Investors could be in for another tough year if the first five trading weeks of 2016 are anything to go by. The S&P/ASX 200 (Index: ^AXJO) (ASX:XJO) is already down by nearly 7% and the outlook for the remainder of the year not great for now.

With the broader market struggling, many investors would think it is hard to generate a positive return – but this is not the case and here is a good example of how this can be achieved by looking at a high-quality fund manager.

Bennelong Australian Equity Partners manages four Australian equities funds which primarily select stocks from the S&P/ASX 300 Index.

One of their top-performing funds in 2015 was the Concentrated Australian Equities Fund.

One important point to note about the fund is that it generally holds between 20-35 stocks at any given time.

This is important as it allows the portfolio to be ‘concentrated’ on the manager’s best ideas, rather than having to invest in stocks that are sometimes used to mimic a particular benchmark.

Although the fund’s excellent performance may not continue in 2016, there are a number of lessons investors can learn by looking at how the manager was able to outperform the broader market so significantly when many others struggled.

Perhaps the most important factor in determining the success of a portfolio is the sector allocation.

Bennelong was able to outperform the broader market primarily because it mostly avoided two of the worst performing sectors – financials and materials.

In fact, as of December 2015, the fund had zero exposure to either the materials or energy sectors and a significant underweight position in financials.

Instead, the fund took overweight positions in the healthcare and consumer discretionary sectors which both performed very well during 2015. Other notable allocations were to the industrial and telecommunication sectors.

Within each sector, the managers were able to identify companies they believed could deliver superior earnings growth with strong long-term prospects.

Some of the top holdings for the fund throughout 2015 included:

A quick look through this list shows that many of these stocks are not necessarily the ‘cheapest,’ but ones that have excellent long term growth potential such as CSL and Ramsay Health Care. The fund is also looking to take advantage of supportive tailwinds from tourism with stocks like The Star Entertainment Group.

Interestingly, the fund’s components are trading at combined price-to-earnings ratios of around 21x. Although this is higher than the broader market, the companies within the fund have delivered average earnings growth of 17.7% compared to just 0.9% for the broader market. Average return on equity for the fund is also higher at 16.7%, compared to the broader market of 11%.

Foolish takeaway 

While it is unlikely the Bennelong Concentrated Fund will be able to deliver the same results achieved in 2015 over the next year, investors can still take valuable lessons from its past performance.

Most important, perhaps, is the value of avoiding companies and sectors that face long-term challenges, while investing in high quality companies with bright long term prospects. If this sounds like something you would be interested in, you need to keep reading…

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Motley Fool contributor Christopher Georges owns units in the Bennelong Concentrated Australian Equities Fund. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.