Money Management | Vol. 33 No 6 | May 9, 2019 by FE Money Management

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Vol. 33 No 6 | May 9, 2019

GLOBAL INVESTING

Go long to stay grounded against volatility

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Other people’s data: Finance’s other big responsibility

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AB’s new name leads to better game WITH three nominations and two wins, AllianceBernstein (AB) has been crowned this year’s Fund Manager of the Year at the Money Management Fund Manager of the Year Awards. It’s the first time the fund manager, which manages around US$547 billion globally across all offerings, has had an overall win, and when asked what the firm’s successes could be attributed to, its marketing and communications director, Roger Hogan, simply put it down to a client-focused attitude, and investment performance. Key to consistent performance, Hogan said, was AB’s research capabilities, which were its biggest differentiating factor, and saw the firm harness quantitative and fundamental research and analytical techniques. “The processes are exhaustive and constantly reviewed,” he said. “One result of the platform restructure post 2008 is that our global analysts now talk to each other across investment sectors, countries and asset categories, resulting in genuinely global and highly differentiated

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JEN DRISCOLL

research insights.” While research might be the main attraction, AB’s client focus did not go unnoticed, with Lonsec Research’s executive director, Libby Newman, applauding the firm’s responsiveness to feedback around pricing and value for money. In fact, Australian chief executive officer, Jen Driscoll, said the AB Managed Volatility Equities Fund actually

evolved out of discussions between the firm’s Australian equities team and an Aussie super fund that wanted to “smooth the ride” for its members during times of market volatility. The win follows the firm’s official rebranding to AB, which resulted in the creation of new products that not only stood out for their ability to harness global expertise for the Australian marketplace,

Full coverage on page 29

DATA PROTECTION

but also demonstrated a commitment to it. It was this commitment to understanding the needs of the Australian market to which Driscoll attributed AB’s nominations and successes. “The Australian funds management market is highly sophisticated and competitive,” she said. “We believe that, to compete effectively, we need to listen carefully to the market, to understand investors’ challenges and needs, and to do what we can to help them find solutions to their challenges.” The judging panel commended AB’s results, which saw their AB Managed Volatility Equities Fund and their AB Concentrated Global Growth Equities Portfolio take out the Australian Equities and the Separately Managed Account categories respectively, and their Global Equities fund receive a nomination for the Global Equities category. “Securing one nomination should be applauded but to receive more than one and then win those categories represents an excellent result,” Newman said.

Ending grandfathering impacting emotional health of advisers BY MIKE TAYLOR

AMID calls by industry funds for a rapid cessation of all grandfathered commissions, the Association of Financial Advisers (AFA) is arguing that there is a significant lack of understanding of the issue with the result that the emotional health and wellbeing of honest, hard-working advisers is being affected. In a submission filed with the Federal Treasury the AFA made clear it is deeply concerned about the consequences of the push to rapidly end grandfathering, claiming that the politicians have simply made not enough effort to genuinely understand the situation. “We are deeply concerned that there are unintended consequences playing out right now that impact the financial integrity of financial advice practices and in turn the emotional health and wellbeing of honest, hard-working financial advisers,” the AFA submission said. It said this included “those younger advisers who have recently acquired businesses with debt, based on the valuation of recurring revenue, including grandfathered commissions”. “We continue to argue for a more comprehensive review of the issue, a more pragmatic timeframe and an improved solution for clients who are currently in grandfathered commission Continued on page 3

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2 | Money Management May 9, 2019

Editorial

mike.taylor@moneymanagement.com.au

REWARDING THOSE WHO OUT-PERFORM There is continuing legitimacy in rewarding those fund managers and others who deliver value for money to investing consumers. IN THIS EDITION we name the winners of the various categories of the 32nd Money Management Fund Manager of the Year Awards held in association with our research partner Lonsec and our particular congratulations go to the winner of the overall award, the 2019 Fund Manager of the Year, AllianceBernstein. That is right, for the past 32 years Money Management with the assistance of a number of research partners has been conducting Fund Manager of the Year. Why? Because its has been this publication’s intention to recognise those managers which generate the best returns for their investors. Even in these post-Royal Commission days and amid concerns about consumer best interests and value for money, it is reasonable to argue that awards such as Fund Manager of the Year remain valid if only because they signal the benchmark to which others should aspire. There has been some desultory debate about awards and the roles and commercial models of qualitative ratings houses. Because of this, we took the time to examine the relative performance of our 2019 winner, AllianceBernstein, utilising the quantitative data generated by Money Management’s parent company, FE-FundInfo.

What we found served to strongly validate the awards outcome – not only did the AllianceBernstein funds emerge as the most resilient performers over the what proved to be a highly volatile awards period, they also delivered for consumers with respect to a fee structure which proved highly competitive when measured against its sector peers. From FE-FundInfo’s perspective, this analysis generated a Four and Five Crown Ratings for the AllianceBernstein products. The reality, of course, is that the market is the consumer’s friend where managed funds are concerned. It is unremitting with respect to investment performance. Where the nature of the superannuation guarantee is such that under-performing superannuation funds will continue to benefit from member flows, managed funds have no such buffer – persistent under-performance is guaranteed to see fund flows dry up. So, for all of these reasons, we offer all of the category winners a hearty congratulations and we offer, too, our congratulations to industry stalwart and founder of Fiducian Financial Services, Indy Singh, for being the recipient of Money Management’s Lifetime Achievement Award joining such industry luminaries as Barry

Lambert, Stephen van Eyk and, of course, the late Gwen Fletcher. At the time of going to print with this edition of Money Management, the 18 May Federal Election is still a little over a week away but it is already clear that much of the policy agenda for the financial services industry has been set with bi-partisan support for the objectives of the Financial Adviser Standards and Ethics Authority (FASEA) and the broad thrust of the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. However, in the event of the Australian Labor Party assuming the Treasury benches the industry should expect that a number of the Liberal/National Party’s approaches to superannuation will either lapse or be subject to amendment. The industry should also accept that having taken its policies on dividend imputation, negative gearing and capital gains tax to an election and won, any future Labor Government will insist it has obtained a mandate for change and the shadow Treasurer, Chris Bowen, has already signalled that implementation of those changes will be expedited.

FE Money Management Pty Ltd Level 10 4 Martin Place, Sydney, 2000 Managing Director: Mika-John Southworth Tel: 0455 553 775 mika-john.southworth@moneymanagement.com.au Managing Editor/Editorial Director: Mike Taylor Tel: 0438 789 214 mike.taylor@moneymanagement.com.au Associate Editor - Research: Oksana Patron Tel: 0439 137 814 oksana.patron@moneymanagement.com.au Senior Journalist: Laura Dew Tel: 0438 836 560 laura.dew@moneymanagement.com.au Features Journalist: Hannah Wootton Tel: 0438 957 266 hannah.wootton@moneymanagement.com.au Journalist: Anastasia Santoreneos anastasia.santoreneos@moneymanagement.com.au Journalist: Chris Dastoor Tel: 0439 076 518 chris.dastoor@moneymanagement.com.au Events Executive: Candace Qi Tel: 0439 355 561 candace.qi@financialexpress.net ADVERTISING Sales Director: Craig Pecar Tel: 0438 905 121 craig.pecar@moneymanagement.com.au Account Manager: Ben Lloyd Tel: 0438 941 577 ben.lloyd@moneymanagement.com.au Account Manager: Amy Barnett Tel: 0438 879 685 amy.barnett@financialexpress.net PRODUCTION Graphic Design: Henry Blazhevskyi

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May 9, 2019 Money Management | 3

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Ending grandfathering impacting emotional health of advisers Continued from page 1 products and are receiving services from their financial adviser and are happy with their current arrangements,” the AFA submission said. “We remain concerned as to whether both the policy objective has been clearly defined and whether the winners from this exercise will be the intended winners. It is clear that there is virtually no appetite amongst the politicians or others who implement their decisions, to seek to genuinely understand this issue. We have particular concerns about the extent to which this process will deliver a fair outcome for all.”

The AFA submission also argues that the payment of grandfathered commissions is not a breach of the law as the law currently stands and that the Royal Commission erred in suggesting grandfathering fell below community standards. As well, it said that a ban on grandfathered commissions “will disturb the financial advice relationship for many clients and will result in many no longer having access to financial advice”. “The ban on volume bonuses will also push up the cost of running a financial advice business and therefore will ultimately increase the cost of accessing financial advice,” it said. “These implications have not even been considered.”

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CountPlus takes 40% Rundles stake BY MIKE TAYLOR

PUBLICLY-LISTED accountancyfocused financial services firm CountPlus Limited has acquired a 40 per cent interest in Rundles Prime Pty Ltd and a 20 per cent interest in the associated Rundles Financial Planning Pty Ltd. The company said acquisition extends the CountPlus network from 17 to 18 member firms and was expected to be earnings accretive in the first year. It said consideration for the investment was a cash payment of $2.481 million. The announcement said the existing key principals and management personnel of Rundles would remain in place and together with CountPlus seek sustainable growth assisted by the CountPlus owner-driver partner model. Commenting on the transaction, CountPlus chief executive, Matthew Rowe described Rundles as a high-quality professional practice with an

extensive track record in delivering value to clients. Rundles is a Melbourne-based accounting practice with over 25 years in business and within the transaction the principals of Rundles will retain 60 per cent of the firm under CountPlus’ successful owner-driver partner model. “The Rundles business has a

proven track record of excellence in client services for over 25 years. The principals and team are also much valued as part of the community. Through our rigorous selection process we have ascertained that the business and people are an excellent fit for the CountPlus network,” Rowe said.

Industry funds reject grandfathering rebates INDUSTRY funds group the Australian Institute of Superannuation Trustees (AIST) has flatly rejected the Government’s proposals to allow the payment of grandfathered commissions and other conflicted adviser remuneration via rebate schemes. While the Financial Planning Association (FPA) backed such a move, the AIST used a submission to Treasury’s Financial Services Reform Implementation Taskforce to urge “a complete ban on the payment of conflicted remuneration, whether that conflicted remuneration can be attributed to a particular client or paid to a client group”. The AIST said such a ban should come into place as soon as possible, recommending that it start in 2020. “No evidence has been given as to why continuing grandfathered commissions in any form is of benefit to members,” it said. It said this was the only way to ensure that members’ best interests were met and that advisers were not tempted to game the system through an ill-defined and difficult to monitor rebate

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system. The AIST submission said that there were four main reasons the organisation was rejecting the Government’s proposed approach: • Continuing to allow grandfathered commissions is not in members’ best interests; • Commissioner Hayne’s concerns would not be addressed; • The rebate of commissions approach is subjective and could not be properly monitored by the regulators; and • Meeting the best business interests of advisers should not be a determining factor. The AIST submission argued that the rebate approach to grandfathered commissions was subjective and could not be properly monitored and that while allowing product issuers to establish rebate schemes “cures the mischief that consumers are out of pocket and receive no services in return” … “it entrenches the incentive for advisers to recommend that clients stay in existing, often poor performing and expensive, products”.

Product providers should rebate grandfathered commissions says FPA FINANCIAL services product providers should be responsible for rebating grandfathered commissions to clients who should get the full dollar amount, according to the Financial Planning Association (FPA). In a submission filed with Treasury’s Financial Services Reform Implementation Taskforce, the FPA also urged that rebating should be a temporary arrangement that reduces over time. The submission said the FPA had consistently supported the rebating of commissions to clients as a precondition of phasing out grandfathered commissions on non-risk products. “The task of managing the rebating process should rest with product providers and clients should receive the full dollar amount of a commission as a rebate,” it said. “Rebating should ideally be a temporary arrangement that reduces over time as clients move from legacy products that are subject to grandfathering arrangements.” The FPA said that to promote the process, the Government should continue to examine opportunities to remove barriers that prevent clients from moving from legacy products to more modern fit-for-purpose products. “In particular, the FPA reiterates its suggestion for the Government to consider issues related to clients losing insurance coverage, losing beneficial Centrelink treatments and potential adverse tax consequences that might prevent them from moving from a legacy product, even where there are more appropriate products available,” the FPA submission said.

