Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Super fund returns surprise after the ‘volatility rollercoaster’
In a year when Chant West estimated the median growth fund return would be around 8.5 per cent, the super funds that have announced their returns so far have somewhat surprised to the upside. While Australian Retirement Trust came in with a solid 10 per cent return, Aware Super has snuck over the top with 10.7 per cent in its default product, a result that can largely be attributed to the rally in equity markets that began in October last year, a slight overweight to international equities and a focus on growthier sectors within them.
“We’re pleased to have delivered such a strong return for members at a time when the global economic backdrop remains clouded, and after a year characterised by further market volatility,” Aware Super chief investment officer Damian Graham said in a release. “That volatility was particularly pronounced early in the financial year, then receded later in the year despite continuing inflationary pressure and rising interest rates.
“There are signs inflation might now be easing, but it’s too soon to suggest those economic pressures are going away so we’ll be as vigilant as ever in prudently managing our members’ investments for the long term to help set them up for their best possible retirement.”
HESTA returned 9.59 per cent off the back of solid returns from Australian and international equity markets supported by “resilient company earnings and a sharp rebound in technology stocks”.
“Looking ahead, our focus remains on agility so we can respond to a range of market conditions that may emerge,” said HESTA CIO Sonya Sawtell-Rickson (pictured). “We will continue to invest responsibly, actively, and maintain a patient, long-term approach designed to provide the best possible outcomes for our members’ retirement savings and help them face the future confidently.”
Meanwhile, the now $300 billion AustralianSuper recorded an 8.22 per cent return in its balanced option, erasing the -2.73 per cent loss it handed down last year despite defensive positioning and write-downs in some “key unlisted assets“.
“The recovery in returns has been driven by strong growth in equity markets globally, with the performance of the technology sector a key driver,” said AustralianSuper CIO Mark Delaney. “Overall, investment market returns have been better than we expected and economic growth has proved relatively resilient with consumer spending holding up well over the year.
“But as we look forward, we still believe there are significant challenges ahead in the global economy and have positioned the portfolio to respond to these and to take advantage of opportunities that will likely present themselves as we progress through the cycle. ‘Over the year, we have also responded to a variety of significant investment challenges, including write downs in some property assets to account for falling values.”
Cbus returned 8.95 per cent, with CIO Brett Chatfield saying that the fund remained defensively positioned with an underweight to equities and elevated cash holdings; with equity markets still pricing in a rosy outlook in the face of a likely global recession, Chatfield expects the “volatility rollercoaster” to continue.
“We’ve seen strong results across global and Australian equities, infrastructure, and credit this financial year,” Chatfield said. “Clearly the property sector has had headwinds, but the high quality and diversified nature of our property portfolio has limited the impact on overall portfolio returns.”
