Anne: Hello and welcome to Super Insider, Australian Retirement Trust's podcast series on superannuation, investing, and
retirement. My name is Anne Fuchs, and I'm the Executive General Manager of Advice, Guidance, and Education at Australia
Retirement Trust. We help our 2.3 million members make great decisions about their precious retirement savings.
Before we begin, it's important to remind you that this is general advice only, and you should consider whether it's
right for you.
With me on Super Insider today are 2 people who are experts in all things investments. Obviously, investments are a
massive part of superannuation and retirement. Andrew Fisher, our Head of Investment Strategy, and Liz Kumaru, our Head
of Corporate Private Assets. Now, look, it's lovely to have you both on the show.
Andrew: Wonderful to be here; thanks for having us on.
Anne: Hello and welcome to Super Insider, Australian Retirement Trust's podcast series on superannuation, investing, and
retirement. My name is Anne Fuchs, and I'm the Executive General Manager of Advice, Guidance, and Education at Australia
Retirement Trust. We help our 2.3 million members make great decisions about their precious retirement savings.
Before we begin, it's important to remind you that this is general advice only, and you should consider whether it's
right for you.
With me on Super Insider today are 2 people who are experts in all things investments. Obviously, investments are a
massive part of superannuation and retirement. Andrew Fisher, our Head of Investment Strategy, and Liz Kumaru, our Head
of Corporate Private Assets. Now, look, it's lovely to have you both on the show.
Andrew: Wonderful to be here; thanks for having us on.
Anne: We've had Brian Parker, our Chief Economist, on the show this year, and we talked about the market outlook and
what people can expect in terms of investment performance this year. And because a lot of people in the community - our
members - are worried about everything they're seeing in the world and how it impacts their precious retirement savings.
Because people are more engaged in their super than ever, it was important to talk about the role of volatility and risk
and how it relates to super. And recognising Super Insider is a fantastic way for people to build their own personal
levels of financial literacy to help make good decisions. So, it's great we've got these experts here on the show.
Let's start with you, Andrew, if that's okay. Could you describe the different asset classes that you and the team
invest in to build the portfolios that our members are invested in?
Andrew: Thanks, Anne, and thanks for the question. We invest in a range of different asset classes. One of the essential
elements we think about when building portfolios of investments for our members is diversification into all the
different asset classes we invest in. They’re there to diversify those portfolios and help us deliver, as best we
can, the smoothest return outcomes that we can for our members. Of the asset classes we use primarily, the most
important one is Shares, which most of our members would be familiar with.
Anne: Is that your favourite child if you had to pick?
Andrew: I don't know if I'd call it a favourite child, but delivering long-term returns is important, and shares are the
cornerstone. They tend to be the highest expected return asset class we use in the portfolio. And then the flip side of
that is fixed income investing. So, in the public markets and the liquid portfolio, we invest in shares and fixed income
- so bonds, government bonds and some corporate bonds. We use cash. Obviously, liquidity is important when putting the
portfolios together. And then we complement that, and it's important for us from a diversification point of view, which
I'm sure Liz can talk about a little bit more as well, with a range of different alternative and private asset classes,
property is probably the one that most would be familiar with. We also invest quite a lot in infrastructure, such as
private equity, private fixed income, and private debt.
Anne: Okay, I counted 7, like the Von Trapps. You know, Liesl, Brigitta. So, there you go, you rattled off all those
asset classes. So, Liz, please explain, for our listeners, thematically - this is a hard question - what is the
difference between volatility and risk? Because a lot of people would assume that they're the same thing.
Liz: Yes, it's a difficult question to respond to.
Anne: I know!
Liz: How I think about it, and I'd be interested in Andrew adding his thoughts, is volatility, which is the price
changes throughout the journey of holding an asset. Risk is the risk of losing your money or failing to achieve your
objective. So typically, the higher the risk, the higher the return you would expect for making that investment.
Usually, that investment will have higher volatility along the path.
Anne: I think there is, maybe, a misconception in some quarters, or perhaps a lack of understanding, that the unlisted
asset world, which obviously you're an expert investor in over many decades, is that some of these unlisted, some are
riskier than others. Some are Growth and some are Defensive. And to Andrew's point about diversified – and Brian
talks about it all the time too, diversify, diversify, diversify - can you explain some different types of unlisted
assets, and what buckets you would put them in regarding risk and volatility?