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so you can give your clients even more value. For full details, contact your MLC Business Development Manager or visit mlc.com.au/wrap 1 Based on benchmarking conducted by Chant West. Cash account interest rates are as at 31 December 2018. Chant West is solely liable for this information. 2 Based on price changes across MLC Wrap Super Series 2 and MLC Navigator Retirement Plan Series 2 super products only. See the relevant Product Disclosure Statement (PDS) for further details. 3 Terms and conditions apply. Issued by National Wealth Management Services Limited ABN 97 071 514 264. The information in this flyer is correct as at 4 February 2019, but may change in the future. Interests in MLC Wrap Super and MLC Navigator Retirement Plan are issued by NULIS Nominees (Australia) Limited, ABN 80 008 515 633, AFSL 236465 as trustee of the MLC Superannuation Fund, ABN 40 022 701 955. Interests in MLC Wrap Investments and MLC Navigator Investment Plan are issued by Navigator Australia Limited, ABN 45 006 302 987. Before making a decision to purchase or continue to hold a product, you should read the relevant PDS or Financial Services Guide, which can be obtained by calling us on 133 652. The information in this document is general information only and doesn’t take into account your personal financial situation or individual needs. A149377-0419

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Risk advisers urged to be vocal in election season BY MIKE TAYLOR

LIFE insurer ClearView asked life/risk advisers about the future of their businesses in the face of the Life Insurance Framework (LIF) and the fallout from the Royal Commission with the promise that it will take their story to Canberra. In a message to life/risk insurers the company has asked advisers to tell it about their businesses with the message – “and we’ll tell Canberra”. The message, signed off by ClearView’s general manager, distribution, Christopher Blaxland-Walker states that with an election looming and the winner tasked with implementing the Royal Commission’s recommendations, “it is important for your voice to be heard”. Blaxland-Walker argued that because of how much they have to lose, the voice of advisers

should be heard loudest. “It’s not just that you stand to lose the most if some of the Royal Commission’s recommendations are poorly implemented, it’s because - as the adviser closest to the client - you best understand the potential customer-impact,” the ClearView message said.. “With an election looming and the winner tasked with implementing the Royal Commission’s recommendations, it’s important

Super funds rule out regulatory cross-subsidies THE major superannuation funds do not want the fees they pay under the so-called “APRA levy” to be used to cross-subsidise regulation of other sectors of the financial services industry. The view of the funds was made clear by the Association of Superannuation Funds of Australia (ASFA), which used a submission to the Federal Treasury responding to the Australian Prudential Regulation Authority (APRA) capability review to argue strongly against regulatory cross-subsidisation. The submission said the superannuation funds wanted to know what their fees were actually paying for and whether the money was being used appropriately. “Transparency is particularly important given APRA collects an annual levy from trustees that involves full recovery of all supervisory costs incurred by APRA,” it said. “Funds raised from the APRA regulated superannuation sector should not cross-subsidise regulation of other sectors, providers or financial services.” The submission argued that

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cross-subsidisation of other activities was not equitable and contributed to higher fees in superannuation without improving outcomes for fund members. “The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended a new oversight body be created to biennially assess the effectiveness of regulators and evaluate performance. For transparency, the report would be laid before the Houses of Parliament,” the ASFA submission said. “ASFA supports this recommendation in-principle.” Elsewhere in its submission, ASFA argued for APRA and the Australian Securities and Investments Commission (ASIC) to emulate what they had done in the life insurance claims area by conducting a greater level of joint supervisory action. It said that in such cases, publication of joint reports or guidance material would be particularly beneficial because it would provide clear messaging to industry participants and positive confirmation to all stakeholders.

for your voice to be heard.” The message to advisers said that, since its inception, “ClearView has actively engaged politicians and policy makers on your behalf to try and achieve sensible policy outcomes”. “This year we’re ramping up our efforts,” it said. “In the past week, we have facilitated meetings in Sydney and Melbourne between key Liberal and Labor party advisers and financial advisers/dealer principals. These forums were a unique opportunity for advisers to talk about the good work they do and for both parties to discuss financial services policy.” “But we need your help to keep the momentum going. Partner with us to get a bigger share of voice. Our aim is to get at least 400 independent financial advisers (IFAs) to complete our survey to ensure a credible sample.”

Abolishing LRBAs detrimental to small business owners, SMSFs: Thinktank BY ANASTASIA SANTORENEOS

WHILE the Labor Government committed to the abolition of limited recourse borrowing arrangements (LRBAs) for self-managed superannuation fund (SMSF) trustees, property lender Thinktank said any move to do so would be detrimental to small business owners seeking to sync their business operations with their long-term retirement income strategies. Jonathan Street, chief executive of Thinktank, said opponents of LRBAs had referenced the Council of Financial Regulators’ (CFR’s) recent report to call for the abolition of the debt instrument, yet the report actually stated that removing business real property (BRP) LRBAs would be detrimental to SMSF trustees. “As the report says, removing the exemption for borrowing could have an adverse impact on some trustees who use LRBAs as part of a well-diversified broader investment or business strategy, and may limit their ability to invest in a particular property; such as trustees’ own BRP,” he said. Street said the statistics in the report combined with Thinktank’s own observations of working with LRBAs, were such that business owner-occupied premises made up a large part of the demand for strategically structured finance, and that the SIS Act regulations were specifically designed to allow for them. Street said, on the other hand, the use of LRBAs for potentially conflicted residential property acquisitions had long been recognised as undesirable for the industry, but little action had been taken to remedy the situation. “Thinktank’s view is that the glaring solution lies very much in the prudent enforcement of the existing legislation regarding the LRBAs precisely what the Financial Services Royal Commission advocated,” Street said. “By doing so it could clean up that element of the market where LRBAs may be an ill-advised investment and allow the market to continue operating for those small business owners, in particular; who clearly benefit from this debt instrument being available to them.”

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Issued by National Wealth Management Services Limited ABN 97 071 514 264. The information in this document is correct as at 1 April 2019, but may change in the future. Interests in MLC MasterKey Super & Pension Fundamentals are issued by NULIS Nominees (Australia) Limited, ABN 80 008 515 633, AFSL 236465 (NULIS), as trustee of the MLC Super Fund ABN 70 732 426 024. Interests in MLC MasterKey Investment Service Fundamentals are issued by MLC Investments Limited, ABN 30 002 641 661, AFSL 230705 (MLCI). NULIS and MLCI are each part of the National Australia Bank (NAB) Group of Companies. An investment with NULIS or MLCI is not a deposit or liability of, and is not guaranteed by or underwritten by, NAB. Before making a decision to purchase or continue to hold a product, you should read the relevant Product Disclosure Statement (PDS) or Financial Services Guide (FSG), which is available at mlc.com.au. The information in this document is general information only and doesn’t take into account your personal financial situation or individual needs. A149377-0419

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10 | Money Management May 9, 2019

News

ASIC pursues criminal action against Accounting bodies unite over ALP’s banned former NAB planner ‘rort’ accusation BY MIKE TAYLOR

A former National Australia Bank (NAB) authorised representative and adviser was charged with two offences of obtaining financial advantage by deception. The Australian Securities and Investments Commission (ASIC) announced that the man, Max Kiattisak Eung, of Tempe in NSW, was charged with the offences. He had already been permanently banned by ASIC in June, last year. It said it would be alleged that between March 2016 and December 2016, Eung dishonestly obtained a financial advantage of funds totalling $166,500 from accounts held by MLC Limited and Nulis Nominees (Australia) Limited in circumstances where the account holders did not authorise the withdrawal of those funds from their accounts. It said Eung had been an authorised representative and financial adviser of NAB from

21 May, 2015 to December 2016 and had been permanently banned from providing financial services and engaging in credit activities in June

last year. The ASIC announcement said each of the offences carried a maximum penalty of 10 years’ imprisonment.

NAB remediation bill rises another $525 million NATIONAL Australia Bank (NAB) has upgraded the cost of financial planning client remediation. The big banking group has announced to the Australian Securities Exchange (ASX) additional charges of $525 million after tax in connection with increased provisions for its remediation program. It said it expected that this would reduce first half cash earnings by an estimated $325 million and earnings from discontinued operations by an estimated $200 million. Confirming the situation, NAB chief executive, Philip Chronican said the company was putting things right where it had treated customers poorly and making sure they were compensated more quickly. The bank said the key items giving rise to the increased costs were consumer credit

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insurance sales, non-compliant advice provided to wealth customers, adviser service fees charged by NAB Financial Planning salaried advisers, adviser fees charged by NAB Advise Partnership self-employed advisers and banking related matters including provisions for incorrectly charging fees on certain feeexempt transactions.

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THE Australian Labor Party (ALP) has failed to understand and respect the role of accountants, according to the Institute of Public Accountants (IPA). In a sign that the Federal Opposition’s proposal to reduce the tax deductibility of accounting advice served to unite the major accounting bodies, the IPA warned that by declaring tax deductions for accounting fees as a rort, “Labor has not only attacked the accounting profession, it has attacked millions of hard working taxpayers who are doing the right thing in paying their fair share of taxation”. Further the IPA said it had received a letter from the Prime Minister, Scott Morrison and the Treasurer, Josh Frydenberg expressing concerns over the proposed Labor move which it was disseminating to its members. “To be clear, we support the fact that all Australians should pay their due share of tax but they should also be able to access the appropriate tax deductions available to them to ensure they are not overpaying,” IPA chief executive, Andrew Conway said. “Labor’s views on this matter shows a lack of understanding about, and respect for, what it takes for an accountant to appropriately manage an individual’s tax affairs. It is not always a matter of a simple tax return; there may be many other factors associated with our highly complex tax system,” he said. Conway said that for some clients there could be considerable time spent in areas of tax audit, litigation, dispute and other interactions with the Australian Taxation Office and that further complexities existed with the formation of partnerships, trusts, property acquisitions and disposals. “Simply put, genuine taxpayers are not rorters,” he said. “They should be seeking the right tax advice from their trusted adviser, the accountant, to make sure they continue to claim their rights and pay the correct amount of tax.” “Labor’s proposed measure is genuinely and obviously a revenue grab. If you cap it at $3,000 the likelihood of a person engaging appropriate tax advice is reduced. This could have disastrous impacts on the community.”

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May 9, 2019 Money Management | 11

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CFS announces platform fee reductions BY MIKE TAYLOR

COLONIAL First State (CFS) announced fee reductions across its superannuation and investment platforms. The company announced to the Australian Securities Exchange (ASX) that it would be lowering costs to members across its FirstChoice Wholesale platform, FirstChoice Employer Super and FirstWrap Plus platform effective from early June in line with updates to the relevant product disclosure statements. It said the changes were projected to result in a total benefit to members of approximately $68 million a year with the impact on net profit of around $45 million. Commenting on the changes, Colonial First State acting executive general manager, Kelly Power said the changes were aimed at making the company’s platforms and investments as cost effective as possible. The company also announced it was introducing three new low-cost Colonial First State Index options (Conservative, Diversified and Growth) to both FirstChoice Wholesale and FirstWrap Plus with

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investment fees on existing CFS Index Options being reduced.

The company said FirstWrap Plus tiered administration fees would be

reduced by 30 per cent, FirstChoice Wholesale would introduce improved

fee rebates for members with a stating balance of $100,000 and

FirstChoice Employer Super would have investment fees reduced.

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*As at 29 March 2019. Source: Bloomberg. QLTY aims to track the iSTOXX MUTB Global ex-Australia Quality Leaders Index. Global Shares represented by MSCI World Ex-Australia Index (in AUD). Past performance is not an indicator of future performance of index or ETF and does not take into account ETF’s fees and costs. BetaShares Capital Ltd (ACN 139 566 868 AFS Licence 341181) is the issuer. Read the PDS at www.betashares.com.au and consider with your financial adviser whether the product is appropriate for your circumstances. An investment in the Fund involves risk - its value can go down as well as up - and should only be considered as a component of a broader portfolio. The Fund is not issued, endorsed or sold by STOXX Limited, Deutsche Borse Group or their licensors and they make no warranties and bear no liability with respect to the Fund. The Lonsec Rating (assigned April 2019) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product. Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold BetaShares products, and you should seek independent financial advice before investing in this product. The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document following publication. Lonsec receives a fee from the Fund Manager for researching the product using comprehensive and objective criteria. For further information regarding Lonsec’s Ratings methodology, please refer to our website at: http://www.lonsecresearch.com.au/research-solutions/our-ratings

1/05/2019 3:42:19 PM

12 | Money Management May 9, 2019

News

Retirees call on politicians to stop changing super BY ANASTASIA SANTORENEOS

IT seems retirees have had enough of politicians constantly moving the goal posts when it comes to their retirement, with the Association of Independent Retirees releasing its election policy priorities, which predominantly call on all political parties to stop causing anxiety for retirees by changing the rules of superannuation, tax and concessions on retirement incomes. Wayne Strandquist, acting president of the Association, said with just under two million retirees who partly or fully self-funded their retirement, the greater majority were not wealthy, and found it difficult to make ends meet in the current climate. “All retirees, who partly or fully fund their retirement, seek is a fair go and some independence in managing their lives, their health, and their retirement savings”, Strandquist said. Among its proposed policies, the Association called for no more fiddling with

superannuation and retirement savings and to reduce the minimum superannuation drawdown percentage for those over 75. As well, it proposed that self-employed workers or those with no superannuation should be able to transfer a capped value of

ASIC slaps QLD adviser with five-year ban AS part of the Australian Securities and Investments Commission’s (ASIC’s) move to clean up the financial services industry, it banned Queensland-based Breakaway Finance Group and Millenium 3 adviser, Gregory Forster, from providing financial services for five years after an investigation showed he provided inappropriate advice to clients and failed to act in their best interests. The ASIC investigation found Forster had failed to take into account his clients’ actual circumstances when providing advice, instead obtaining limited information and making a series of assumptions about their personal circumstances. The investigation also found Forster recommended new superannuation and insurance products to his clients without considering their existing products and services, and in many cases, those insurance products’ premiums were not affordable. Forster’s clients’ premiums were paid from their superannuation, which could potentially lead to the erosion of their balances. The corporate regulator found Forster had significantly understated the costs associated with the implementation of his advice, particularly the costs associated with running a SMSF. As well, it was found Forster had not complied with the requirements for a Statement of Advice, and instead of disclosing the dollar value of fees, he used percentages.

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their assets to superannuation with capital gains tax exemption. It also refuted Labor’s proposed changes to negative gearing and called for the retainment of existing negative gearing arrangements on pre-owned investment properties.

