The Aussie large-cap funds that have consistently beaten the market

Recently, Livewire embarked on a mission to review some of the best-performing funds for FY24. There were some seriously impressive numbers in there, with multiple managers delivering investors double-digit returns across multiple asset classes and a few making the list numerous times. 

But one year is a very short period. As we have seen in the last week alone, a lot can happen in markets - and one good move can make or break a manager over the shorter term. 

Typically, three years is considered to be the track record needed for new fund managers to receive ratings from research houses. Five years, or even ten years, is obviously a far longer period to be able to track a manager's consistency of performance. 

After all, while the market's most frequently muttered caveat, "Past performance isn't a reliable indicator of future performance" may be true, it can be incredibly illuminating. In fact, ASIC analysis found there was a strong correlation between poor performance in the past and the future. 

So, what if you could figure out which funds have been the most consistent performers over the long term? 

Morningstar has provided Livewire with the data to answer this very question, helping us to calculate the "batting average" or the ability of a manager to beat or match an index. 

For the five-year performance data, Morningstar calculated the batting average using 1-year rolling periods, stepped monthly. For the 10-year period, the batting average is calculated using three-year rolling periods, also stepped monthly. A rolling calculation was used to mitigate timing bias. The batting average is calculated as a figure out of 100. 

For example, a manager who beats or outperforms the market in every rolling period during a given time frame would have a batting average of 100. A manager who beats the market in half of these rolling periods would have a batting average of 50.

In this three-part series, we will be taking a look at the most consistent performers across Australian large caps, small and mid-caps and Australian domiciled global strategies. The data is calculated until the end of the financial year 2024 (i.e. 30 June 2024).

This first article is focused on Australian large caps - and we will crunch the data across three styles (blend, value and growth). For context, the average batting averages by style over 10 years are 33 for value, 35 for blend, and 44 for growth. Anything above 50 can be considered a good batting average. 

NOTE: Please drag your cursor across the tables below to see the entire tables. All data below is provided by Morningstar. 

Australia Fund Equity Australia Large Blend - 5 years

Australia Fund Equity Australia Large Blend - 10 years

Australia Fund Equity Australia Large Growth - 5 years

Australia Fund Equity Australia Large Growth - 10 years

Name	Inception Date	1 year Return	3 year Return p.a	5 year Return p.a	10 year Return p.a	Batting Average 5 years	Batting Average 10 years
Greencape High Conviction Fund	11/9/2006	13.20	6.67	9.42	9.37	65.31	90.59
Smallco Broadcap Fund	31/7/2008	24.19	9.04	11.20	12.44	69.39	87.06
Greencape Broadcap Fund	11/9/2006	12.52	5.58	8.87	9.38	53.06	80.00
Ausbil Australian Active Equity Fund	31/7/1997	10.09	7.30	9.70	8.96	71.43	77.65
Bennelong Australian Equities Fund	30/1/2009	12.77	-2.73	7.33	9.31	55.10	76.47

Australia Fund Equity Australia Large Value - 5 years

Australia Fund Equity Australia Large Value - 10 years

Breaking down the data with Steven Le from Morningstar

So why are we using a cricket/softball/baseball measure to judge funds? 

Well, Steven Le, the Associate Director of Manager Research at Morningstar believes that "batting average" is an important data point as it quantifies a strategy or manager's ability to consistently outperform a benchmark over time. This is important, as past performance can be a helpful gauge of a strategy or manager's ability in certain market environments. 

"This ultimately can help investors set realistic expectations for future strategy outcomes and determine its role in an investment portfolio," he says. 

That said, investors should avoid making any investment decisions based on the data above alone - as, of course, it cannot provide an exact guide to future performance. 

"From a historical performance standpoint, it’s important to understand other factors such as whether a strategy has benefitted from a tailwind or has faced a headwind that explains its absolute and relative performance, or whether the strategy/manager has met expectations in environments where it is expected to excel or underperform, to name a few," Le says. 

"Again, it’s unlikely that any single data point will provide a comprehensive understanding of a strategy, including past performance alone." 

Again, the batting average measure is far from perfect. It does not calculate the extent of a fund's outperformance or underperformance and does not take into account the risk that was taken by managers to receive these returns. Once again, it's just a data point in isolation, Le says. 

As some investors may have noticed, there are a few quant-focused strategies in the list above. While Le notes that these are not a new phenomenon, he agrees they are getting more attention recently because of the AI thematic - although he doesn't believe quant strategies will play a bigger role in portfolios going forward. 

In terms of managers that stand out from the rest of the pack, Le points to Greencape as a "high-calibre outfit". 

"Over the years, we have been impressed by their willingness to go the extra mile to gain insights not easily obtainable by the broader market in an asset class that is relatively information efficient," Le says.