5 best and worst performing equity funds of FY2018

Big bets on Flight Centre (ASX: FLT) and Reliance Worldwide (ASX: RWC) paid off for one Australian fund manager, while overweight positions on Telstra (ASX: TLS) hurt others, according to the latest Morningstar data.

Of the funds rated by Morningstar analysts, Bennelong's silver rated Australian Equities Fund was the top returning fund in the Australian Equities Large Cap category for financial year 2018, returning 26.31 per cent for investors.

Overseen by seasoned portfolio manager Mark East, the fund outperformed the S&P/ASX 200 index by 7.36 per cent in 2017, and 11.64 in the six months to 30 June 2018. This was helped by strong positions in global biotech company CSL Limited (ASX: CSL), whose share price leapt almost 40 per cent, plumbing manufacturer Reliance Worldwide Corporation (ASX: RWC), up over 50 per cent, and travel retailer Flight Centre Australia (ASX: FLT).

Bennelong was significantly underweight financial services stocks (11.3 per cent) relative to the index which allocated 34.35 per cent to the sector.

"Bennelong Australian Equity’s persistent ability to build high-conviction portfolios with exposure to favoured market themes continues to impress," Morningstar analyst Matthew Wilkinson says.

"The firm’s research is an edge and notably has redirected the portfolio in 2012 by cutting exposure to mining services, increasing holdings in yield proxies in 2015 and sharply increasing materials exposure in mid-2016. Identifying such market trends requires adept timing – an uncommon ability, but one the team is building a strong track record of."

The Platypus Australian Equities fund, managed by Prasad Patkar, took out second place, returning 25.92 per cent in the year to 30 June 2018.

The worst performing fund in the Morningstar rated Australian Equities Large Cap category, Vanguard Australian Shares High Yield, delivered 2.50 per cent to investors.

"Poorly timed buys into materials such as BHP and Rio Tinto hurt in 2016," Morningstar analyst Anshula Venkataraman says. "Vanguard recouped some of these losses in 2017, though this was curtailed as exposure to Telstra took a bite out of returns."

Morningstar Rated Funds | Australian Equity Large Cap

*Note: Total Return 1 Year accounts for management, administrative and 12b-1 fees and other costs taken out of fund assets.

Mid/small Cap managers

Focusing on companies that fall outside the S&P/ASX 100 index proved a successful strategy for investors over the last financial year. The top performing fund in the Morningstar-rated Australian Equity Mid/Small Cap category returned 32.93 per cent over this period.

Despite a poor showing in 2016, bronze-rated Eley Griffith Group Small Companies stormed back in financial year 2018, with a well-timed bet on online payments company AfterPay Touch Group (ASX: APT), whose share price skyrocketed 246 per cent in the 12 months to 30 June 2018, and mineral exploration company Saracen Mineral Holdings (ASX: SAR).

The fund underperformed the S&P/ASX Small Ordinaries index by more than 3 per cent in 2017, but caught up in the last six months, outperforming by 5.14 per cent.

"Eley's investment process remains pleasingly consistent, delivering a diversified portfolio of 35-55 thoroughly researched names," says Alex Prineas, Morningstar's associate director, manager research.

"The experienced team hunts for stocks they believe are quality business models, which makes good sense in the often flighty small-cap space. There is a well-structured fee, but the all-in costs do make it a touch more expensive than peers."

Bronze rated Colonial First State Wholesale Future Leaders fund, managed by Tim Canham and Wik Farwerck, was the runner-up, returning 31.95 per cent in the year to 30 June 2018.

The worst performing fund in this category was Australian Ethical Australian Shares, which delivered a respectable 8.03 to investors.

"From a sector perspective, underweights to consumer discretionary and overweights to healthcare heled the portfolio's performance," Morningstar analyst Kunal Kotwal says. "However, underweights in consumer staples and industries, and overweight positions in financials, considerably hurt returns."

Morningstar Rated Funds |  Australian Equity Mid/Small Cap

*Note: Total Return 1 Year accounts for management, administrative and 12b-1 fees and other costs taken out of fund assets.

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Emma Rapaport is a reporter for Morningstar Australia

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