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Equity funds are pivotal in modern financial markets, serving as key vehicles for investors aiming to allocate capital across various asset classes, including stocks, bonds, commodities, and alternative investments. These funds pool money from multiple investors and are overseen by skilled fund managers who make investment choices based on specific strategies and goals.
The Australian private equity market has expanded notably in recent years, buoyed by economic recovery post-pandemic disruptions. Private equity funds have attracted substantial capital from investors, with assets under management in Australian-focused funds nearly tripling since 2010 to AU$66 billion, according to details released in April 2024 by the Reserve Bank of Australia. For comparison, the total market capitalisation of companies listed on the Australian Securities Exchange (ASX) is AU$2.7 trillion. This growth trend underscores heightened private equity fundraising activities and increased deal-making within Australia, highlighting the sector's growing prominence in capital markets.
Here are five Australian equity funds that are worth monitoring.
Merlon Concentrated Australian Share Fund
The Merlon Concentrated Australian Share Fund distinguishes itself with a portfolio of undervalued companies selected independently of index weights. Key features include rigorous fundamental research to deliver risk-adjusted returns, portfolio diversification without reference to index weights, and a focus on sustainable and consistent income through investments in undervalued shares expected to deliver an attractive dividend stream, supported by robust underlying cash flows.
As of 31 May 2024, the fund has 25-35 companies in its portfolio, with a2 Milk Co, Insurance Australia Group, Ramsay Health Care, Coles, and Fletcher Building among the top 10 holdings.
The fund’s benchmark is the S&P/ASX 200 Accumulation Index. The fund aims to exceed the benchmark's performance over consecutive three-year periods, including franking credits in its total return calculation.
The fund has outperformed its benchmark on a 3-year and 5-year basis.
Inception Date: 1 February 2018
Data Source: Fidante Partners Limited, as reported on the fund’s website
Image Source: © 2024 Krish Capital Pty.Ltd
Auscap Long Short Australian Equities Fund
The Auscap Long Short Australian Equities Fund aims to generate robust absolute returns and outperform its benchmark, the All-Ordinaries Accumulation Index. The fund invests in around 30-60 securities with a focus on value-driven, fundamental, long and short positions.
As of 31 May 2024, the fund has provided higher returns than its benchmark on a 1-year, 3-year, 5-year, and 10-year basis.
Inception date: December 2012
Data Source: Auscap Asset Management website; Image Source: © 2024 Krish Capital Pty.Ltd
Lazard Select Australian Equity Fund (W Class)
The Lazard Select Australian Equity Fund is a focused portfolio holding between 12 and 30 stocks. As of 31 May 2024, its top holdings include Rio Tinto, QBE Insurance, Woodside Energy, Whitehaven Coal and Aurizon. Actively managed, the fund primarily targets Australian equities believed to be trading below their intrinsic value. Characterised by high conviction, the portfolio maintains a significant active share and demonstrates low beta traits over time. The fund endeavors to provide long-term total returns surpassing those of the S&P/ASX 200 Accumulation Index.
The fund has outperformed the benchmark on a 3-year, 5-year, and 10-year basis, as of 31 May 2024.
Inception date: 22 August 2002
Data Source: Lazard, S&P, as reported on the fund’s website
Image Source: © 2024 Krish Capital Pty.Ltd
Hyperion Small Growth Companies Fund
The Hyperion Small Growth Companies Fund is suitable as a minor allocation (up to 25%) and consists of small-cap companies with high growth potential. It is ideal for those seeking capital growth and willing to take high risks along with a high return.
The top five holdings of the fund are Wisetech Global, Fisher & Paykel Healthcare, Xero Ltd, Hub24 Ltd, and Pro Medicus Ltd. The fund has significantly outperformed its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, over the last 20 years (as of 31 May 2024).
Data Source: Hyperion, S&P Global, as reported on the fund’s website
Lakehouse Small Companies Fund
The Lakehouse Small Companies Fund focuses on investing in rapidly growing small firms listed in Australia and New Zealand, often unknown to many investors. These companies are smaller, less widely followed, and offer substantial growth potential. The fund typically maintains 5% to 15% of its capital in cash, adjusting based on current investment opportunities, and may allocate up to 10% of its capital to unlisted companies expected to IPO within a year. Its goal is to exceed the performance of the S&P/ASX Small Ordinaries Accumulation Index over consecutive 5-year periods.
Inception date: November 2016
Data Source: Lakehouse Capital Website; Image Source: © 2024 Krish Capital Pty.Ltd
To wrap up, these five Australian equity funds showcase diverse strategies and decent performance records within the dynamic landscape of the country's capital markets. With a focus on presenting excellent returns and managing risk effectively, these funds represent compelling options for investors. However, past performance doesn’t always guarantee future returns and one must do own’s proper research before allocating money to any fund.