XPLAN continues to dominate adviser space BY MIKE TAYLOR

XPLAN continues to dominate the Australian planning software market, even though the landscape is changing, according to the latest survey data from Investment Trends. The Investment Trends research revealed that XPLAN had maintained its market leadership in Australia for a twelfth successive year achieving a top score in 29 of the 34 categories measured by the specialist research house. However, the report also found that while the vast majority of planners use XPLAN, COIN, AdviceOS, or AdviserLogic as their main advice delivery applications, competition is increasing. It noted that, more recently, three new planning applications – CCUBE Integrated Wealth, Advice Intelligence, and Plutosoft – were delivered to market. Commenting on the development, Investment Trends chief executive, Michael Blomfield said advisers now

have more options than ever catering to a diverse range of planning practice business models, helping improve every aspect of the advice process from client onboarding to ongoing engagement. “These new third generation Australian planning applications reflect the shift to a goals-based advice process in tandem with the need to deliver enhanced process efficiency and compliance automation. The release of these comprehensive advice solutions present advisers with alternatives to the traditional propositions,” he said. Blomfield said that in 2018, planning application development focused on implementing legislative changes to superannuation, improving adviser usability, and preparing for a post-Royal Commission financial advice landscape. He said the shift from modular advice process functionality continued to gain momentum with planning applications turning their attention to business and practice management, goal-based client discovery processes, and improving usability.

1/05/2019 12:09:43 PM

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Disclaimer: Adviser use only. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of super, pension and investment products. Avanteos Investments Limited ABN 20 096 259 979, AFS Licence 245531 (AIL) is the trustee of the Avanteos Superannuation Trust ABN 38 876 896 681 which includes FirstWrap Plus Super and Pension. This document is based on the understanding of current regulatory requirements and laws as at 10 April 2019. No person including Colonial First State or any member of the Commonwealth Bank group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. This document provides information for the adviser only and is not to be handed on to any investor. It does not take into account any person’s individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) before making any recommendations to a client. The PDS and FSG can be obtained by calling us on 13 18 36.

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30/04/2019 5:41:09 PM

14 | Money Management May 9, 2019

News

Citigroup to refund $3 million for general v personal advice blurring BY HANNAH WOOTTON

A major bank was ordered to refund over $3 million to 114 retail customers, after an Australian Securities and Investments Commission (ASIC) investigation that stemmed from concerns that customers believed they were receiving personal advice when it was in fact general. The regulator believed that elements of Citigroup’s practice led to the confusion, after looking into the bank’s sale and provision of general advice for an inherently risky and complex offering, fixed coupon structured products. The specific practice elements included advisers asking customers about their personal circumstances such as their tolerance to risk, and then providing financial education about the products’ benefits and risks to customers who had no experience in investing in structured products. The compensation ordered by ASIC reflects losses to customers arising from making

those investments from 2013 – 2017, with the bank also ordered to write to a further 1,000 customers remaining in the products to allow them to exit early without costs. The remediation process

would be completed by 10 September, this year, and the bank stopped selling structured products to retail clients under a general advice model in January, last year as a result of the ASIC investigation.

Freedom Insurance heads for the exit BY MIKE TAYLOR

FREEDOM Insurance Group made a key announcement – that it reached an in-principle agreement to transfer its policy administration business to another company. Freedom, which found itself in trouble during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, announced to the Australian Securities Exchange (ASX) that it intends to exit Spectrum Wealth Management following the transfer of its administration business. It said that following its exit of Spectrum it would have exited all of its operating businesses. The ASX announcement said that proceeds of the transfer of the administration business would be used to pay creditors, wind down remaining operations and meet any final regulatory obligations. It said following meeting these obligations the board intended to return any excess funds to

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shareholders. The company said that, for confidentiality reasons, it was unable to disclose the identity of the service provider before it entered into the underlying agreements but that all customer policies continued to be underwritten by the current Australian Prudential Regulation Authority (APRA) regulated insurers. The ASX announcement said the Freedom board had continued to explore a range of alternatives that would allow it to maintain its administration business, including its rights to trail commissions. “The long-term adverse impact on net trail commissions and administration income as a result of increased lapse rates considerably diminished the options available to Freedom,” the announcement said. “Based on the alternatives available, the Freedom board considers that the transition and associated payment is in the best interests of shareholders.”

We’re not rorters say accountants TAX accountants fought back against what they said were claims by Federal Opposition leader, Bill Shorten, that the deduction of accounting fees were a rort. Chartered Accountants Australia and New Zealand tax leader, Michael Croker vowed that tax deductions were not a rort and that they were a right. Reacting to Shorten’s reported statement, he stated: “You have the right to not pay too much tax and you have the right to claim navigating arcane, complex, changeable tax laws as a deduction’. Croker’s statement said he believed accountants were owed an apology by Shorten. “You have reached the bottom of the political barrel when you are attacking not the people who are dodging tax, but the gatekeepers making sure Australians aren’t paying too much tax,” he said. “Accountants are one of Australia’s most trusted professions, and for a politician to kick off a campaign by attacking our integrity is, to say the least, a bit rich. “That said, given we are exchanging free advice now, the political strategy of name-calling an entire profession is questionable and divisive.” “Let’s be clear that it’s not just millionaires who claim more than $3000 in tax compliance costs – it is also Mums and Dad’s going through one-off life events. It’s the people who invest and need to assess taxation, depreciation, capital gains and other implications. It’s the migrant or expat Australian with foreign income.” Croker said the ALP wanted to introduce sweeping negative gearing, franking credits, retirement and other tax increases, then attacked the industry that ensured compliance. “To deny Australians a tax deduction for the full cost of dealing with ATO compliance and audit requirements is unfair and creates a David v Goliath situation,” he said. “Australians deserve to seek the advice of their accountants and any party that stands in their way is not giving them a ‘fair go.’”

1/05/2019 12:11:20 PM

May 9, 2019 Money Management | 15

News

APRA signals tougher enforcement approach BY MIKE TAYLOR

THE Australian Prudential Regulation Authority (APRA) signalled its intention to adopt a much tougher approach, including using the full range of its formal powers including directions powers and license condition powers. The tougher APRA approach was based on the findings of the APRA Enforcement Review and saw the regulator declaring it would approach the use of its enforcement powers to prevent and address serious prudential risks, and to hold entities and individuals to account. It said the new Enforcement Approach was founded on its Enforcement Review’s results, conducted by deputy chair John Lonsdale which made seven recommendations to help APRA better leverage its enforcement powers to achieve sound prudential outcomes. It said the recommendations would still mean that APRA as a safety regulator remained focused on preventing harm with the use of non-formal supervisory tools. “However, APRA will be more willing to use the full range of its formal powers – such as direction powers and licence conditions – to achieve prudential outcomes and deter unacceptable practices,” Lonsdale said. APRA chairman, Wayne Byres said APRA would implement all the recom-

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mendations, including: • adopting a “constructively tough” appetite to enforcement and setting it out in a board-endorsed enforcement

strategy document; • ensuring APRA supervisors are supported and empowered to hold institutions and individuals to account, and

strengthening governance of enforcementrelated decisions; • combining APRA’s enforcement, investigation and legal experts in one

strengthened support team, and ensuring resources are available to support the pursuit of enforcement action where appropriate; and

• strengthening cooperation on enforcement matters with the Australian Securities and Investments Commission .

Protection is our promise. We’ve been there from the beginning, right alongside you and your customers, protecting Australians. We’ve spoken with advisers and customers around Australia about what matters most and we’re already making changes. We’ve enhanced our policy terms and medical definitions.

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MLC Limited ABN 90 000 000 402 AFSL 230694 uses the MLC brand under licence. MLC Limited is part of the Nippon Life Insurance Group and not a part of the NAB Group of companies. Any references to ‘we’, ‘us’ and ‘our’ means MLC Limited. A149671-0419

1/05/2019 12:08:58 PM

16 | Money Management May 9, 2019

InFocus

IS THERE ANY INVESTMENT MORE CONTRARIAN THAN AMP? It’s the bus you don’t see that is most likely to hit you, and Simon Mawhinney and Tim Hillier believe that, when investing in AMP, investors are stepping out onto a busy street. IT IS DIFFICULT to swim against the tide when investing. Even successful investors can pick the wrong investments about 40 per cent of the time. However, being wrong as a contrarian manager packs an extra punch, because everyone ‘knew’ you were wrong from the beginning. But it is also incredibly rewarding, with often outsize gains for the 60 per cent of our investments that end up being right. As we look around our investment universe today, there is no idea more contrarian than AMP Limited (AMP). The company is a household name for wealth management services, spanning the spectrum of advice, superannuation, investments, insurance and banking. The past year or so has exposed some serious missteps that have legitimately led investors to question the company’s moral compass and the competence of the board. Previous management appears to have misled one of its regulators and presided over inadequate compliance procedures in its advice business that did not put its clients first. These actions have been publicly scrutinised by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. AMP’s poor practices have already resulted in client remediation costs in excess of $500 million. In October 2018, in an effort to simplify the business, the board agreed to sell AMP’s Life businesses to Resolution Life for $3.3 billion, about $2 billion less than what investors, the market and their own actuaries had thought they were worth. The recent past has been awful and AMP’s share price has fallen close to 60 per cent over the past year, a stark reminder of

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the impact unsustainable business practices and poor governance can have on investment returns. Although the past plays a key role in assessing a company’s future, it is only what happens in the future that is important in investing. As current investors, we have to look forward and move on from the poor decisions by management and the board. AMP’s future is impossible to predict with certainty, but we believe investors have cause for optimism today. AMP is priced at a much lower multiple of current earnings than the broader share market, but it faces a more uncertain future thanks to reputational damage and structural changes. We outline some of these headwinds below and show that a disastrous outcome for the business would make AMP a poor, but not necessarily disastrous, investment. However, if AMP addresses its elevated cost base then it could be significantly under-priced. Today one pays very little for AMP’s most troubled division, wealth management, and even a mediocre outcome over time could provide for good investment returns.

A SIMPLER AMP First, an overview. AMP will have four remaining businesses following the sale of Life: • Wealth management provides administration services for $130 billion of superannuation and pension assets on platforms that allow investors to transact and report holdings. It also supports 2,500 financial advisers who, while mostly not employed by AMP, operate under AMP financial services licences. • AMP Capital is a fund manager with $190 billion of assets under management. Sixty per cent of these assets are sourced internally (e.g. from wealth management clients) and 40 per cent externally. • AMP Bank is primarily a residential mortgage lender, with a loan book of $20 billion and no branches. • AMP has also retained a wealth management business in New Zealand. In addition to these operations, AMP will have about $1.4 billion of surplus capital and a further $1.4 billion of income-generating assets received as part proceeds from the sale of Life. The new management team

communicated a ‘rebased’ 2018 financial year underlying profit after tax of $461 million, accounting for the sale of Life, an expected rise in compliance costs and fall in platform fees. This implies ongoing earnings of $515 million if we annualise income on investments, and adjust for planned cost reductions and fee reductions. AMP’s adjusted market capitalisation of $5.6 billion ($6.4 billion, less an expected $0.8 billion return of capital) implies a multiple of 11 times after-tax profit. This is somewhat lower than the market, but given the headwinds AMP faces it might not be the bargain it initially seems.

A STREET FULL OF BUSES It is the bus you don’t see that is most likely to hit you and, in the case of AMP, we are stepping out onto a busy street. Hazards we see include: • Reputational damage and adviser departures are likely to elevate outflows from wealth management’s administration platforms and AMP Capital’s fund management business. • AMP faces mounting obligations under its commitment to act as a Buyer of Last Resort (BoLR) for retiring advisers who want to sell their practice. BoLR prices are above common market rates at up to four times revenue. The banning of grandfathered commissions and new educational standards are likely to elevate the number of retirements. • AMP Bank faces the prospect of a sharp slowdown in credit growth. The bank has also advanced $580 million of loans to financial planning practices whose outlook as a whole has deteriorated. • AMP’s fund management and

2/05/2019 12:14:59 PM

May 9, 2019 Money Management | 17

InFocus Chart 1: Platform providers’ operating costs and assets under administration

implying a very attractive nine times after tax earnings.

WE DON’T PAY MUCH FOR ANY POTENTIAL UPSIDE FROM WEALTH MANAGEMENT

Source: Allan Gray and latest company reports

platform administration businesses have benefitted from rising asset prices over the last 10 years, as fees are linked to total assets, but cost bases are relatively fixed. Asset prices may not be as favourable in coming years. • Platform administrators face fee pressures as they compete for scale, and active fund manager fees are being squeezed by the shift towards passive investing. • AMP is likely to face more class actions with potentially material settlements being made, some of which may not be covered by their insurance policies in place.

HOW BAD COULD THINGS GET? One of the worst outcomes for the business would be unprecedented outflows from wealth management (rendering the platforms unprofitable) and a concurrent outflow of internally-sourced assets from AMP Capital (causing its profits to fall by 60 per cent). In this scenario, AMP may also lose some $500 million of surplus capital as it meets elevated BoLR commitments and write-offs on defaulting practice loans at AMP Bank. AMP is priced at about 20 times the resulting profit after tax of about $300 million. However, the probability of this outcome would seem low and, with the market as a whole (ex-banks) trading at 17-18 times, AMP may not be a disastrous

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investment if this represents trough earnings and the remaining business is sustainable. Given these hazards, why would one consider stepping out onto the street? Only if the prospect on the other side compensates for the risk of crossing.

