Australian Active Funds Face Deep Underperformance

Australian active fund managers have experienced a challenging year, with a significant majority underperforming the broader market. Data from S&P Dow Jones Indices reveals that approximately 78 per cent of actively managed Australian equity funds lagged the S&P/ASX 200 Index in the first half of the year. The average active portfolio returned a mere 0.2 per cent, starkly contrasting with the benchmark’s 2.4 per cent gain. This trajectory puts the industry on course for its poorest one-year performance since 2018 and marks the second-highest rate of underperformance since tracking began in 2013, increasing pressure on investment firms.
A relentless rally in the ASX’s largest companies is the primary driver behind this struggle, with the 20 biggest firms now accounting for 63.4 per cent of the ASX 200. This market concentration, combined with a sharp rotation in leadership from banks to mining stocks—led by BHP’s substantial rally—has made stock picking difficult. Growth-focused managers also contended with a global rout in software stocks earlier in the year, compounded by rapid interest rate rises from the Reserve Bank of Australia. Morningstar’s director of manager research, Matt Olsen, cautioned that sustained underperformance could lead to investor outflows, intensifying business pressure.
The challenging environment has seen consequences, with Australian Unity closing Platypus Asset Management. Platypus Asset Management, a Sydney-based firm managing Australian equities funds, saw its flagship fund lag the ASX 300 Accumulation Index by 22.9 per cent over the year to July 31. Sue Lee, S&P Dow Jones Indices’ head of index investment strategy, noted structural reasons for underperformance, including increased market professionalisation and competition. She highlighted that only 35 per cent of ASX 200 constituents outperformed the index, narrowing the pool for successful stock identification. Over a 15-year timeframe, 89 per cent of funds have trailed the ASX, though L1 Capital notably bucked the trend by betting against large-cap companies.