Anne Fuchs: Hello and welcome to Super Insider, a podcast about superannuation and retirement so you can put your feet up and live your best life. My name is Anne Fuchs. I am the Executive General Manager of Advice, Guidance and Education at Australian Retirement Trust.
Today, we are talking about asset allocation, and I know that sounds technical, but we're going to make it interesting. So that you understand what it means for your retirement savings so you can put your feet up. But before I do that, I just need to remind you that this is general advice only. Please don't act on anything we discuss today unless you get financial advice. Call your adviser, call us. Or if you are a member of another super fund, call them.
Okay, now I have somebody who is, I'm going to say, an actuary with a personality. He's a pretty cool dude. He sometimes wears Converse sneakers with his suit.
Andrew Fisher: Sometimes (laughs).
Anne: Anyway, so pretty cool dude. Our Head of Investment Strategy, Andrew Fisher. Coffs Harbor boy, who has worked at the Australian Retirement Trust for 8 years now?
Andrew: Yes, 8 or 9 years. But 14 when you add it all up.
Anne: You had a sabbatical in New Zealand.
Andrew: Indeed.
Anne: So, asset allocation, let's talk about what you do. Asset allocation means you decide what asset classes you invest the money in, yes?
Andrew: Correct, yes. And I'm glad you didn't open with asset allocation sounds boring. It's not boring. What we do every day is incredibly exciting. So, asset allocation, we offer diversified options to all our members. The single asset class options exist, so members can invest in shares or bonds. But most of our members entrust my team to create options for them. We call them diversified options. We blend together our different asset classes. That's why it's called asset allocation. We blend together the equities, bonds, and unlisted assets to build a diversified portfolio that will deliver members.
Anne: So, it also sounds a bit like cooking. You've got to blend all these ingredients to present the perfect returns.
So, when you're looking at your blending of all these different asset classes, riddle me this. We've got 2.3 million members. And a big chunk of them are getting superannuation guarantee put in. And so that means a lot of cash flow is coming in that has to be invested. What does the cookbook say about that?
Andrew: Yes, that's a good question. Particularly when you think about how many unlisted assets we have in the portfolio. You can't buy a little bit of an airport every day when member cash flows come in. And so, we have an exposure management team; their job is to take those cash flows and make sure every single day that each of our diversified options is rebalanced and looks exactly like what we want to be invested in. We have a Capital Markets Team as well, trading in the market every day, if necessary, buying derivative positions, so that we can make sure every single day when a member cash flow comes in, they get exactly what we said when you pick up the PDS or the investment guide.
Anne: What's on the tin.
Andrew: What's on the tin is what you get every day.
Anne: So, what you're saying is, in short, they're making sure that the cash rate isn't dragging down the performance of what they are supposed to be invested in.
Andrew: Correct. Having strong cash flows is a good advantage for us. That allows us to do many things, but if we don't manage those cash flows well, it could be a disadvantage and drag on returns. So yes, the team's primary function, or one of their primary functions, is making sure that doesn't happen.
Anne: How many people are in your team, Andrew?
Andrew: Around 24, 25 at the moment. So, it's a big team of people. Exposure management is a big piece of it.
Anne: If you were describing superannuation and I got you to finish the sentence, asset allocation is important in super because…?
Andrew: Asset allocation is important in super because, over the long term, it is the number one driver of your outcome. So, where you put your assets over the long term, we call it strategic asset allocation, is the number one factor. It accounts for 80% of your investment outcomes. Many of the conversations are about whether this stock went up or down. But for members over the very long term, we deliver real returns that are going to set you up for a comfortable retirement that comes from getting asset allocation right.
Anne: But people do love the investment story. So, to add a bit of spice to our asset allocation, let's give our listeners and viewers a story around an investment that has made members some money. What are you thinking, airports? I love the Heathrow one. I love it because we have a London office now, which is very cool.
Andrew: Indeed, that's a great story, Heathrow Airport. So, one of the biggest investments in the portfolio is Heathrow Airport.
Anne: Yes, we haven't sold that one, though?
Andrew: No, absolutely not. That investment allows us to have an office in the UK to manage it. It's such a big investment for us. So, we have a dedicated team on the ground looking at investments in the UK but managing that investment directly. We are in various airports, including Brisbane Airport and Sydney Airport, but we don't own all these assets. We own them in partnership with other investors but have sizeable positions in those assets. And what we like about them is that if you fly into Brisbane, there's no alternative. You must land at Brisbane Airport. And so, the strategic positioning of the asset means the cash flows become very stable and steady. So reliable long-term return generating assets. Airports are fantastic.