AMP COULD BE VERY ATTRACTIVE GIVEN ITS EARNINGS POTENTIAL There appears to be significant scope to reduce costs within AMP. For example, AMP’s wealth management cost base is approximately 0.47 per cent of the $130 billion of assets under administration (AUA). As seen in chart one, this ratio is equivalent to significantly smaller platform administrators Praemium and

HUB24. Yet it is almost double that of Netwealth, which administers one sixth of the assets of AMP, but has displayed the benefits of scale as it has grown. AMP’s costs are elevated by the loss-making arrangements of supporting advisers that operate under its licences. The status quo is unsustainable, as evidenced by Westpac’s recent decision to withdraw from advice. AMP will have to oversee its licensees more effectively and/or recover the costs of these services. Management have committed to removing $65 million of posttax costs after 2020. Were AMP to halve the efficiency gap to Netwealth, post-tax cost savings of $100 million could be achieved. Such savings could increase AMP’s operating earnings by a quarter, with today’s share price

Given AMP’s $6.4 billion market capitalisation we don’t pay much for wealth management. Investment assets received from the sale of Life and other surplus capital are valued at $2.7 billion. If we assume AMP’s operating businesses, excluding wealth management, are worth 12 times profit after tax, they can be valued at $3.3 to $4 billion. Any future value for wealth management is largely upside at today’s market capitalisation. This is shown in chart two. To put this in perspective, Netwealth is valued at approximately $2 billion, despite administering less than 20 per cent of the assets of wealth management! We believe the possibility of capturing the upside from a rejuvenated and more efficient wealth management business sufficiently compensates for the downside risk that wealth management turns out to be worthless. This is what makes us warily attempt to cross a street full of buses, with AMP now three per cent of the Allan Gray Equity Strategy. Simon Mawhinney is managing director and chief investment officer of Allan Gray and Tim Hillier is an Allan Gray analyst.

Chart 2: AMP: sum-of-its-parts valuation

Source: Allan Gray estimates based on AMP Limited company reports

1/05/2019 3:58:02 PM

18 | Money Management May 9, 2019

Global investing

GO LONG TO STAY GROUNDED AGAINST VOLATILITY: GLOBAL INVESTMENTS It’s been a volatile 12 months for global investments, but Anastasia Santoreneos writes that investors can find value in companies with strong balance sheets, good corporate governance and strong and sustainable market positions. THE RECENT INVERTED US yield curve sent investors into a frenzy, with many prepping for the doomsday that could follow. But, while some investors might be running to sell off their assets, the experts think fears are probably overdone, and that a long-term investment horizon might just see you through this year’s expected volatility. Looking back on the last 12 months, political upheaval, economic volatility and tariff threats and implementations have turned global stock markets upside down, with 2018 ending with a pop rather than a bang. The US/China trade war (or rather, trade spat) saw fears grow over the rate of slowdown in those respective economies at a time when the US Federal Reserve’s (Fed’s) rate hike cycle was also leading to an increased risk of recession. But, according to Zehrid Osmani, Legg Mason Martin Currie portfolio manager, the first three months of 2019 have seen a significant bounce back in response to lower valuations, a

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more dovish Fed and some progress in trade discussions between the US and China. What’s more, according to Legg Mason QS Investors portfolio manager, Michael LaBella, the MSCI World Index was up over four per cent over the last 12 months, and over 12 per cent for the first quarter of 2019, making it the strongest quarter since 2009.

SO, WHERE ARE WE NOW? Despite a strong Q1, the inverted US yield curve has still had investors spooked, and the experts think global growth is looking a little sluggish. So, given we are already in the later stages of what has been, according to Osmani, the longest growth cycle in history, there is a growing risk that a recession could be coming at some point in the next two to three years. But, instead of focusing on the risks, Osmani said it’s more relevant to reflect on and assess whether the recession would be deep or shallow, or how prolonged it would be.

2/05/2019 4:15:28 PM

May 9, 2019 Money Management | 19

Global investing

“If we are faced with a shallow and short-lived recession, we think this would give a great opportunity for long-term investors to get involved in the asset class again at attractive levels,” he said. “We are therefore inclined to invest on a countercyclical basis.” LaBella even said the global outlook was broadly supportive of global growth, and while the inversion of the yield curve has been a reliable predictor of recessions in the past, it did not mean a recession was imminent.

“The yield curve is signalling to the market that we are in the latter stages of the business cycle; however that does not mean the immediate end of this cycle,” he said. Wealth Within’s chief analyst, Dale Gillham, also suggested that with the bullish outlook on world markets, he did not believe investors needed to worry as there was still good value in stocks over the medium term. “There is a strong focus on the state of the US economy at the moment, however, history

indicates that an inverted yield curve does not always lead to a recession,” he said. “There are positive indicators for growth and some economists suggest it would be a mistake to just focus on the yield curve.” Nonetheless, the Legg Mason affiliate managers urged investors to diversify and be highly selective when it comes to stocks. “I believe taking a highly selective, stock-focused and long-horizon approach based on in-depth fundamental analysis of companies will help to mitigate

Continued on page 20

One of the highest claim approval rates in Australia.* An AMP insurance claim we’re proud to make. Last year AMP paid $1.2 billion in insurance claims^, to help Australians in their time of need. It’s something we’ve been proudly doing for 170 years. Which is another insurance claim, we’re honoured to make. To access our 2018 claims data visit amp.com.au/client-care

Adviser use only. Information current as at 16 April 2019. AMP Life Limited ABN 84 079 300 379. *Insurance bought through advisers, source: moneysmart.gov.au/tools-and-resources/calculatorsand-apps/life-insurance-claims-comparison-tool April 2019. ^Based on AMP claims paid during 2018.

06MM09045_18-47.indd 19

2/05/2019 4:15:42 PM

20 | Money Management May 9, 2019

Global investing

Continued from page 19 the risk of getting wrong-footed by market volatility,” Osmani said. “It will provide great opportunities to invest in businesses exposed to some compelling long-term growth themes, that have pricing power and strong balance sheets, at attractive valuations.” LaBella suggested that, rather than overreacting to the possibility of a recession or an inevitable slowdown, investors would benefit from looking closely at their portfolios to ensure they are adequately diversified across asset classes as well as within underlying asset classes. “One of the effects of the bull market over the last decade has been a growing concentration of technology and cyclically oriented companies within market cap weighted indexes as a result of their relative outperformance,” he said. “So now is the time for investors to ensure their portfolios are adequately diversified across regions, styles and sectors.”

EMS AND THE EU Fidelity’s Global Equities fund portfolio manager, Amit Lodha, said the two major headwinds from last year, the US/China trade war and Brexit, have continued to weigh on investor sentiment. As 2018 progressed, Lodha said global equities, especially emerging market equities, bore the brunt of investors’ concerns about the state of the Chinese economy. “Although, the recent alleviation of trade tensions given the ongoing dialogue between China and the US is a welcome sign; this uncertainty lasting for longer could become a drag for investment and would be very negative for investors,” he said.

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Despite concerns, Lodha said Fidelity found opportunities to add exposure into quality businesses in the region. The portfolio manager said following the 2018 sell-off, EM equities, particularly in the Chinese market, were attractively valued, with continued scope for re-rating despite a strong start to 2019. And, while US dollar strength had been a significant headwind for the asset class, more recently, markets breathed a sigh of relief as the US Federal Reserve paused interest rate hikes this year. “From a long-term perspective, emerging markets continue to offer many interesting bottom-up investment opportunities, supported by structural growth drivers,” he said. Lodha also noted the EU did not look so favourable though, and European equity markets were set to face some challenges given the continuing uncertainty surrounding Brexit and, of course, trade concerns between the US and its trading partners, which could negatively impact the eurozone’s export-led economy. But it’s not all doom and gloom, and once the cloud-cover clears on Brexit, Lodha said markets could rise again. “In the short term, Brexit may cause greater than usual volatility in UK economic data over the coming months. However, once clarity emerges on future trading agreements with the EU, we may see a pick-up in economic activity,” he said.

GET STRICT ON STOCKS Given the expected volatility, industry experts said getting strict on stocks was the best way to stay grounded, and to Martin

“Taking a highly selective, stock-focused and long-horizon approach based on in-depth fundamental analysis of companies will help to mitigate the risk of getting wrong-footed by market volatility.” – Zehrid Osmani, portfolio manager, Legg Mason Martin Currie Currie’s Osmani, this meant integrating environmental, social and governance analysis in the investment process. Osmani said this enabled investors to have greater oversight of the various risks that could impact the future economic value of companies. So, when situations like the trade war arise, given the managers are long-term investors and highly stock-specific, they’re not positioned to respond, but rather to take advantage of attractive entry points. In the last 12 months, the Martin Currie Global Long-Term Unconstrained Fund’s best performing stock was the US tech stock, Automatic Data Processing. Osmani said the stock was a leader in human capital management, had stable revenue growth and expanding returns,

2/05/2019 4:16:00 PM

May 9, 2019 Money Management | 21

Global investing

and after some minor hiccups, it was now posting solid numbers. Whilst they’re generally bottom-up stock pickers, Osmani said it would be unlikely that the fund invested in mining, energy, telecoms, utilities or banks. LaBella’s quant-style QS Investors Global Equity fund likewise is focused on stock selection rather than trying to time country or sector exposure, so when it came to the US/China trade war and Brexit, the portfolio wouldn’t change unless data inputs to the stock model change.

WHAT DOES 2019 HAVE IN STORE FOR GLOBAL INVESTMENTS? Lodha predicted that while a number of factors point to positive moves in the global equities market, overall, caution is still warranted towards risk assets in the current late-cycle environment. He was positive on oil given supply was being curtailed as a result of production cuts from Venezuela and Iran. As well, China seemed intent on reflating, and the country’s property sector looked like their

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tool of choice. While Lodha was unclear on how much the country would be able to achieve given longer-term structural issues remained, he said China seemed to be stabilising. In terms of inflation, Lodha said recent remarks by Fed chairman, Jerome Powell, suggested the Fed had gone dovish in a bid to drive inflation higher, so the portfolio manager urged investors to find companies that could price ahead of inflation. “Underlying fundamentals have not improved along with the

rebound in markets, as risks in the global economy persist,” he said. “The hard-economic data is yet to catch up with the recent green shoots in some areas of economic activity. Decelerating below-trend global growth and weakening earnings outlook for 2019 remain areas of concern.” Despite the rough waters ahead, Lodha said the rising number of “Unicorn IPOs”, like Lyft and Uber, was a sign of some “froth building up”, which he believed should give investors a pause for thought.

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About Lifestyle Asset Management Lifestyle Asset Management (LAM), is a non-aligned boutique Australian Financial Services License including an Australian Credit License. We grow our business by supporting advisers not hectoring them. This enables a solutions based approach for advisers to deliver appropriate results to their clients which involves a mix of wealth management, personal risk protection and taxation strategy for clients. The enabling factors around this are technology and an open APL. The changing face of ﬁnancial services now requires an integrated approach to advice, increasing digital engagement, the use of Fintech and a commitment to education and learning.

LAM oﬀers the forward thinking early adopters of the industry a highly-experienced team providing specialist resources across the spectrum of ﬁnancial services

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2/05/2019 4:16:37 PM

22 | Money Management May 9, 2019

Portfolio construction

BUILDING PORTFOLIO RESILIENCE IN THE FACE OF VOLATILITY Christian Obrist discusses why investors should build resilience into their portfolios. ONE OF THE most misunderstood concepts in investing is that volatility can surface without warning. While the 2019 market rebound has undone much of the damage from 2018’s year-end drubbing, the dramatic sell-off is a key reminder that portfolio management, specifically the importance of having defensive exposures, is key to a resilient portfolio. The sell-off from October 3rd to December 24th dragged the S&P 500 Index down by 20 per cent and the Russell Small-Cap Index by more than 24 per cent (Source: Bloomberg, figures in USD). This was driven primarily by

06MM09045_18-47.indd 22

fears of continued rate hikes by the Federal Reserve, as well as concerns regarding a slowdown in corporate earnings global growth more generally. These large drawdowns are a far cry from the relatively low volatility environment markets have experienced in recent years, which drove investors to seek exposures to pro-cyclical market areas such as momentum stocks or high yield credit. As investors adjust to a lower growth paradigm, they begin to consider exposures that either offer protection through limited downside, such as minimum volatility strategies, or those of higher quality - across both

equities and bonds. Indeed, investors are taking notice of the importance of defensive positioning. Even with the rebound in stocks this year, our research shows that flows into defensive exchange-traded products (ETPs) are outpacing flows into all other products as a percentage of assets under management (see chart one). United States listed fixed income Exchange-Traded Funds (ETFs) have garnered nearly twice as much as equity flows year to date. Minimum volatility strategies are the most popular amongst factor-based strategies, gaining US$5.78 billion, while momentum has seen nearly

US$0.6 billion in outflows. Having selective risk exposures at the core of a portfolio will potentially help investors maintain resilience, and ETFs seem to be a cost-effective way to enter such defensive positions.