Liz: Yes, absolutely. And there is an incredibly large range of risk and return attributes. There are thousands of
opportunities when considering the types of investments listed on public share markets. But in the unlisted investment
environment, there are tens of thousands. So, the opportunity to invest across the unlisted space is huge. It does
provide an enormous number of opportunities, but also very diversifying opportunities ranging from the lower risk and,
it's a very similar description to what Andrew provided, in the private fixed-interest space that are debt instruments.
They can be very senior secured, with strong collateral and very income-oriented investments. So, they are more
defensive assets and income-yielding, with little capital growth. All the way up to the spectrum of private equity,
which Andrew touched on, and they are investing in companies.
And whether they succeed, or not, depends on how successful they are at growing earnings over time. And in between,
you've got property and infrastructure, and those assets can, again, vary. But if you think of an infrastructure asset,
they're core assets, typically monopolistic businesses, or very high barriers to entry. So, they have very secure income
and cash flows. So that means that they're a lower-risk opportunity. But you've also got some assets that depend on GDP
growth and are volume-based. So, they will be riskier, and you would expect a higher return from those. Similarly, with
property - a whole range of investments, whether in-place tenants or long contracts, versus developing something.
Anne: You nailed the answer to that question. So, Andrew, then, with that beautiful answer, how do you think about
volatility and risk? Because, again, I mentioned Brian, just plugging Brian as much as I can, and he was talking about
geopolitical risk. It’s on members' minds a lot. So how does geopolitical risk, or other risk factors like GDP
growth, play into you and the team sitting down and then building the different portfolios for members, particularly the
Default?
Andrew: Yes, so an important thing to say upfront is that one of the ways we think about volatility is there are 2
aspects to volatility and risk. The counterfactual to risk is opportunity. And so, what we always think about when we're
investing in something, is there are 2 aspects to it: (1) what is the underlying cash flow profile - what returns are
you going to get - but then also (2) how much you're going to pay for them? And volatility sometimes presents
opportunities to buy things cheaper than we might otherwise buy them and deliver higher expected returns in the future.
So, volatility is good and bad.
One of the important jobs of our teams is to make sure that we are using volatility to deliver better investment returns
over the long term for our members. An important element to that, and you mentioned geopolitical risk, is when we think
about diversification it's not just investing in things with different labels on them. It's investing in things that
will behave differently in different environments. And so, in a geopolitical risk event, if something does happen,
something like Ukraine for example, that had a serious impact on inflation around the world for a sustained
period.
Inflation is something we think about. We call assets like infrastructure and property for example - we call them real
assets internally - that have a compelling and demonstrated ability to pass through inflation in terms of better
revenues. And so that revenue pass-through means they're much more diversifying. They tend to outperform in high
inflation environments compared to other assets where inflation can be quite a headwind.
What do these geopolitical events mean? What do they mean for the economy? And then what do they mean for different
asset classes or even sub-asset classes within the portfolios? We're trying to be as diversified as possible so that,
regardless of what might happen in the world, we've got something in the portfolio that will offer some positive returns
for our members.
Anne: And recognising that when you're building the portfolios, you may be starting or ending your working life, you
will have larger allocations to different types of assets, depending on that time through to retirement. And I know many
of our listeners are retired, and it's all they've got. And so, this whole theme of volatility and risk weighs on their
mind more than most. Do you have any reflections on that … stream of consciousness?
Andrew: Absolutely. The right investment strategy for each member is potentially going to be different and unique to
their personal circumstances. And let’s be very clear that this is general advice. But also, it's important for us
to have things available that are suitable for different members. And so, when members go to get advice, they can invest
in something that is best suited for their circumstances.
We have a Default Lifecycle Investment Strategy, which we talk about quite a bit, which will seek to provide a pathway
where a member, as they age and go through their life stages, will de-risk their portfolios and have a little bit less
risk because we are really cognisant and aware of the fact that, as you get closer to and through retirement, your
account balance tends to go up. Still, your contributions tend to be much smaller as a relative component. That means
you’re pretty exposed to market volatility on your account balance as you move closer to, and through, retirement.
So, we design a Lifecycle strategy that takes that into account for members.
Anne: Do you have any reflections on that, Liz, as someone who has been an investor in superannuation for a long time?
Around the things like what type of assets do retirees love because it gives them that sleep-at-night factor? Is there
anything you've learned, or you've seen out talking? I know you’ve gone out and spoken at our member
seminars.
Liz: Yes, it's important. Andrew noticed another point: It's not just retirees. Certain members have low-risk tolerances
Anne: This is true, yes.
Liz: And for them to sleep at night, they need to understand their personal preferences and circumstances. So, we spoke
about some of those infrastructure assets. They can have very long-dated contracts with very stable returns. Similarly,
private fixed interest is a contract where you have high confidence that you will get your interest and capital back.