Another great story, because we diversify a lot, another great story that shows that is we entered into a partnership with some other investors to buy 50% of the mobile phone tower network from Telstra. That was around the COVID period. We went into that investment. If you remember, after COVID, that was one of our more challenging investment periods. The war in Ukraine began, and inflation got very high.
Anne: The supply chain just completely collapsed around the world.
Andrew: And interest rates went up quickly, hurting investments everywhere. That was one of the investments in our portfolio that did quite well through that period. You have inflation linked cash flows generally on something like that. So, the investment was structured to do well in that environment. But because the cash flows were so stable, it became attractive. We also saw discount rates compress, which means the price goes up. People are prepared to pay more for a stable asset, generating those cash flows in that environment. That's why we diversify so that when everything else is doing poorly, we have something else doing well.
Anne: Okay. And so that is the definition of diversification. It's making sure that…
Andrew: Yes, exactly. Making sure that when something goes down, we've got something in the portfolio going up. And so, what's important for members is the ability to take growth asset exposure over the long term to generate the returns they need. Where diversification helps is the sleep-at-night factor. Some growth assets are doing well, and some might not be. If we can put together a portfolio with some stability so members can sleep well at night and be exposed to growth assets over the long term, that's what we're trying to do.
Anne: We've just released some pretty good numbers. Super Ratings shows we're number one for growth over 10 years. Tell me everything.
Andrew: Look, the first thing to think about is it's something we take seriously. The best way to tell if we're doing a good job is to compare us with a range of other superannuation funds that look a lot like us, share some of our competitive advantages, some of our size and scale, that's one of the best benchmarks for us to see are we doing a good job. And so, the way we've delivered that outperformance, it hasn't been one amazing year or one amazing month; out of the last 9 financial years, we've outperformed the median super fund. And when you compound that outperformance, and we talk about compounding of returns, you compound outperformance year on year.
Anne: It's a beautiful set of numbers, someone once said.
Andrew: Our High Growth option is number one in the high-growth survey.
Anne: Okay, we have just launched a new investment menu. And I'm sure many of our listeners will be keen to understand what this means for them? Andrew, you worked so hard at weekends, pulling that all together. What would you say to our QSuper members who are really interested?
Andrew: I'll start by saying a huge team of people worked hard to pull that off.
Anne: Yes, I know, I know, but I'm looking at you.
Andrew: It's an exciting opportunity. If you think about the merger itself, so much good, and we became so much larger off the back of it, and I think the first real tangible demonstration of what we can do as a merged fund. If you're a QSuper member, for example, you've seen a substantial expansion in the range of options that we have available. You've gone to now 15 different choice investment options from a much smaller pool historically. We've created a new High Growth Index option specifically for people who like that. The other major development that I think is important across that choice menu is the Balanced Risk Adjusted option, which is tailor-made and specifically designed for members in the post-retirement phase. If you think about the importance of managing volatility, particularly when your balance is high and you're taking down from your superannuation, that's an option specifically designed to deliver long-term returns but manage that volatility.
Anne: Many QSuper members would know the term 'smooth ride'.
Andrew: Correct, exactly right. So that's the classic smooth ride. It's a fantastic technology and fantastic asset allocation innovation that QSuper members had access to, and now all ART members have access to it. It's so exciting.
Anne: Yes, good. If I think about the sentence you finished, asset allocation is the key driver for determining whether you're retiring and maximising these assets that have been invested every month, every quarter. It's a hell of a lot of responsibility, no pressure. So, how do you and the team know that you're making the best possible decisions for members when you're making these decisions?
Andrew: A lot of that comes back to having the right team of people who, you know, have that sort of alignment and purpose for our members. We have a team of people who really care about what they do.
Anne: So, you're saying culture?
Andrew: Culture is super important because, at times, it can be very challenging. You're making a forward-looking decision with imperfect information and a balance of probabilities; what do you think is going to happen? Then, real life doesn't come about in probabilities; only one actual outcome happens. So, diversification allows you to balance the probabilities of what might happen. But really, what you rely on is having a group of people who are solely committed to doing the best they can for our members and knowing that those people do that gives you comfort that if something goes wrong, it gets fixed quickly. Everyone's there for the right reason.
Anne: Okay. When it comes to asset allocation, what is the one thing that you and your team are doing to ensure that our older members don't have any nasty surprises?
