Mohankumar reckons the answer is “yes”.
“Super fund members should take comfort that their superannuation is invested in well-diversified portfolios with investments spread across a wide range of growth-oriented and defensive asset sectors, with many funds maintaining a meaningful allocation to unlisted and alternative assets,” he adds.
Unlisted and alternative assets offer protection in that they tend to move in the opposite direction to listed markets.
“The typical growth fund has more resilience built in than, say, 12 years ago so it is positioned to weather a period of investment market weakness if that eventuates,” Mohankumar says.
Secret of UniSuper’s success
Funds with higher allocations to listed shares did well in 2019. International shares surged 27.4 per cent (hedged) and 28 per cent (unhedged), while domestic shares gained 23.8 per cent.
Mohankumar says funds had an advantage if they had money in listed infrastructure and property, both here and overseas.
“Maintaining more traditional defensive exposure in bonds rather than cash would also have helped performance.”
At the top of Chant West’s list of top performers for 2019 is UniSuper, an $85 billion fund with 450,000 members mostly drawn from higher education and research.
Chief investment officer John Pearce says a lot of things went right for UniSuper in 2019. “It was a case of having the right listed assets,” he says. “All the stars aligned last year but clearly that means all the stars can go the other way as well.”
The fund’s four biggest holdings in the Australian market – toll road operator Transurban, Sydney Airport, gas pipeline business APA Group and the Australian Securities Exchange – all performed well, he says.
“They all returned between 30 per cent and 40 per cent,” Pearce says.
“We also have a big [domestic] overweight to resources which worked really well. And in global terms, we had really strong performance from our two big overweights in terms of US banks and IT.”
As for the year ahead, Pearce is on the lookout for new acquisitions rather than embarking on any major changes in strategic asset allocation.
Like many industry funds, UniSuper is enjoying big post-Hayne inflows and Pearce says he is “sitting on elevated levels of cash”.
MTAA Super executive manager of investments Phil Brown says funds spend long hours thinking about how to capitalise on the good times while preparing for tougher market conditions.
“We’ve been saying for a long time [that] we must be getting late cycle – asset valuations are elevated, there are geopolitical and other risks building up and there are random events such as the coronavirus,” he adds. “However, we’ve also seen central banks globally continue to be supportive with monetary policy and quantitative easing. So it’s a fine balance.”
MTAA’s response was to increase its equity exposure a little last year, in part adjusting to peer group settings while recognising that central banks remain supportive of economies and markets. The balanced fund has equity exposure of 51.5 per cent (22 per cent domestic; 29 per cent international).
At 18.3 per cent, MTAA’s 2019 balanced fund return was only a touch below UniSuper. Brown attributes much of this success to careful asset selection within asset classes. The fund also benefited from selling a small selection of unlisted assets at good prices during the year.
MTAA, which has its origins in the motor trades industries, took a battering during the global financial crisis when it ran into liquidity problems because nearly half the portfolio was invested in illiquid assets. Brown won’t say how much of the portfolio is now in unlisted assets but points out that they play an important role as defensive assets in the case of a downturn in equities.
Some infrastructure and property assets also have defensive or fixed income characteristics, he says. A large office building with a long-term lease, for example, can return steady income over long periods of time. “To some extent these assets can replace bonds and cash, which are presently not providing very good returns,” Brown adds.
Small but nimble
Much has been said about the advantages of scale in reducing investment costs and fees.
But Media Super insists its moderate size – $6 billion in funds under management – is a competitive advantage in identifying both growth and income assets.
“We invest in areas that, frankly, the larger funds cannot,” chief investment officer Norman Zhang says.
“These include alternative assets in private markets like private debt, private equity and emerging markets. We can focus on smaller companies and these investments can extract outsized returns.”
One example is Media Super’s film financing fund, which has returned 6 per cent since its inception in 2014, Zhang says.
“That might not sound like much but the actual risk is kind of like a term deposit. Compared to equities it’s not that exciting but compared to the asset class it sits in, it does incredibly well, particularly when cash is [not providing good returns].”
No doubt Media Super’s 51.5 per cent exposure to equities (27.5 per cent domestic; 24 per cent international) helped deliver a stellar 2019 return.
Again, Zhang points to the advantages of being small and nimble.
“We believe that being active [in domestic equities] is a competitive advantage because our managers can make calls on certain stocks without nudging the market or alerting the high-frequency traders,” he says.
Media Super also invests in Australian micro cap companies, including ASX-listed Carbon Revolution, which produces carbon fibre wheels for high-performance cars.