CONSTRUCTING RESILIENT PORTFOLIOS WITH ETFs Keeping risk front of mind when determining the asset allocation of a portfolio is key towards potentially minimising losses in the face of volatility. This may start with a ‘core-satellite’ strategy, which refers to a portfolio with a broad (core) exposure to an asset class while enabling the flexibility

1/05/2019 4:01:28 PM

May 9, 2019 Money Management | 23

Portfolio construction

Chart 1: Looking for defence: US listed exchange traded product flows

Source: Markit, BlackRock, as of 19 March, 2019

to adjust to current market conditions with other (satellite) investment exposures. According to a Brinson, Hood & Beebower study, asset allocation accounts for 94 per cent of the variation in portfolio returns. This is not to diminish the importance of market timing and security selection in achieving

alpha, but rather to highlight the dominant influence of asset allocation on portfolio outcomes. A common method to creating a core holding is through ETFs, which can provide broad-based exposures to different countries and sectors. Trading like single stocks but having access to a comprehensive world of investment Chart 2: MSCI World v MSCI World Quality

Source: Bloomberg, as of 12 April, 2019

06MM09045_18-47.indd 23

options, ETFs are a cost-effective way to gain exposure to a diversified portfolio of securities and hence help to spread idiosyncratic risk. With over 7,000 ETPs globally across markets and asset classes (as of 2018), investors are spoilt for choice. An alternate method to portfolio construction is to build portfolios with respect to factors, as opposed to asset classes, which can be used at either the core of your portfolio, or otherwise as satellites. This is often termed as factor-based investing. In its simplest form, factor-based investing is the identification of quantifiable characteristics of assets that relate to risk and return, and subsequently implementing rules-based frameworks for the portfolio that either capture or avoid these characteristics. The most wellknown style factors include Quality, Minimum Volatility, Size, Momentum and Value. Factor-based investing is possible through ETFs, also known as Smart Beta strategies. Combining elements of both traditional passive and active investing, smart beta strategies

combine the diversification benefits of passive investments with the benefits of style-tilts at a fraction of the cost of active management. However, when uncertainty surrounding volatility are present and rising, quality and minimum volatility exposures are the most popular style tilts for defensive strategies. This is because securities with these exposures tend to outperform in tumultuous periods, highlighting their importance in building portfolio resilience.

QUALITY-FOCUSED STRATEGIES Quality typically connotes some combination of high profitability, low debt-to-equity and earnings consistency. In aggregate, this style has historically delivered a return premium, i.e. the opportunity to outperform a broad benchmark over the long term. As seen below in chart two, companies in the MSCI Quality Index have outperformed the broader market, and this outperformance becomes more pronounced in months when the VIX Index rises. With quality performing best during slowdown and contraction phases, it may be worth considering assets that possess these characteristics, given the global economic slowdown. As a defensive measure, this factor is not limited to equities, but is also accessible through fixed income securities. Investors concerned with slowing growth or geopolitical turmoil may want to consider longer duration Treasuries (10 years or longer) as historically, these have offered some buffer for Continued on page 24

1/05/2019 4:01:34 PM

24 | Money Management May 9, 2019

Portfolio construction

Continued from page 23 portfolios in market downturns, as well as a chance to potentially pick up some extra yield relative to short-dated bonds. Traditionally, there is an inverse relationship between equity and government bond returns, and we see this negative correlation being sustained in this late-cycle period. With such deepening negative correlations between debt and equity securities, the role of bonds as a powerful diversification tool is elevated, particularly in balancing risk and reward in portfolios. iShares has an ETF – the iShares Treasury ETF (IGB) – that provides exposure to Australian Treasury bonds, and therefore incorporating this into the core of a portfolio may also build portfolio resilience.

WHAT ARE MINIMUM VOLATILITY STRATEGIES? Minimum volatility strategies have historically reduced risk in down markets compared to the broader market – with Q4 2018 being no exception. We can observe the benefit of these minimum volatility exposures when looking at the daily returns of the iShares Edge MSCI Australia Minimum Volatility ETF (MVOL) versus its parent index, the MSCI Australia Investable Market Index (IMI), in chart three. With MVOL minimising losses when the broad market declines, we believe a Minimum Volatility strategy can be used to replace and act as a core holding within a strategic asset allocation, being a possible way to reduce risk. As minimum volatility strategies have historically

06MM09045_18-47.indd 24

Chart 3: Minimum volatility strategies are key for portfolio resilience

Source: Bloomberg, as of 12 April, 2019

provided resilience during down markets, they have helped investors remain invested during periods of market stress and uncertainty. Remember, humans experience the woes of losses more severely than the joys of gains (termed ‘loss aversion’), making lower downside capture an effective way to keep investors in the market and on-track with their long-term goals. For this reason, more stable equity allocations to Minimum Volatility strategies such as MVOL and WVOL can be a powerful core holding within portfolios. With continual political and economic concerns potentially fuelling higher volatility, investors would be prudent to consider deploying a Minimum Volatility strategy within their portfolios.

CONCLUSION Over the long term, creating a buffer from market downturn – known as ‘downside protection’ – can add value to a portfolio. Given the sporadic nature of market fluctuations, a disciplined asset allocation approach that

involves a diversified portfolio of securities across asset classes, sectors and countries should include defensive assets to focus on long-term goals. This can be achieved through factor-based investing with a focus on minimum volatility or qualityfocused strategies. This avoids impulsive reactions to short-term volatility, particularly as market complacency rises and the US enters its late-cycle phase of the economy. Portfolio resilience is now imperative, and utilising defensive strategies that can help diversify away a portfolio’s unsystematic risk but potentially minimise downside risk can be implemented through Smart-Beta ETFs. Whether it be minimum volatility equity strategies or utilising Treasuries, the importance of downside protection has heightened given the recent bouts of volatility in 2018. Christian Obrist is head of BlackRock's iShares business in Australasia.

1/05/2019 4:01:43 PM

investmentcentre.moneymanagement.com.au

INVESTMENT CENTRE a part of

ALTERNATIVE BETA STRATEGIES: THE ONLY FREE LUNCH IN FINANCE Anastasia Santoreneos writes that investors seeking diversification should take hold of what’s been coined the only free lunch in finance: alternative beta strategies. BOTH ALTERNATIVE INVESTMENTS and strategies are vehicles for investors to improve portfolio construction by diversifying their portfolios, and they’ve been coined “the only free lunch in finance” for their benefits.

A SNAPSHOT OF ALTERNATIVES Data from FE Analytics showed for the 12 months to 12 April, the alternatives sector average was 0.19 per cent, with the top fund being Macquarie’s P/E Global FX Alpha, followed by Regal Australian Small Companies with 23.05 per cent and Enlihtan Global Opportunity with 21.83 per cent. Looking a little more longerterm, the sector average was 6.29 per cent for the 10 years to 12 April, 4.46 per cent for the five years to 12 April and 3.12 per cent for the three years to 12 April. It’s difficult to derive the performance of alternatives from a few figures though. Given they should be held for a full market cycle, and we’re sitting in the longest bull-market on record, alternatives have continued to outperform and underperform at certain times. Philippe Jordan, president of Capital Funds Management (CFM) said CFM used an extensive scientific, research-based approach to identifying and implementing strategies that have proven to be robust, sustainable and scalable. “Financial markets are constantly evolving and have a degree of predictability that we continue to explore through data. This creates a strong environment to create alternative strategies which provide risk-adjusted returns with a low correlation to traditional investment market benchmarks.”

06MM09045_18-47.indd 25

ALTERNATIVE BETA STRATEGIES Alternative beta strategies are, according to Jordan, strategies that aim to offer absolute returns that are de-correlated from traditional equity and bond benchmarks. These strategies, Jordan said, have historically been associated with hedge funds, which, 20 years ago, were the ultimate generators of alpha, but they’re not simply hedge fund index replicators. “Part of what makes alternative beta strategies attractive is that historically, just as hedge fund returns were frequently de-correlated from equity and bond benchmarks, so too returns generated through exposure to alternative risk premia have also exhibited little performance correlation to one another, or to traditional investments in global stock and bond markets,” he said. “This is important, because we know that combining non-correlated alternative strategies into a single portfolio helps diversify risk and generate more consistent returns over time.” So, ultimately, alternative beta strategies depend heavily on managers’ understanding of strategies driving hedge fund returns.

While they sound complex and therefore expensive, Jordan said one of the reasons alternative beta strategies were gaining momentum was due to their transparency and low cost when compared to traditional alternative investments. They sit somewhere between actively managed hedge funds that deliver pure alpha and traditional long-only beta products like index funds, so their cost, naturally, sits in the middle of the scale.

SEEKING DIVERSIFICATION? SEEK ALTERNATIVE BETA Historically, alternatives have been used more frequently by institutional investors, simply because they’re not well-known or understood, but they’re being increasingly sought after by financial advisers and their clients given their diversification benefits as well as their liquidity, transparency and lower cost. Jordan said any investor nowadays looking for diversification could opt for alternative beta strategies, which are specifically designed to add diversification to portfolios, regardless of whether the portfolio is held by retail or institutional investors. And, not many people wouldn’t be looking for diversification,

Chart 1: Performance of the ACS – Alternatives Sector across the 10 years to 12 April.

Source: FE Analytics

ANASTASIA SANTORENEOS

given it helps manage downside risk, which subsequently improves portfolio returns over the long term. And this “longterm” aspect was driven home by Jordan, who said alternative beta strategies should ideally be held for a full economic cycle. “Like any investment product they can underperform and outperform at certain time periods, so attempting to time them, by moving in and out frequently, is not ideal,” he said. Key to diversifying, according to Jordan, is reducing the correlation between the returns from different asset classes in a portfolio, and being mindful that correlations aren’t static, particularly during corrections or crises. “Assuming that historic correlations between asset classes will hold true in all market conditions is a risky assumption – and can have disastrous effects in serious market downturns,” he said. “For example, historically investors have turned to fixed interest to diversify away from equity risk, but when the global financial crisis hit, equities and fixed income began to move together in lockstep, exacerbating portfolio losses at the worst possible time.”

