

A year ago, the fund had a 14% cash exposure, with large weightings towards financials, energy, consumer staples and industrials. By the end of December 2022, this cash weighting had lifted to more than 24% of the portfolio, with overweights to consumer staples and discretionaries, industrials and energy. It is now underweight financials. 

Its top holdings as of 31 December 2022 include Costa Group (ASX: CGC), Rio Tinto, Woodside, Suncorp, and Insurance Australia Group. 

#1. Lazard Select Australian Equity Fund (W Class)

Managed Fund

Lazard Select Australian Equity Fund (W Class)

Australian Shares

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Taking home the top gong is the Lazard Select Australian Equity Fund (W Class) with a 12-month return of more than 26%. This is the Lazard Aussie equities team's "best ideas" portfolio, holding anywhere between 12 and 30 stocks. 

This Fund aims to outperform the S&P/ASX 200 Accumulation Index by 5% per annum over rolling five-year periods (before fees and taxes) - and to do so, invests in locally listed equities that are "trading below their intrinsic value." 

This has helped the Fund outperform its benchmark since its inception in August 2002, as well as over 10 years, three years, and one year. Over 10 years, it has delivered annualised returns of 10.68%. 

Back in January 2022, this portfolio was massively overweight energy, financials and consumer staples compared to the benchmark (mostly energy) and held 29 stocks and just 0.3% of its portfolio in cash. It had $51 million in funds under management. Its top five positions were QBE Insurance, Woodside, Whitehaven Coal (ASX: WHC), Rio Tinto and AMP. 

By December 2022, the fund held 31 positions and boasted FUM of $69.1 million. Its top five positions remain pretty similar to the above, except that Whitehaven Coal has dropped off the list and has been replaced with Santos. 

So how is the team at Lazard positioned for the months ahead? Well, according to their latest monthly update, the normalisation (read: drawdown) in valuations is only "one-third to halfway complete". 

"This process should, in our view, continue in 2023 and beyond, providing a potential tailwind for our portfolios," Lazard said. 

Given we witnessed the fastest cash rate increases in "living memory" in 2022, economies are likely to weaken progressively throughout 2023, it added, with these two forces likely to dominate the market narrative over the year ahead.

"From a sector perspective, we continue to view energy positively, given the underinvestment in supply which is likely to result in higher prices and cashflows for producers for an extended period," Lazard said. 

"Insurance companies should also fare well, given earnings tailwinds from strong premium growth and higher bond yields." 

In comparison, Lazard is cautious of cyclical exposures (given the economic weakness it predicts is to come). 

Conclusion 

I want to take a brief moment to congratulate the fund managers mentioned on this list, particularly Lazard Asset Management, which took out the top three spots. It was certainly a very challenging year, but Value investors (like Lazard, Merlon and Allan Gray) really stuck to their knitting - and it paid off. 

(Of course, past performance is not a reliable indicator of future returns

That said, typically, investors will assess longer timeframes before investing in a fund (usually three, five or 10 years). If we filter this data over a five-year period, the list dramatically changes, with the Katana Australian Equity Fund coming out on top with an 11.21% annual return. This is followed by the Spheria Australian Microcap Fund (9.77% p.a. return), the Eley Griffiths Emerging Companies Fund (9.72% p.a. return), the Perpetual Wholesale Smaller Companies Fund (9.65% p.a. return) and the Prime Value Emerging Opportunities Fund (9.61% p.a. return).  

We also did not filter by market cap (e.g. smalls versus larges) or style (growth, value or agnostic) which would have also produced different results.  

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