Andrew: Yes, it becomes much more important. So, we talk about volatility, right? Volatility is basically the up and down of the portfolio. Volatility becomes much more important, particularly for older members – you have a higher balance, but also, you're starting to take money out to fund your retirement. And so, what can happen then is we talk about crystallising losses. You're in a position where you must take money out, or you are taking money out. That increases the likelihood that you will crystallise some losses. So, we try to manage volatility as best we can in that environment. One of the ways we can do that is called derisking. So, you take a slightly less growth asset profile to try and match your return profile with your risk appetite and the plans that you're making. One thing you can do is have a lower risk option. Our MySuper strategy incorporates a glide path, so it will derisk members as they approach retirement. The other thing members can always do, which is super important, is get some advice. As you approach retirement and your balance is bigger, good financial advice is super important.
Anne: Yes, and for those who don't know what MySuper is, it means the team makes the decisions on your behalf. It's a legislative requirement that we look after the money.
Andrew: Yes, and 80% of our members are in the MySuper option. So, a big, important responsibility to make sure we get that one right.
Anne: So, do you have a favourite child in terms of asset class? A lot of people are talking about one-year returns now, why they are the way they are and asset classes. Do you want to explain why that is now regarding one-year performance?
Andrew: The main driver of one-year performance absolutely is listed equity shares. They've gone up fantastically over the last 12 months. And that has underpinned all returns. Listed equities or shares were the only asset class in the portfolio that performed better than our diversified options. That tells you that all the outperformances essentially came from shares. We're talking 15 to 20% return. So, if our growth option, for example, delivered a bit over 11% return last year, and equities did 16-17 %, every other asset class was below 11. That doesn't mean they did badly, but shares stood out last year. I'm always hesitant to answer the question about my favourite child and favourite asset class, but I will.
Anne: No, you don't have to; you can tell me to go away.
Andrew: No, of course, I'm going to answer it. I'm often accused of being contrarian. I like the things that everyone else doesn't like. It's a characteristic that you usually find in people who have my job because we have to look for opportunities over the long term. And generally, those are the things that people don't like right now. And so, my favourite and most interesting asset class right now would certainly be property or real estate. That's where you're seeing the most, I think, opportunity for good long-term outcomes right now. It doesn't mean it's easy. It's certainly not going to be easy to pick the right investments in that space. But where you see distress and challenge is where you also see opportunity.
Anne: Do you have a favourite child within the property portfolio? I know Michael Weaver, who's in the team that manages an asset, has the G'Day Discovery Parks.
Andrew: So, I'm not allowed to say that, then?
Anne: No, it can be your favourite child, too.
Andrew: It's a fantastic investment. And if you think about it from a member perspective, as well, it's such a relatable investment. Everyone understands how caravan parks work. You can understand the thematic. It's really good quality land. And the beauty of that investment is that you talk about diversification; I think back over the last 5 years, some of the strangest diversification qualities come out of that.
Anne: What do you mean by that?
Andrew: Remember the bushfires, which took out a whole season?
Anne: Of course.
Andrew: That was bad for the investment. Then you had COVID, when you couldn't leave your state. It's incredible how many caravan parks are on the borders of states. Those are doing well because people want to get as far away from their homes as possible, but no one will let them cross the border. Those sorts of aspects of it are just interesting investments.
Anne: Am I allowed to say I don't like caravan parks? (laughs)
Andrew: You are, you are. But I love them. So, before I worked on this, one of the last things I did was travel around Australia with my now-wife. And we spent a whole year in caravan parks.
Anne: Good on you. What's one final message to our listeners and viewers about why they should take an interest in asset allocation, the assets they're invested in?
Andrew: First and foremost, super is your money. Be interested in it. If it was a bank account, you would be very interested in it.
Anne: Have you been hearing me bang on about that?
Andrew: It’s so important. Like I see it with my children now, they seem to not care. I tell them that if this was your bank account, you would care a lot. So, care, be engaged, and think about it because the decisions you're making now will make so much difference when you get to my age. And then you're going to realise, why wasn't I thinking about this when I was younger? So be engaged, care about it, but most importantly, think about where you want to be and ensure you are taking the right investment risk for your needs.
Anne: And you need to make sure you're with a fund with all those things Andrew has spoken about. Culture, capability, talent, and a track record. Many people look at the one year and go, 'Oh, I'll chase that' and that's not the right thing to do. It is a long-term game. Make sure you've confidence that you're with the fund with that long-term track record.
Andrew: Yes, absolutely. And I'm proud to work for a profit-for-member fund. It's a fantastic thing that we do. And it attracts people like me who want to do the right thing for our members. So, it's a great place to work. I love working here.
Anne: Yes, that's good. Well, thank you to our listeners and viewers. We hope you've enjoyed this. It's certainly been great having Andrew on the podcast. Make sure you give us a top rating wherever you download your podcasts, and we'll catch you again soon.
This transcript has been edited for length and clarity.
