Top five Australian equity funds

[Springbok]

30 July 2006

Navigator Research today announced its top five Australian equity funds following a rigorous assessment of those available.

The ratings aimed to identify the top quality managers and funds based on the investment teams and process, performance and risk characteristics.

Navigator Research, who provides funds management and product research, rated 45 Australian equity funds from 31 fund managers.

Five funds from five different fund managers were awarded a five star rating, the highest rating available.

The top five were:

Ausbil Australian Active Equity Fund

Barclays Australian Share Fund

Challenger Australian Share Fund

Tyndall Australian Share Portfolio

Vanguard Australian Shares Index Fund

Mr Stuart Fechner, Navigator Research manager, said, "This is a select group of managers and represents many of the better Australian equity funds available. The primary objective was to identify quality managers and funds.

"These managers have well articulated and transparent investment processes as well as experienced and relatively stable investment teams.

"The funds managed by these investment teams generally have a good long-term track record compared with their performance objectives and peers."

Mr Fechner said: "Fund ratings should not be considered in isolation, but in conjunction with the more detailed report and information that is available to advisers when they are assessing and selecting funds for a client's portfolio."

"The extensive review revealed a number of interesting observations," Mr Fechner said.

General

"The bull-run in the Australian sharemarket over the past few years has delivered good returns for investors, however, performance has varied across the industry with investment style and sector allocation critical factors in determining those who have benefited most.

"Growth biased managers reviewed have outperformed their value counterparts in the last couple of years, on average, ending a reasonable period where value managers were the outperforming style. Growth biased managers that consider momentum factors within their process have performed particularly well.

"An emergence of sub-styles within the value universe has become evident once again, last seen during the technology bubble. However, this time the stimulus has been the global growth theme and the commodity run, with deeper value managers choosing to largely sit on the sidelines and accept the inevitable higher tracking error. In contrast, relative value managers have remained within shouting distance of the benchmark. This observation is important both from a portfolio construction and diversification perspective."

Brand v Boutique

"The trend towards boutique management has continued, with three additional 'boutique' managers reviewed this year being 'Ausbil, Tyndall and Challenger Orion'.

"While being 'boutique' may be an ongoing trend, the label tends to mask the stronger underlying drivers of performance in investment process/style, fund size and pure stock picking ability.

"Navigator Research generally places greater business confidence in those boutique managers that have managed to strike a balance between creating an environment that enables investment staff to get on with managing the money while ensuring the team is supported by good systems and resources whether it be through in house or outsourcing arrangements.

"Larger 'brand' managers are increasingly responding to the emergence of the boutique by offering greater flexibility in the remuneration of, and professional development opportunities for, key investment staff."

Turnover

"The turnover of investment analysts continues to be a distraction for fund managers.

"We believe 'brand' managers are often better placed to manage turnover due to their deeper pockets. This is because it takes significant time and resources to recruit and coach new staff.

"However, boutiques are arguably better placed to retain key staff and reduce staff turnover due to the equity ownership stakes, often available to key investment personnel. Interestingly, larger managers are increasingly offering quasi equity as a way to retain key staff."

Globalisation trend and resources

"It has been well reported that Australian companies are generating an increasing proportion of their revenue offshore. This has resulted in some managers highlighting the benefits of having analysts on the ground worldwide. It also seems that managers without an established global network are now making an increasing number of trips offshore.

"While this intuitively makes sense, it is difficult to quantify and attribute a level of outperformance to having a global analyst resource.

"Another interesting development as a result of globalisation is the move by Perpetual to broaden the opportunity set for a number of their Australian share funds to enable them to invest in stocks listed on exchanges outside Australia (offshore-listed stocks)."

Full details of the research are available to financial advisers who use Navigator, enabling them to better assess the potential of specific Australian equity fund investments for their clients.

-ends-

Stuart Fechner is available for interview on 0407 839 080.

For further information, please contact:

Simon Morgan, Group General Manager, Public Affairs

(03) 9829 8892

0407 966 632

Notes to editors:

Aviva Australia is a group of two specialist financial services companies: Navigator and Norwich Union Life Australia Ltd. Portfolio Partners is the Australian funds management arm of Aviva plc. Through these companies we provide products and services in the areas of wealth creation and wealth protection for more than 300,000 customers throughout Australia.

Globally, Aviva Australia is part of Aviva plc, the world’s fifth-largest insurance group, the UK’s largest insurance services provider (based on gross worldwide premiums at 31 December 2005), and one of the leading providers of life and pension products to Europe, with substantial positions in other markets around the world.

Aviva’s principal business activities are long-term savings, fund management and general insurance, with worldwide total sales of £35 billion (A$82.6 billion) and assets under management of £317 billion (A$745 billion) at 31 December 2005.

The information in this document reflects Navigator Australia Limited's ('Navigator') ABN 45 006 302 987 understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person and it is not a substitute for professional advice. Applications to invest in a financial product issued by NULIS Nominees (Australia) Limited ABN 80 008 515 633, or any of its related identities, must be made by completing the application form attached to the applicable Product Disclosure Statement ("PDS"). A PDS is available from NULIS or your financial adviser. Applications to invest in investment product(s) through the investor directed portfolio service ("IDPS"), operated by Navigator, must be made by completing the application form attached to the applicable IDPS Guide Offer Document and Investment Allocation Authority. Before making an investment decision on the basis of the information above, a prospective investor needs to consider, with or without the assistance of a professional adviser whether the information is appropriate in the light of their particular investment needs, objectives and financial circumstances. Aviva does not receive any remuneration in relation to the provision of information available from this press release which is of a general nature only.

Rating methodology

The aim of Navigator’s research arm is to provide a valuable and reliable service to financial planners by identifying and monitoring quality managers and funds. As part of this service, Navigator Research reviews each asset class on an annual basis and produces individual managed fund ratings based on the characteristics, performance and risk of those funds. Ratings are formulated under a rigorous program of comprehensive fund manager visits, quantitative assessment of performance data and an extensive peer review process.

The assessment criteria allocates 60% of the rating to qualitative factors related to the fund manager and investment process, and 40% of the rating to quantitative performance and risk factors. Qualitative factors are weighted more heavily as Navigator Research believes that positive quantitative results are more likely to be achieved if the fund manager, investment process, investment team and the fund itself all exhibit strong features.