1/05/2019 12:07:57 PM

INVESTMENT CENTRE

a part of

ACS CASH - AUSTRALIAN DOLLAR

ACS EQUITY - AUSTRALIA EQUITY INCOME

Fund name

Macquarie Australian Diversified Income ATR in AU

0.35

2.66

3.15

Armytage Australian Equity Income ATR in AU

0.4

9.35

9.87

110

Macquarie Diversified Treasury AA ATR in AU

0.35

2.62

3.09

Plato Australian Shares Income A ATR in AU

0.85

11.83

9.41

102

Mutual Cash Term Deposits and Bank Bills B ATR in AU

0.19

2.29

2.27

Nikko AM Australian Share Income ATR in AU

-0.3

6.52

9.37

109

Pendal Stable Cash Plus ATR in AU

2.26

Lincoln Australian Income Wholesale ATR in AU

0.18

2.2

2.23

12.74

8.68

Mutual Cash Term Deposits and Bank Bills A ATR in AU

0.37

9.94

8.58

2.28

2.25

Zurich Investments Equity Income Pool ATR in AU

0.18

Legg Mason Martin Currie Equity Income X ATR in AU

Australian Ethical Income Wholesale ATR in AU

1.87

5.43

8.33

101

0.25

2.2

2.18

0.71

5.05

8.19

CFS Colonial First State Wholesale Cash ATR in AU

Lazard Defensive Australian Equity ATR in AU

0.18

2.03

2.07

2.16

12.16

7.93

IOOF Cash Management Trust ATR in AU

Lincoln Australian Income Retail ATR in AU

0.17

2.08

2.04

Legg Mason Martin Currie Ethical Values with Income A ATR in AU

1.9

4.27

7.78

101

Janus Henderson Cash Institutional ATR in AU

0.34

2.31

2.03

1.81

4.61

7.57

101

Mercer Cash Term Deposit Units ATR in AU

Legg Mason Martin Currie Equity Income A ATR in AU

0.17

2.05

2.02

Crown Rating

Risk Score

Crown Rating

Risk Score

ACS EQUITY - AUSTRALIA SMALL/MID CAP ACS EQUITY - ASIA PACIFIC EX JAPAN

Macquarie Small Companies ATR in AU

0.56

4.93

17.44

120

Macquarie Australian Small Companies ATR in AU

0.59

4.87

16.97

120

Allan Gray Australia Equity A ATR in AU

-0.83

9.08

15.98

107

Cromwell Phoenix Opportunities ATR in AU

-2.72

6.36

15.81

108

OC Micro-Cap ATR in AU

3.96

0.95

15.65

106

Allan Gray Australia Equity B ATR in AU

-0.77

9.6

15.43

107

7.61

15.39

Crown Rating

Risk Score

Fund name

SGH Tiger ATR in AU

7.19

12.71

20.81

130

Schroder Asia Pacific Wholesale ATR in AU

3.43

6.9

19.65

121

Advance Asian Equity Wholesale ATR in AU

4.11

2.67

18.59

119

Fidelity Asia ATR in AU

2.07

12.68

18.01

115

Advance Asian Equity ATR in AU

4.04

1.7

17.48

119

Premium Asia ATR in AU

4.37

7.36

16.3

132

T. Rowe Price Asia Ex Japan ATR in AU

3.76

4.56

14.92

119

Pendal MicroCap Opportunities ATR in AU

Maple-Brown Abbott Asia Pacific Trust ATR in AU

1.26

4.88

14.6

103

SGH Emerging Companies Professional Investors ATR in AU

7.82

7.54

15.23

114

CI Asian Tiger ATR in AU

4.12

8.22

14.55

Fidelity Future Leaders ATR in AU

1.03

14.77

15.02

110

Maple-Brown Abbott Asian Investment Trust ATR in AU

2.34

5.08

14.04

110

Smallco Investment Manager Smallco Investment ATR in AU

-0.52

15.58

14.27

140

Crown Rating

Risk Score

Fund name

ACS EQUITY - AUSTRALIA Fund name

ACS EQUITY - EMERGING MARKETS 1m

Crown Rating

Risk Score

Fund name

Crown Rating

Risk Score

Dimensional Australian Value Trust ATR in AU

-0.36 11.93

16.1

111

0.65

3.5

17.79

108

Macquarie Australian Shares ATR in AU

JPMorgan Emerging Markets Opportunities ATR in AU

0.71

10.29

14.66

101

Legg Mason Martin Currie Emerging Markets ATR in AU

1.5

-1.52

17.77

121

DDH Selector Australian Equities ATR in AU

1.43

12.5

14.51

133

Macquarie Wholesale Australian Equities ATR in AU

-0.99

3.25

16.06

104

0.55

9.91

14.39

101

CFS Realindex Emerging Markets A ATR in AU

Solaris High Alpha Australian Equity Inst ATR in AU

1.7

2.09

15.84

0.63

13.16

14.35

106

MFS Emerging Markets Equity Trust ATR in AU

1.5

2.67

15.5

Macquarie Australian Equities ATR in AU

OnePath Wholesale Global Emerging Markets Share ATR in AU

0.54

9.85

14.21

101

Fidelity Global Emerging Markets ATR in AU

2.97

5.57

15.12

Solaris Core Australian Equity I ATR in AU

0.73

13.43

13.77

101

Schroder Global Emerging Markets Wholesale ATR in AU

0.65

-1.22

14.9

106

Legg Mason Martin Currie Select Opportunities X ATR in AU

0.29

3.21

13.44

110

Pendal Global Emerging Markets Opportunities-WS ATR in AU

4.12

5.05

14.31

Lincoln Australian Growth Wholesale ATR in AU

0.73

21.99

13.39

106

CFS FirstChoice Wholesale Emerging Markets ATR in AU

1.43

-1.37

13.74

108

Solaris High Alpha Australian Equity ATR in AU

0.55

12.09

13.26

106

Macquarie True Index Emerging Markets ATR in AU

0.94

0.07

13.64

105

06MM09045_18-47.indd 26

1/05/2019 3:39:45 PM

INVESTMENT CENTRE

a part of

ACS EQUITY - GLOBAL

ACS EQUITY - INFRASTRUCTURE

Fund name

Hyperion Global Growth Companies B ATR in AU

3.25

26.8

22.21

124

CFS FirstChoice Acadian Wholesale Geared Global Equity ATR in AU

1.86

9.39

21.41

CFS Generation WS Global Share ATR in AU

2.27

18.12

Zurich Investments Concentrated Global Growth ATR in AU

3.58

T. Rowe Price Global Equity ATR in AU

Crown Rating

Risk Score

Fund name

Crown Rating

Risk Score

Macquarie Global Infrastructure Trust II A ATR in AU

28.82

204

252

Macquarie Global Infrastructure Trust II B ATR in AU

26.85

28.68

202

111

BlackRock Global Listed Infrastructure ATR in AU

3.46

26.61

13.98

22.95

19.41

132

2.55

15.08

18.22

115

Macquarie True Index Global Infrastructure Securities ATR in AU

3.11

23.22

12.19

Loftus Peak Global Disruption ATR in AU

3.02

17.9

17.71

150

2.87

24.11

11.93

Legg Mason Martin Currie Global Long-Term Unconstrained A ATR in AU

RARE Infrastructure Income ATR in AU

3.98

21.87

16.75

107

Lazard Global Listed Infrastructure ATR in AU

0.77

12.78

11.82

Pengana High Conviction Equities ATR in AU

3.11

14.01

16.61

159

Redpoint Global Infrastructure Retail ATR in AU

2.88

18.94

11.69

106

Zurich Investments Unhedged Global Growth Share Scheme ATR in AU

2.92

16.75

16.47

118

ClearView CFML Colonial Infrastructure ATR in AU

3.56

21.13

11.59

Zurich Investments Global Growth Share Scheme ATR in AU

2.91

117

AMP Capital Global Infrastructure Securities Unhedged Wholesale ATR in AU

2.59

24.78

11.51

100

Mercer Global Unlisted Infrastructure ATR in AU

0.65

8.71

11.37

Fund name

16.63

16.46

ACS EQUITY - GLOBAL HEDGED Fund name

Zurich Investments Hedged Concentrated Global Growth ATR in AU

3.53

14.79

16.55

145

Russell Global Opportunities NZ Hedged A AUD ATR in AU

1.24

4.97

14.7

112

BT Technology Retail ATR in AU

2.5

20.79

24.82

160

Evans And Partners International Hedged B ATR in AU

2.8

17.52

13.37

115

Fiducian Technology ATR in AU

1.42

13.72

21.31

174

1.65

18.79

20.26

143

Crown Rating

Risk Score

ACS EQUITY - SPECIALIST Crown Rating

Risk Score

Russell Global Opportunities NZ Hedged B AUD ATR in AU

1.12

3.6

13.18

112

CFS Wholesale Global Technology & Communications ATR in AU

Macquarie Arrowstreet Global Equity Hedged ATR in AU

1.14

5.48

13.08

118

Platinum International Health Care C ATR in AU

2.53

16.56

16.2

127

Zurich Investments Hedged Global Growth Share ATR in AU

2.89

9.42

12.95

132

Platinum International Brands C ATR in AU

0.83

2.62

15.85

109

Evans And Partners International Hedged ATR in AU

2.74

16.87

12.75

115

CFS Wholesale Global Health & Biotechnology ATR in AU

0.29

17.17

15.39

153

Magellan Global Equities (Currency Hedged) (Managed) ATR in AU

3.63

12.52

12.69

115

12.47

104

Cooper Investors Global Equities Hedged ATR in AU

Platinum International Technology -0.19 C ATR in AU

1.89

6.77

12.65

110

11.6

103

Magellan Global Hedged ATR in AU

3.62

12.35

12.45

104

Barwon Global Listed Private Equity ATR in AU

CFS Colonial First State Australian -0.08 Share Growth ATR in AU

9.91

8.38

108

IML Industrial Share ATR in AU

5.15

7.15

ACS EQUITY - GLOBAL SMALL/MID CAP Fund name

Bell Global Emerging Companies ATR in AU

2.68

14.02

Crown Rating

1.42

Risk Score 106

ACS FIXED INT - AUSTRALIA / GLOBAL Fund name

PIMCO Diversified Fixed Interest ATR in AU

1.46

4.95

4.55

Macquarie Dynamic Bond ATR in AU

1.7

5.34

4.26

PIMCO Diversified Fixed Interest Wholesale ATR in AU

1.45

4.89

4.09

122

IOOF MultiMix Diversified Fixed Interest ATR in AU

1.08

4.12

4.03

11.7

Onepath Wholesale Diversified Fixed Interest Trust ATR in AU

1.39

4.8

3.87

11.45

110

UBS Diversified Fixed Income Fund ATR in AU

1.37

5.02

3.74

CFS FirstChoice Wholesale Fixed Interest ATR in AU

1.73

5.45

3.62

ClearView CFML Fixed Interest ATR in AU

1.25

4.12

3.62

Aberdeen Standard Diversified Fixed Income ATR in AU

1.35

4.77

3.57

AMP Capital Specialist Diversified Fixed Income A ATR in AU

1.09

4.72

3.52

Yarra Global Small Companies ATR in AU

-0.42

7.55

13.98

118

Supervised The Supervised ATR in AU

1.41

-1.99

12.38

103

Dimensional Global Small Company Trust ATR in AU

-1.52

2.96

12.02

119

Mercer Global Small Companies Shares ATR in AU

-1.34

4.5

11.79

Pengana International Ethical Opportunity ATR in AU

1.41

3.61

OnePath Optimix Wholesale Global Smaller Companies Share Trust B ATR in AU

-1.13

2.01

OnePath Optimix Wholesale Global Smaller Companies Share Trust A ATR in AU

-1.14

1.87

11.25

110

Pengana Global Small Companies ATR in AU

-0.2

-5.26

11.2

Fiducian Global Smaller Companies and Emerging Markets ATR in AU

-0.15

0.69

10.79

06MM09045_18-47.indd 27

0.17

Crown Rating

Risk Score

1/05/2019 3:39:59 PM

INVESTMENT CENTRE

a part of

ACS FIXED INT - AUSTRALIAN BOND

ACS FIXED INT - GLOBAL STRATEGIC BOND

Fund name

Elstree Enhanced Income ATR in AU

1.16

7.47

8.01

DDH Preferred Income ATR in AU

0.7

4.98

Legg Mason Western Asset Australian Bond X ATR in AU

1.85

BlackRock Enhanced Australian Bond ATR in AU

1.82

Crown Rating

Risk Score

Crown Rating

Fund name

Risk Score

Dimensional Global Bond Trust NZD ATR in AU

2.49

8.22

6.18

7.07

Pimco Dynamic Bond Wholesale ATR in AU

0.33

2.66

5.01

7.32

4.73

Pimco Dynamic Bond C ATR in AU

-0.56

1.87

4.8

Dimensional Global Bond Trust AUD ATR in AU

2.28

5.97

3.76

7.27

4.53

JPMorgan Global Strategic Bond ATR in AU

0.46

1.76

3.46

IOOF Strategic Fixed Interest ATR in AU

0.61

3.16

2.52

Australian Unity Strategic Fixed Interest Trust Wholesale ATR in AU

0.5

2.88

2.51

T. Rowe Price Dynamic Global Bond ATR in AU

0.07

-0.39

1.5

Macquarie Core Australian Fixed Interest ATR in AU

1.84

Legg Mason Western Asset Australian Bond A ATR in AU

1.82

Janus Henderson Australian Fixed Interest Institutional ATR in AU

2.47

7.28

4.37

AMP Capital Wholesale Australian Bond ATR in AU

1.97

7.13

4.36

Fund name

IOOF Income ATR in AU

0.42

3.61

4.3

Ardea Real Outcome ATR in AU

1.66

5.47

5.34

PIMCO Global RealReturn Wholesale ATR in AU

2.71

3.37

5.23

Ardea Premier Australian Inflation Linked Bond ATR in AU

1.93

6.18

3.94

Ardea Australian Inflation Linked Bond ATR in AU

1.88

5.88

3.69

Macquarie Inflation Linked Bond ATR in AU

1.88

6.15

3.21

Mercer Australian Inflation Plus ATR in AU

0.41

3.91

3.19

Morningstar Global Inflation Linked Securities Hedged Z ATR in AU

1.41

3.91

2.98

Aberdeen Standard Inflation Linked Bond ATR in AU

0.47

3.56

2.17

Morningstar Australian Bonds Z ATR in AU

1.67

7.17 6.92

6.75

4.48 4.38

4.3

ACS FIXED INT - DIVERSIFIED CREDIT Crown Rating

Risk Score

ACS FIXED INT - INFLATION LINKED BOND Crown Rating

Risk Score

Fund name

Premium Asia Income ATR in AU

3.26

6.43

10.16

Bentham Global Income NZD ATR in AU

-0.14

3.12

9.09

Bentham Syndicated Loan NZD ATR in AU

0.15

4.01

8.59

Bentham High Yield ATR in AU

0.97

4.59

8.2

ACS PROPERTY - AUSTRALIA LISTED

DirectMoney Personal Loan ATR in AU

0.61

8.35

7.66

Fund name

Pimco Capital Securities Wholesale ATR in AU

0.38

1.09

6.86

AU Property Securities Growth Units ATR in AU

6.78

31.62

12.53

151

Macquarie Property Securities ATR in AU

6.45

30.01

12.11

126

Macquarie Wholesale Property Securities ATR in AU

6.43

29.73

127

Charter Hall Maxim Property Securities ATR in AU

4.17

21.52

11.84

UBS Property Securities Fund ATR in AU

6.35

28.81

11.59

117

AMP Capital Listed Property Trusts ATR in AU

6.17

31.6

11.58

122

Resolution Core Plus Property Securities A PF ATR in AU

5.98

25.96

11.55

114

AMP Capital Property Securities ATR in AU

6.21

31.55

11.47

122

AMP Capital Listed Property Trusts A ATR in AU

6.12

30.93

11.01

122

The Trust Company Diversified Property ATR in AU

6.02

22.13

107

Fund name

Premium Asia Property ATR in AU

8.98

11.1

15.76

150

APN Asian REIT ATR in AU

3.65

21.86

12.3

Quay Global Real Estate C ATR in AU

3.35

24.87

11.24

Quay Global Real Estate A ATR in AU

3.34

25.28

10.78

Resolution Capita Global Property Securities Unhedged II ATR in AU

3.43

21.55

10.33

Bentham Global Income ATR in AU

-0.4

0.77

6.76

Bentham Syndicated Loan ATR in AU

-0.13

1.82

6.72

CFS Wholesale Global Credit ATR in AU

1.53

5.32

5.46

Macquarie Core Plus Australian Fixed Interest ATR in AU

2.65

8.14

5.37

ACS FIXED INT - GLOBAL BOND Fund name

Crown Rating

Risk Score

Pimco Income Wholesale ATR in AU

0.7

3.56

6.12

Invesco Senior Secured Loans ATR in AU

-0.11

2.4

5.85

Invesco Wholesale Senior Secured Income ATR in AU

-0.12

2.37

5.78

Russell Global Bond AUD ATR in AU

1.71

5.28

5.76

Russell Global Bond NZD ATR in AU

1.71

5.27

5.56

Crown Rating

Risk Score

ACS PROPERTY - GLOBAL Crown Rating

Risk Score

Mercer Emerging Markets Debt ATR in AU

-1.4

-4.46

5.38

PIMCO Emerging Markets Bond ATR in AU

0.18

-3.41

5.13

Perpetual Private Real Estate Implemented Portfolio ATR in AU

4.43

21.31

9.76

Supervised Global Income ATR in AU

0.32

1.75

5.05

CFS Colonial First State Wholesale Geared Global Property Securities ATR in AU

6.62

17.21

9.4

220

PIMCO Emerging Markets Bond Wholesale ATR in AU

0.17

-3.52

5.04

Resolution Capita Global Property Securities Hedged II ATR in AU

3.57

15.53

9.3

100

AU A-REIT ATR in AU

5.69

21.7

9.26

109

PIMCO Global Bond ATR in AU

1.38

3.76

4.81

IOOF Specialist Property ATR in AU

3.67

19.29

9.24

The tables and data contained in the Investment Centre are intended for use by professional investors and advisers only and are not to be relied upon by any other persons.

