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.
‘Blown us away’: Aware’s new options hit the member choice sweet spot
Aware Super has rolled out two new investment options for its 1.1 million members in response to demand from members and independent financial advisers (IFAs). The new options – Socially Conscious and Indexed – sit alongside the existing high growth option, which currently comprises around 45 per cent of the fund’s assets and is the core of its Lifecycle strategy.
“The product suite that super funds mostly have is built around an era that was five or 10 years ago,” says Steve Travis, Aware group executive for member growth. “The market has moved since then.
“There’s a greater number of sophisticated investors looking for different types of options and we wanted to recognise that trend, and the general trend in choice, and let members play a more active role in control. There’s been a shift from funds telling members ‘we know what’s best for you’ to ‘what is it you want?’. We want to respond to those trends.”
While members were happy with the existing high growth option they still wanted a greater degree of choice – though not too much. Members reported that too much choice left them feeling “overwhelmed” and that if they were going to move away from the existing Lifecycle default they wanted it to be “purposeful and something that speaks to (them)”.
“The default will always be important, but there’s certainly a growing appetite for choice and we wanted to recognise that and have options that spoke to that,” Travis says. “I think we’ve proven that the demand is there and if you do the member research and sampling I think you’ll get that clear feedback.
“If funds aren’t targeting the IFA market they can make a choice to say, ‘I’ll have an index option’ and a lot of those index options are headlined to sell something else. If you look at other funds they might have a low cost option but the default to which money flows is not that option. It’s a loss lead into something else. If you’re in the IFA market you need that option because it’s exactly what advisers want.”
Members from the merged VicSuper, to whom the new options were made available early, have flocked to the two new options in a development that caught even Aware off-guard, given that there’s been no specialised marketing campaign to spruik them and superannuation fund members are generally disengaged. They’ve made that move largely off the back of the merger’s significant event notice and disclosure documents.
“Part of the integration (between VicSuper and Aware Super) was putting the new product offerings to VicSuper members as we upgraded their capabilities, and that was delivered in November last year,” Travis says. “We’ve been absolutely overwhelmed by the flows, and we put the same offering to Aware Super members just over a month ago… There’s about $340 million in the high growth socially conscious option, which has blown us away the most to see that amount of money flow in a relatively short amount of time.”
Aware is now planning a more targeted effort focused on employer and independent financial adviser channels. While the options are pitched as high growth, they actually sit across the risk spectrum with balanced, balanced conservative and conservative options available. The high growth indexed option charges nine basis points and has a 90/10 growth/defensive allocation, which Travis says sets it apart from other indexed options which are slightly lower growth.
“We did not expect $300 million within eight months of the VicSuper integration,” Travis says. “The great bulk of our membership is in the Aware side and they’ve only had that option in the last six weeks.”