So, the ones that you can sleep most well at night. However, it is important to note that superannuation can have a very
long horizon even if you are retiring. So, there is the opportunity to invest in some growth opportunities to ensure
that you can generate that additional wealth over time.
Anne: Yes, make sure the money lasts. What are you and your team thinking about this year, Andrew? It feels like 2024 is
a significant year. There's just so much going on. We have US elections, and the world feels more fragile. Brian Parker,
our Chief Economist, would say we're building portfolios for years out, and not thinking in the here and now. How do you
approach it?
Andrew: The best way we would describe the current environment, and our thinking around that, is that it seems quite
delicately poised from an economic point of view. And so, what that will lend us to thinking about is that if we think
about the long term, we would like to have really diversified portfolios. Now, more than ever, that's increasingly
important because the last few years have shown us just how volatile inflation can be and what that can do to
markets.
It does feel to be moderating, and the sense of things is that inflation is moderating in a quite nice way in terms of
what that means for investments, which is really pleasing. But there is certainly some elevated risk around that as
well. Inflation is not back down where we'd like it, to be confident about the outlook for the economy from here. And
so, thinking about having things in the portfolio that if inflation doesn't moderate how we hope it will, those things
will do okay. But also have things in the portfolio that will protect us if we have an economic downturn. It’s
still quite a tricky pathway - to your point, fragility feels quite high - so there is quite a lot of risk. Things might
go in various directions. So, a strong focus on diversification. And to Brian's point, think about that long-term and
make sure our portfolios will be resilient to whatever that fragility might bring to us.
Anne: Liz, if you park the geopolitical risk, we're also living through an extraordinary time in the role of technology.
What's happening with technology and electric vehicles and the shift to renewable energy and AI? And teachers, you know,
hats off to the teachers. Any teachers listening - whose kids just go to Google to do their homework - the education
system has a challenge! As an investor, what do you see around these things that are exciting you? What would our
listeners be curious about? Is there anything that stands out?
Liz: Yes, it's an extraordinarily exciting time. You touched on it before, and we must consider the 5-to-10-year
horizon. We hold these assets for a long time. Some of these technological innovations that are coming to market now
have some enormous positive and negative disruptions. As investors, we need to consider the opportunities and threats
and how they affect our in-place portfolios. And what does that mean for other investments in the future? Let's look at
the significant investments across the portfolio. You really want to invest in things today that have those thematic
tailwinds. The big 2 thematics throughout the portfolio are what you touched on: digitisation and automation, and
decarbonisation. There are big tailwinds associated with those themes. And so, as we look through the portfolio and make
investments, they're the areas we focus on. If we look at digitisation and technology, it's touching all parts of
…
Anne: …society.
Liz: Absolutely. How we shop, where we go to work, how we live, how we're educated. It's just untapped. The introduction
of ChatGPT and AI was the catalyst of really taking this forward. That can make some of the ways that we live incredibly
exciting. It touches all parts of our world, so an enormous number of innovations are happening. But we must be careful
about AI being an exciting space, and there's enormous competition. So, you'll see a big take up of things; they'll have
a trend, but then something new and shiny will come along, and that will go. So, the big challenge, at this stage of the
innovation cycle, is what will have longevity. So, we are embracing it through existing assets and how they use it to
create productivity and efficient benefits.
Anne: Yes, and we're trying to work out where is the risk, return, reward, and what role it plays. And you're then
putting it to Andrew and his team. Then, you're, Andrew, considering how this is put into a portfolio overall as an
asset class.
Andrew: Yes, absolutely. As Liz was going through that, I reflected on the Covid period because that has been
instrumental in accelerating some of these thematics. But it only created a few of the thematics we see in markets. And
it just accelerated some things that were happening.
Suppose you look at the assets that perform well. In that case, they're things like industrial warehouse properties
overtaking retail shopping centres. That thematic was happening anyway, but that shift online really sped up. And so,
Liz and her teams are thinking about now: How do you think 5 years, 10 years forward, where are those thematics going,
and how to position portfolios and investments that will take advantage of it?
Anne: Okay. Yes, Liz?
Liz: What's important to note is that those thematics are well-known in the industry. So, you must be careful if a huge
amount of money is chasing these investments; even the best assets can be the worst investments if you overpay. So,
being very diligent about the underwriting, understanding how those earnings profiles will play out over time, and
understanding the macro environment and potential threats to them to ensure that the price we pay for these assets is
fair and reflective of the forward expected earnings.