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1/05/2019 3:40:15 PM

May 9, 2019 Money Management | 29

Fund Manager of the Year 2019

Celebrating Excellence

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Category sponsors

06MM09045_18-47.indd 29

1/05/2019 3:44:54 PM

30 | Money Management May 9, 2019

Fund Manager of the Year 2019

ALLIANCE BERNSTEIN TAKES FUND MANAGER OF THE YEAR MANTLE BY ANASTASIA SANTORENEOS

ALLIANCEBERNSTEIN (AB) HAS been crowned this year’s Fund Manager of the Year at the Money Management Fund Manager of the Year Awards, taking the title from Legg Mason, who held a two-year reign in top spot. The win may come as no surprise to AB given three of its funds were nominated for categories at this year’s awards ceremony, and two won. AB’s stock-picking expertise saw its AB Managed Volatility Equities fund and its AB Concentrated Global Growth Equities Portfolio take out the Australian Equities and Separately Managed Accounts (SMAs) categories respectively this year. Libby Newman, executive director, Lonsec Research said with award nominations getting more competitive each year, and 2019 no exception, AB’s results were commendable. “Securing one nomination should be applauded but to receive more than one and then win those categories represents an excellent result,” she said. It’s the first time the fund manager, which manages around US$547 billion globally across all offerings, has had an overall win, and when asked what the firm’s successes could be attributed to, its marketing and communications director, Roger Hogan, simply put it down to research, a client-focused attitude, and investment performance.

The win has come at a time when the firm has truly established its presence in Australia, with five investment vehicles currently on offer to the Aussie retail market across equities, fixed income, and SMAs, and four on offer to the Aussie institutional market across equities, fixed income, alternatives and multi-asset strategies. Australian chief executive officer, Jen Driscoll, attributed the nominations and successes of AB’s funds to listening to the needs of the Australian market. “We believe that, to compete effectively, we need to listen carefully to the market, to understand investors’ challenges and needs, and to do what we can to help them find solutions to their challenges,” she said. Newman said that while AB experienced a rough period in the aftermath of the global financial crisis, it was their commitment to rebranding themselves which resulted in the creation of new products that stood out. “They had to think creatively and innovate to regain lost ground as well as demonstrate a commitment to the Australian marketplace – as evidenced by regular visits to Australia from key investors and quality thought leadership,” she said. “The Lonsec team observed that this commitment has also resulted in products which tend to stand out for their ability to harness global expertise for the Australian marketplace.” Newman said some of the

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FUND MANAGER OF THE YEAR

WINNER: AllianceBernstein

JEN DRISCOLL

funds which held greatest appeal were a little “out of the box”, citing the firm’s managed volatility and global equity SMA, but she said they were also responsive to feedback around keen pricing and value for money. An example of this, according to Driscoll, was AB lowering the fees of the AB Dynamic Global Fixed Income Fund as the AB Global Equities Fund in response to client feedback. Given AB’s stock selection saw it nab two awards, it’s fitting that the firm’s main differentiator is, in fact, its research capabilities. “We were early leaders in the complementary use of quantitative and fundamental research techniques, and our research platform is genuinely global, with research teams in several locations around the world, rather than based in NY or London (for example) and analysing global data from there,” Hogan said. Hogan explained the firm’s

investment teams use quantitative analysis to identify potentially interesting stocks, after which the fundamental analysts drill down and decide which of the stocks could be potential portfolio candidates to ensure breadth and depth in the search for risk and return opportunities. “The processes are exhaustive and constantly reviewed,” he said. “One result of the platform restructure post 2008 is that our global analysts now talk to each other across investment sectors, countries and asset categories, resulting in genuinely global and highly differentiated research insights.” Client focus is also a key differentiating factor of AB, with the firm striving to work closely with clients to identify their real needs, and then develop appropriate solutions with that rather than contriving products at the back-end and taking them to market. Driscoll said an example of this was the winning AB Managed Volatility Equities Fund, which actually evolved out of discussions between the firm’s Australian equities team and an Australian superannuation fund that wanted to “smooth the ride” for its members during times of market volatility.

CONTENTS FINANCIAL PLANNER OF THE YEAR FINDING THE 2019 FUND MANAGER OF THE YEAR 32 YOUNG ACHIEVER 31

MONEY MANAGEMENT JUDGING PANEL 33 34

BDM OF THE YEAR LIFETIME ACHIEVEMENT AWARD PARAPLANNER OF THE YEAR ALTERNATIVE STRATEGIES

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35 36 37 40 41

AUSTRALIAN FIXED INCOME AUSTRALIAN SMALL CAP EQUITIES AUSTRALIAN LARGE CAP EQUITIES AUSTRALIAN PROPERTY SECURITIES ETF PROVIDER LONG/SHORT EQUITIES GLOBAL PROPERTY SECURITIES GLOBAL EMERGING MARKET EQUITIES GLOBAL EQUITIES GLOBAL FIXED INCOME

42 43 44 45

INFRASTRUCTURE SECURITIES RETIREMENT AND INCOME RESPONSIBLE INVESTMENTS EMERGING MANAGER SEPARATELY MANAGED ACCOUNT MULTI-ASSET DIRECT AND HYBRID PROPERTY LISTED INVESTMENT COMPANIES & TRUSTS

2/05/2019 4:07:17 PM

May 9, 2019 Money Management | 31

Fund Manager of the Year 2019

FINDING THE 2019 FUND MANAGER OF THE YEAR THE PROCESS Lonsec implemented to select the winners for each award category is consistent with last year’s process and consisted of three primary components. Firstly, as an initial screen, fund managers needed to be rated ‘recommended’ or higher by Lonsec in their category. Lonsec’s managed funds research process is qualitatively skewed. Lonsec believes that managing money is a combination of art and science, and that there are a number of critical ingredients that combine to produce a quality investment product. Lonsec’s assessment of people and the investment process they employ has the greatest impact on its rating

process. From this screened universe, Lonsec utilised two equally weighted components to select the Fund Manager of the Year winners in each category. The first component was the one-year excess return for representative funds for the calendar year 2018. Since the majority of retail flows are invested in wholesale trusts via platforms, wholesale trusts were used as the vehicles for performance calculation for managers. The second component was a qualitative analyst ‘momentum’ score, which the Lonsec research team determined for fund managers in each category. Factors that were considered in this momentum score included

PLANNING THE RIGHT PATH BY CHRIS DASTOOR

FELICITY COOPER, COOPER Wealth Management director, has been in the industry since 1996 and started as an accountant. But it was in university one of her lecturers led her to change her path, which culminated in her becoming Money Management’s 2018 Women in Financial Services Financial Planner of the Year, and now Money Management's Financial Planner of the Year for 2019. “One of my lecturers said, ‘you talk too much and you’re a big picture person, you should be in broking’,” Cooper said. After getting into

FELICITY COOPER

06MM09045_18-47.indd 31

stockbroking with JBWere and then Macquarie, she thought broking was still only a small part of what makes a difference. “It’s great to get the investments, but if you don’t get the strategy right, the investments don’t matter,” Cooper said. “That’s what led me down to the financial planning part: here’s the big picture, here’s the strategy section which makes most of the difference, here’s the asset allocation, the rules and how to put it all together.” “Then I can bring in the investment part that says, ‘okay now we know what’s meant to be over here, how do we make that work as well for you as we possibly can.’ I love it.” For Cooper, having her own Australian Financial Services License (AFSL) defies any other achievement that comes after it. “It’s meant I’ve been able to give the service I wanted to give in an independent way,” Cooper said. She believed contribution to the financial planning profession beyond the requirements of the job is important, because the profession is seen as a whole, not just as one person. “If you can contribute to the

process enhancements, team stability and depth, management of funds under management (FUM) capacity and risk management. The highest scoring fund manager, from the aggregate of these two equally weighted components, was declared the winner in each category. In summary, managers who have performed well against their benchmark within their category and have strong positive qualitative momentum, as assessed by Lonsec, are finalists for these awards. The overall Fund Manager of the Year takes account of the votes across all categories with the winner polling consistently well or winning multiple categories.

FINANCIAL PLANNER OF THE YEAR FINALISTS: • JAMES RIDLEY, ATLAS WEALTH MANAGEMENT • BRAD FENSOM, AUSTRALIAN UNITY PERSONAL FINANCIAL SERVICES • SHANE LIGHT, THE HOPKINS GROUP • FRANCES EASTON, ALMAN PARTNERS PTY LTD • PHILLIP RICHARDS, ENDORPHIN WEALTH MANAGEMENT

shaping of the profession and modelling the behaviour you’d like to see in the profession, then we’d all get better from it,” Cooper said. “I’ve just finished the roadshow with the Association of Financial Advisers (AFA), that was talking to financial planners all around the country on how to embrace change and the very rapidly changing environment, as well as the FASEA requirements.” She helped set up the Facebook group “FASEA because I said I would”, which is meant to guide financial planners through preparations for the exam. “When I sit the exam, because I’ll be one of the first people in the country to do it when it first gets released, [I’ll

WINNER: Felicity Cooper, Cooper Wealth Management know] what I’ve learned from doing that in terms of what you really need to study, what it contains, how practical is it versus how textbook is it,” Cooper said. Having won the AFA Excellence in Education Award, Cooper has embraced the need for a high standard for education in the industry. “All of the planners in my firm have either done their Masters, which is what I’ve done, or are certified financial planners (CFPs) and have done additional study,” Cooper said. “It’s something we had done beforehand, because we have a strong belief that to give clients the best service you should be as educated as you possibly can be.” As well as education, building trust with clients was crucial and Cooper said without trust, you shouldn’t have clients. “They’re trusting us with their entire savings, their future ability to retire, reach their goals, and do what they really wanted to do,” Cooper said.

2/05/2019 10:46:56 AM

32 | Money Management May 9, 2019

Fund Manager of the Year 2019

COMMITMENT TO COMMUNITY WORK KEY TO YOUNG ACHIEVER’S CROWN BY HANNAH WOOTTON

THE DAY I interview Charis Campbell, she’s got a half a suitcase packed with female sanitary products and toiletries and a flight booked to India for the next day. The products are for local women in the villages where the 2019 Money Management Young Achiever winner is staying, as they’re hard to come by in developing towns. This isn’t the Macquarie business development manager’s (BDM’s) first taste of community work. During university, Campbell volunteered at the Perth children’s hospital. A tough place for kids at times, she entertained patients amid the hospital’s constant hum. Since entering financial services, Campbell was one of the founding members of the AFA Inspire committee, organising events for women in finance. She also leads Macquarie’s involvement in the Ardoch Foundation, giving back to low socio-economic schools. As the Money Management Young Achiever judging panel considered nominees’ community and industry involvement, Campbell’s win is unsurprising. “I give back because we live in a world of injustice,” she says. “The disparity of wealth is growing further apart still and if I can provide

YOUNG ACHIEVER FINALISTS:

one small change to someone’s life then I know I am living out my life’s purpose”. When Campbell explains her upbringing, it’s easy to see where she gets this purpose. Her parents migrated to Australia with two kids in tow prior to having her. A nurse and a prison officer, she describes them as “wholesome, good-hearted people, with no financial knowledge”. The working-class family lived in government housing until Campbell reached her teens, an experience that taught her that some families have more resources than others. When it came to university then, “choosing finance and economics as a major was a conscious choice to break this cycle and provide a different life for my parents and my future family”. And now a few years into her career, it’s her work with advisers with high growth aspirations that Campbell finds most fulfilling. “Whether it’s a sole practitioner starting a business for the first time, or a large multi-disciplinary firm, it’s incredibly rewarding to see firms reach their potential and deliver exceptional advice to their clients.” The BDM also goes above and beyond for her clients, offering them a diverse mix of workshops, another factor considered by the judges.

