Australians were better off investing overseas than at home in 2014, and this year is likely to be the same, according to financial services consultant Mercer.
Mercer's Investment Survey shows the median Australian-focused investment fund returned 6.3 per cent in 2014, above the 5.3 per cent return for the market once dividends are included.
Funds that focused on overseas shares produced much higher gains, with a median return of 14.8 per cent, though that is below a 15 per cent gain in the benchmark MSCI World ex Australia index, after the fall in the Australian dollar is taken into account.
Mercer's chief investment strategist Dave Stuart said international funds are likely to beat Australian-focused ones again in 2015.
He said the slump in commodity prices will remain a drag on the Australian market, while a modest recovery was likely in Europe and Wall Street should remain strong.
"We see this as a very sluggish economic backdrop and one in which it would be difficult for the Australian equity market to make strong headway," he said.
"We would still favour overseas equities over domestic equities."
However, with the median fund performance just one percentage point ahead of the Australian market before fees are deducted and below that of the global market, many investors may have been better off with a cheaper exchange traded fund in 2014.
"It's probably a line ball level of out-performance for retail investors, it depends how much they are paying and how well their particular manager has done," Mr Stuart said.
It was a different story in 2013, however, when the median Australian fund beat the market by 3.5 per cent, though over the past five years the median performance was just 0.6 per cent ahead of the market.
But the best performing funds outperformed the market by a significant margin.
Tribeca's Alpha Plus fund topped the Australian managers, with a return of 15.7 per cent, while Arcadian's Global Beta fund was ahead of the international-focused pack with a 25 per cent gain.
Mercer's research manager Clare Armstrong said fund managers with the freedom to go both long and short - meaning they had the ability to make money when stocks are going both up and down - were among the best performers.
"One take away from the last 12 months is that where a manager has more flexibility in their strategy they have a greater possibility of out-performing," she said.
BIGGEST WINNERS OF 2014
Australia:
* Tribeca Alpha Plus: up 15.4pct
* Katana Benchmark Unaware: up 13.2pct
* Regal Australian Long Short Equity: up 12.7pct
* Acadian Australian High Yield: 12.5pct
* Perpetual Wholesale Share-Plus: 12.4pct
International
* Arcadian Global Beta: up 25pct
* Carnegie Worldwide Global Equity: up 22pct
* AllianceBernstein Global Active Low-Vol: up 21.9pct
* Legg Mason Batterymarch Global Equity: up 21.7pct
* Macquarie Arrowstreet Global Equity: up 21.5pct
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