Anne: And that's an excellent call out because a lot of people can relate to paying for a beautiful residential home,
and they still ... at some point, you spend too much, and you can't ever get that money back. And so, it's really for
our listeners to apply that same analogy. And that's how you approach some of these quality assets, which is the price
you're paying for them.
Liz: Andrew touched on a perfect example: that Covid environment. If we think about what causes volatility in assets.
Ultimately, fundamentals come down to earnings and forward earnings. But it's not just fundamentals. We know that market
sentiment comes into play, and behavioural finances – a whole number of elements. And I look back at that Covid
period and that was the introduction of the meme stocks, where it wasn't necessarily fundamentals but …
Anne: Meme stocks?
Liz: Meme stocks. Do you remember the meme stocks?
Anne: I'm staring at you blankly. That one passed me by, I'm embarrassed to say.
Liz: GameStop. Do you remember GameStop? That was the poster child of the meme stock, where social media generated
excitement about these stocks. And it really introduced an excitement about them. And it just pushed prices up because
they became trendy online. They didn't necessarily have the fundamentals under them. But that's what can create the
volatility, and that's why it's important to make sure.
Anne: That is an awesome example. So, Andrew, last question for you, in your role as Head of Investment Strategy, should
you be surprised about volatility? Or should volatility never surprise you because there's a method to the madness
around how you build portfolios?
Andrew: We always expect to be surprised; that is how I'd explain that. So yes, take Covid, which we've been speaking
about; we did not expect markets to behave the way they expected at the pace and speed at which they did. How we try to
manage portfolios is less about trying to predict things like that because you can't, right? You can't predict those
exogenous shocks that come. But what you can do is prepare yourself for how you’ll react when they do come. And
so, our success through the Covid period was not predicting what would happen, but it was everything we did after that.
And it's things like Liz and her teams when they see investments that have accelerated and had a whole 7-year business
case work out in 3 because these trends accelerate. It's not sitting there saying, 'We're going to get 10 more years of
that', it's saying, 'Well, okay, that's worked out well. How do we then take advantage of that and move into the next 7
years from here?' And so, it's like the Scouts saying, 'Be Prepared.' That's how we think about volatility: be prepared
for how we will take advantage of the opportunities it will present.
Anne: You'd do scenario planning, fire drills, all that type of thing?
Andrew: Absolutely, yes. We just did one.
Anne: Just did one. Gold star? Scratch and sniff sticker for you?
Andrew: It went quite well. One of the fun things about this is it allows the team to come up with the most fantastical
scenario of what might happen. I've been poisoned in one of them. I couldn't speak, so I had to sit and watch it.
Anne: Oh no, poor Fisher! So, Liz, to round out the conversation, as an investor, what is the one thing that you and the
team love about what you do? How many people are in the investment team now at Australia Retirement Trust, 120?
Liz: Approximately 125.
Anne: What is the energy of the place? And what do you think you'd all say that the best thing about your job is? That
you all universally love? And I'm guessing it's not the volatility surprises.
Liz: I'm going to start first by saying the responsibility of representing our members. You opened with saying that we
represent 2.3 million members, and we are responsible for their financial savings. That's an enormous responsibility, so
it gives us great purpose in terms of coming to work.
But then, of course, the next part of that is our role. It's an exciting privilege to speak with some of the most
impressive and successful investors from around the globe. We get to see the insights, hear what's happening on the
ground, and understand those thematic changes. Speaking to the venture world is always incredibly exciting because
they're the innovators and disruptors. That helps you know what's coming down the pike and what could impact the more
mature companies. So, for me and my team, it's the opportunity to use some of the most intelligent minds worldwide and
put that into play for our members.
Anne: Yes, doing good. I’ve loved having you both on the episode. And I think, Liz, your point about being young
and conservative in terms of your mindset around risk and your fear of losing capital, it's an important reflection that
money is an emotional thing. Money greatly impacts people's emotional and physical wellbeing; they're picking up things
they've learned from their parents and the culture. So, all these aspects feed into good and bad decisions when things
like volatility are happening in the stock market. I'm going to give a plug for financial advice because that's what I
do. Financial advisers are very good at understanding psychology - and the why - so your portfolio is right for you
So, thanks again for coming on Super Insider. To our listeners and viewers, make sure you subscribe to wherever you
listen to your podcasts. And tell your family and friends. We want more of you in our Super Insider community. It's
where it's at when it comes to superannuation, investment, and retirement education. Thank you very much.
This transcript has been edited for length and clarity.
