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Australia's largest rail freight operator Aurizon is the only top ten stock pick in the consensus portfolios of both buy-side fund managers and brokers in 2015, as both sides of the investment world gear up for a new year of trying to outperform the market by taking opposing views on the thematics tipped to deliver.
Credit Suisse, a broker on the sell-side of trades, says the buy-side fund managers, including hedge funds, achieved an average return of 17 per cent in 2014 in long/short portfolios, outperforming a 4 per cent return for the consensus long/short portfolio for brokers.
For the year through Thursday's close, the benchmark S&P/ASX 200 Index has fallen 2.64 per cent to 5210.78, with energy and materials stocks suffering under lower commodity prices.
By comparison, research house Chant West said that superannuation returns were likely to be in the order of 5 per cent to 8 per cent for the typical balanced fund this year. This is significantly less than the double digit returns achieved in 2013 and 2012.
The buy-side has beaten the brokers, which consists of the big investment banking teams, in three out of the past four years – perhaps not surprisingly, given that's what investors pay buy-side fund managers to do. Sell-side brokers typically provide the research and analysts which can be used to assist buy-side fundies.
Credit Suisse investment strategist Hasan Tevfik said that the only stock that both the buy-side and brokers list in their top 10 stock picks is Aurizon, which is down nearly 10.5 per cent this year.
"The last time the double consensus long portfolio had just one stock in it was in 2012 when both the brokers and buy-side were smitten with Crown. Crown provided a total return of 33 per cent that year."
Traditionally when buy-side and brokers have the same view on a stock, it tends to do quite well.
In 2015, the buy-side is sticking to its winning tactic of being cautious on consumer stocks and shorting Myer, Flight Centre, JB HiFi, Metcash, and Harvey Norman amongst other retailer stocks.
"They are forecasting the rebound in Qantas will continue, as would Aristocrat," said Mr Tevfik.
"The buy-side longs are considerably smaller than the broker longs and also provide a higher dividend yield. Although, saying that, the buy-side also has a preference for lower yielding stocks."
In a research report, Mr Tevfik also noted that brokers' stock picks for 2015 suggest they are backing away from a search for-yield play which has been a popular strategy in a low interest rate and return environment.
"Their [brokers] short positions have a dividend yield which is 150 basis points more than their long positions. Brokers are again trying to pick the bottom in commodity prices and are long Rio Tinto, BHP Billiton, Iluka and Oil Search."
The research found that the last year when the brokers outperformed the buy-side was 2013, when brokers were flat on the year but the buy-side long/short portfolio lost almost 15 per cent after being short many of the retailers who performed strongly.
The very best year for performance for either group was in 2011 when the buy-side long/short fund amassed 25 per cent.
"Back then the buy-side shorts worked stunningly well short Fairfax, Perpetual, Harvey Norman, JB Hi-Fi and more than offset the small loss of the buy-side longs," said Mr Tevfik.
The worst year of performance for either group was by the brokers in 2012 when the long/short portfolio lost 19 per cent.
"The broker longs performed well enough but the shorts rallied more than 25 per cent on average. If we had put $100 into the buy-side strategy at the end of 2010 we would now have $127. By comparison our $100 in the broker long/short portfolio would now be worth $92," he noted.