Pricing power delivers First Sentier growth fund Mercer prize

“We’ve remained very confident in our style during this period. That growth and quality emphasis holds up well and in a period of interest rate economic volatility,” he said. “These are companies that are able to invest and operate their own businesses no matter what the economic circumstances.”

Goodman Group, also up 29 per cent in the past year, was another stock highlighted by Mr Wilson that supported the fund’s outsized returns. “The market is now starting to sort of appreciate the growth available to Goodman Group through its data centres,” Mr Wilson said, referring to the property trust better known as a landlord to Amazon.

“But we’ve owned it long before then. The management are very much focused on generating consistent growth from probably the premium industrial property portfolios in the world.”

First Sentier’s one-year return was sufficiently strong to claim the no. 1 ranking despite delivering the worst performance over the last three months among Mercer’s top 10 cohort.

In fact, First Sentier lost 4.1 per cent over the quarter, primarily on its overweight holding in medical device maker ResMed, which fell more than 25 per cent during the period following a guidance miss and concerns about competition from weight-loss drugs like Ozempic.

While Mr Wilson was disappointed by ResMed’s miss, the fund remains a backer of the stock, and he is unruffled by the sell-off amid so-called GLP-1 mania. “There’s been an overreaction to the GLP-1 drugs, in our view. We’re pretty relaxed,” he said.

“It’s a global leader and an impressive Australian success story. We think it’s got a long period of growth and profit ahead.”

It also proved a difficult quarter for Hyperion Australian growth, which ranked second on Mercer’s list at the end of the June quarter, but finished 38th in 12-month performance terms, following a 5.7 per cent retreat in the last three months.

Merlon’s concentrated value strategy, which jumped to second, returned 19.7 per cent over the year.

Merlon’s performance follows a strong showing in calendar 2022, during which the fund returned 20.2 per cent. In its annual review, Merlon attributed the outperformance to holdings in coal miners New Hope and Whitehaven, and energy producers Woodside, Origin and Santos.

“The market was too pessimistic on energy stocks given demand was depressed by lockdowns and there had been a decade of underinvestment in new supply,” Merlon told investors last year.

“The low commodity prices meant many industry participants were losing money, which is usually the best time to invest in commodity stocks provided they have a cost advantage.”

Rounding out the top thee funds is Lazard’s select Australian equity fund, which returned 19.3 per cent over the 12 months to September 30. Lazard Asset Management portfolio manager Aaron Binsted also partly attributed the fund’s strong performance to its QBE holding.

“We think the earnings strength coming for QBE is by no means priced in to the market. It has strong earnings momentum at a very attractive valuation.”

Mr Binsted also noted the fund’s lack of a position in health sector heavyweight CSL, which is down about 14 per cent in the last 12 months, had helped the fund outperform its peers.

“Over the last few years, it seemed like every man and his dog were telling you what a high-quality company CSL is, and it is a high-quality company, but that hasn’t stopped the share price falling,” he said.

“Pricing power is very important, but you’ve still got to look at what paying for it.”