Eagle Star put in a strong performance in 2005, and its 23.1 per cent return was surpassed only by Standard Life. Richard Temperley, executive manager of investment at Eagle Star, attributes the good run to a few key factors.
"We liked equities," Mr Temperley explains simply, referring to the out-performance of this asset class over property. The fund's only investment in property was indirectly through investments in property companies.
Within equities, it was overweight in European markets and underweight in the US. As Mr Temperley explains, the US equity market suffered at the hands of rising interest rates last year. It also maintained a preference for bonds over cash last year, which provided a return of almost 8 per cent.
Also providing a substantial boost to its performance was its bias towards cyclical sectors such as mining and steel. The fund was underweight in defensive sectors such as the pharmaceutical and food and beverage industries.
According to Mr Temperley, Eagle Star follows the economic cycle extremely closely and selects the stocks likely to perform best given the current stage of the economic cycle. Therefore in recent times of strong economic growth, it was biased towards commodity and construction equities, rather than defensive stocks.
It also employs a "top down" investment strategy, which involves selecting the asset class first, then the geographical location, then the sector. The final step is picking the stock.