“I love running workshops across different segments including culture, design thinking, creative behaviours, change management, and negotiation behaviour for my clients,” she says. So how can new entrants to financial services also reach the levels the exceptional 2019 Young Achiever finalists are headed for? Founder of Endorphin Wealth Management, Phillip Richards, advises working out a career plan. “Work out a goal of where you’re headed and where you want to be, and the steps you need to take to get there,” he suggests, saying that he got a Master of Business Administration as he saw that the sort of jobs he wanted down the track required that of candidates. For HPH Solutions’ Zac Leeson, it’s client experience that young advisers should work on, making use of the fact there’s more experienced planners around them. “You can’t teach the ability to have conversations with a client, [but] that’s where these relationships start, with that trust

JULIE BERRY

ANDREW MCKEE

MIKE TAYLOR

Julie Berry has been a financial planner for over 30 years and is currently the principal of Berry Financial Services. She has previously chaired the Financial Planning Association and the Institute of Financial Advisers.

Andrew McKee has over 30 years’ experience in financial services, including in senior management roles in financial planning, investment and insurance. He is currently the principal adviser of McKee Financial Services.

Mike Taylor is Managing Editor of the financial services publications Money Management and Super Review. He has been a journalist for the past 47 years.

• ZACARY LEESON, HPH SOLUTIONS • PHILLIP RICHARDS, ENDORPHIN WEALTH MANAGEMENT

WINNER: Charis Campbell, Macquarie

• JAMES RIDLEY, ATLAS WEALTH

CHARIS CAMPBELL

and respect … so look at who in your firm is good at those conversations and learn from them.” Finally, James Ridley of Atlas Wealth recommends courage: “I think you need to take chances in your pursuit for finding that ideal career. Don’t be afraid of being upfront with what you want ... Either way you come out the other side with experience, which you’ll learn from on how to tackle the next hurdle.” And Campbell’s advice? She also advocates bravery and hard work. “Determination is key,” she says. “You need to have the courage, confidence and self-belief to go out into the wider world and find the opportunities you want.”

MONEY MANAGEMENT JUDGING PANEL THE FINANCIAL PLANNER, PARAPLANNER AND BDM OF THE YEAR CATEGORIES, AND THE 2019 YOUNG ACHIEVER, WERE JUDGED BY A PANEL OF ESTEEMED INDUSTRY EXPERTS.

06MM09045_18-47.indd 32

2/05/2019 10:58:26 AM

May 9, 2019 Money Management | 33

Fund Manager of the Year 2019

BUILDING TRUST IS KEY TO MAKING A TOP BDM BY OKSANA PATRON

BEING RELIABLE, HONEST, responsive and creative is what makes a good business development manager (BDM), according to Chris Murphy from TAL, this year’s BDM of the Year. The overall winner described a good BDM as someone who advocates for advisers within the business that they work for, and if necessary, would not hesitate to “go in to bat for them when there are challenges at hand”. According to Murphy, a great BDM also needs to be honest and not shirk tough conversations. “My idea of a successful BDM is someone who is reliable, honest, responsive and creative in their approach to effectively managing relationships,” he said. “I think you have to be adaptable and apply different skillsets for different advisers however one thing I’ve always been adamant on is the power of listening during a meeting

and then being able to demonstrate that with a follow up email or phone call that addresses a concern or query that the adviser raised.” Asked about how the financial services industry evolved over the past year, Murphy stressed that it was more important now than ever for advisers to have a “listening ear”. “A big part of my approach this year has been to listen and often let them [advisers] vent about things that are frustrating them. Where possible, I will make suggestions however sometimes it is just about being there to support them.” Similarly, NSW/ACT winner Reuban Siva of Walsh & Company Asset Management, is a firm believer that trust was an integral part of any successful BDM career. “The key to building trust is to be open about your offering and your motivations and find ways to be authentically relevant to the client/ stakeholder,” he said. “By building trust, my clients/ stakeholders invest in my service

WINNER: Indy Singh

BY MIKE TAYLOR

AFTER MORE THAN 31 years in the Australian financial services industry and nearly a quarter of a century after establishing and growing Fiducian from the ground up, Indy Singh has been recognised with Money Management’s Lifetime Achievement Award. The executive chair and founder of the diversified financial services

06MM09045_18-47.indd 33

WINNER: Chris Murphy, TAL WINNERS BY STATE • VIC RAVI VERMA, OPENINVEST • WA CHRIS MURPHY, TAL • NSW/ACT EUBAN SIVA, WALSH & COMPANY CHRIS MURPHY

offerings and they rely on me for ideas and solutions. This ultimately is how I have found to be successful in my career.” According to Jade Custance of TAL and SA/NT/Qld winner, the top qualities that would make both a good business development manager and a good employee were knowledge, responsibility and constant improvement. “With client’s I work with, I enjoy working with advisers and their staff where I know I can add value and that they value it too,” she said. “Businesses that want to develop staff with knowledge, responsibility and constant improvement with processes and client engagement.

• SA/NT/QLD JADE CUSTANCE, TAL LIFE LTD FINALISTS: • SIMON BRODY, MILLENNIUM3 FINANCIAL SERVICES • DAMIAN CASEY, FIDANTE • VERI GRAVINA, BT FINANCIAL GROUP • BRETT MADIGAN, NEOS LIFE • DEAN CAMPBELL, JBWERE

When we meet on these similar drivers we achieve great things”. For Victoria winner Ravi Verma of OpenInvest, what makes a good BDM is also understanding each business and its pain points: “Integrity and trust are values I uphold; this is key to my close working relationships with firms.”

INDY SINGH RECEIVES LIFETIME ACHIEVEMENT AWARD

LIFETIME ACHIEVEMENT

INDY SINGH

BDM OF THE YEAR

group was recognised for his commitment to the financial services industry beyond the success of Fiducian and for his charitable works extending well beyond the industry. Indy’s Lifetime Achievement recognition is consistent with Money Management’s criteria that recipients should not only have made a long-term outstanding contribution to the financial services industry, but also have delivered beyond the sector through leadership, mentoring or charitable works. Indy may have started off his working life as a metallurgical engineer working in India, West Africa and South-East Asia, but he

has made Australian financial services his life’s work. He founded Fiducian Group in 1996, eight years after first venturing into the Australian financial services industry. Through sheer determination, Indy has grown the company to become a unique business delivering financial planning, funds management, platforms, administration, and accounting and accounting resources. Fiducian has been on a consistent growth trajectory and now boasts well over $4 billion in funds under management, administration and advice, and has an expanding adviser network. Just as importantly, Indy has been driving force and founder of the charity, Vision Beyond AUS,

which provides free eye surgery to the poor in developing countries, including India, with the target of giving sight and thereby a better life to over 100,000 people. Indy has a master’s degree in Business Management and separate postgraduate diplomas in investment management, superannuation and financial planning. Indy now joins the lexicon of Money Management Lifetime Achiever recipients, which started with Gwen Fletcher and includes industry leaders and stalwarts such as Count Financial founder, Barry Lambert, ground-breaking researcher, Stephen van Eyk, financial planning leader, Julie Berry, and fund manager, Keir Neilson.

2/05/2019 12:57:13 PM

34 | Money Management May 9, 2019

Fund Manager of the Year 2019

TOP PARAPLANNER CLAIMS THE TITLE FOR SECOND YEAR IN A ROW BY ANASTASIA SANTORENEOS

STRONG TECHNICAL KNOWLEDGE and communication skills have seen last year’s Money Management Paraplanner of the Year, RSM’s Chris Cynkar, take out the top spot for the second year running. Cyknar believes a good paraplanner must think like an adviser to identify potential strategies and issues that may arise when implementing advice. Key to this, Cynkar said, was having strong communication skills to assist in the liaison between the client and the adviser, and it’s something this year’s winning paraplanner clearly does with ease. “Being able to convey complex strategies to clients in a simple English is paramount in providing clear and concise advice,” Cynkar told Money Management. Cynkar also said understanding the client’s objective is equally key, and it’s something that finalist, Mellissa Edwards, of Paraplanner. com, similarly believed was

necessary to carry out the job. “What makes a truly valuable paraplanner is ...someone who is confident enough to question strategies when needed, and highlight alternative or additional strategies that may be beneficial to a client.” Finalist Taiki Yasushima, of Strategy First, said beyond the obvious technical competency, great paraplanners must have the ability to build relationships and work collaboratively. Cynkar said he was vigilant in his prior research of products, ensuring he understood all the costs and features, and then comparing them to alternatives. “It may be that they’re already on track, or potentially it’s due to those investigations that you can uncover there’s a deficiency in their existing products or strategies,” he said. As well as extensive research and top communication skills, Cynkar said he’s proud of his strong technical knowledge and understanding of the firm’s

ALTERNATIVE STRATEGIES

WINNER: Partners Group Global Value

FINALISTS: • P/E GLOBAL FX ALPHA • WINTON GLOBAL ALPHA

JONATHAN ABRAHAM BY ANASTASIA SANTORENEOS

THE PARTNERS GROUP Global Value fund took out the Alternative Strategies category at this year’s Money Management Fund Manager of the Year awards, beating out Macquarie subsidiaries P/E Global FX Alpha and Winton Global Alpha.

06MM09045_18-47.indd 34

The fund, according to senior vice president, Jonathan Abraham, achieved a net return of 11.6 per cent for the last 12 months to February’s end, with a volatility of just 3.4 per cent. Its strategy involves investing in global private companies across both equity and debt, and provides investors with a broad diversification across geographies, financing stages and investment types. According to Abraham, it

PARAPLANNER OF THE YEAR FINALISTS: • ERIC GALIATSATOS, PARAPLANNER.COM.AU • MELLISSA EDWARDS, PARAPLANNER.COM.AU

WINNER: Chris Cynkar, RSM Financial Services Australia

• ANGELA RICHARDS, PARAPLANNER.COM.AU • TAIKI YASUSHIMA, STRATEGY FIRST FINANCIAL PLANNING

software, XPLAN, and said he’s often the point of call for staff members needing assistance. He’s also known for his ability to generate financial models that compare multiple scenarios and strategies, working very closely with the advisory group and developing complex work where needed. “I am often called upon by my colleagues to review their work, provide assistance on how to set up specific advice or financial modelling scenarios or to problem solve why certain outputs didn’t come through when merging out reports,” the paraplanner said. This year’s winner also undertakes site visits to different

CHRIS CYNKAR

RSM firms, where he spends time providing face-to-face training and mentoring, helping to build relationships between staff and encourage the sharing of ideas amongst the team. He also helps the RSM team keep up to date with changing product features, ensuring they’re always providing advice that meets the best interests of the client.

PARTNERS GROUP NAMED BEST IN CLASS FOR ALTERNATIVE STRATEGIES does this while using Partners Group’s relative value investment approach to systematically overweight those segments and investment types that offer attractive value at a given point in time, and it’s a strategy that has not changed in the last 12 months. The private equity firm, whose personnel has grown to over 1200 in the last year, sets itself apart from public equity by allowing investors broader access to information and management through more in-depth due diligence. As well, employees’ interests are aligned with interests of investors through significant equity ownership by management, and it provides operational, active valuecreation initiatives without the pressures of quarterly earnings

targets of public markets. Abraham also said the firm invests over a long-term time horizon, which allows the private equity managers to sell portfolio assets in more favourable exit environments. Runner up, the P/E Global FX Alpha Fund, employs a highly differentiated approach in that it solely focuses on currency markets and is responsive to changing market environments over time. It’s this strategy that has allowed the fund a successful track record since 2003. Similarly, the Winton Global Alpha fund is unique in that it seeks to identify trends and patterns in financial markets using an approach founded in science rather than financial theory.

2/05/2019 11:57:20 AM

May 9, 2019 Money Management | 35

Fund Manager of the Year 2019

AGAINST THE GRAIN BY CHRIS DASTOOR

FINDING VALUE IN areas of the market neglected by both the broker and the funds management community is the way Perennial Value Management navigates, and how they secured this year’s Australia Small Cap Equities award. Andrew Smith, head of smaller companies and micro caps/head of research at Perennial Value Management, said this created a valuation gap where they took their advantage from. “While value investing is out of favour at the moment, we have been able to offset this by finding growth stocks before they have been priced as such,” Smith said. “In that way we have been enjoying a re-rating in many of our stocks which we tend to then sell once popular and recycle the capital into undervalued names.” Smith attributed team size,

company visits and proprietary research, and pre-IPO opportunities as the driving force behind their strong performance. “The team has worked very hard in an effort to uncover the best investment ideas in the microcap universe,” Smith said. “We visited close to 1,200 companies last year, then built detailed models on the best 200 stocks to select 60 for the portfolio.” Three main areas were identified by Smith when he had invested in stock: solid management, strong growth prospects and strong balance sheets. “We start with the quality of management, assessing the motivation and skills of both the managing director and chief financial officer. We prefer high shareholdings by management to align interests,” Smith said. Ben Griffiths, Eley Griffiths Group director, said their stock

INTEREST RATE MANAGEMENT A TRUE VALUE-ADD BY HANNAH WOOTTON

IN A YEAR where credit markets didn’t treat funds well, the Janus Henderson Australian Fixed Interest Fund has come out on top of the Australian fixed income category, partially because its strong interest rate management means that it hasn’t had to take on much credit risk to achieve results. According to co-head of Australian Fixed Interest at Janus Henderson, Jay Sivapalan, fixed interest managers aim to add value above the benchmark in three ways:

JAY SIVAPALAN

06MM09045_18-47.indd 35

through interest rate management, sector allocation or credit and multi-country allocations. Most managers tend to rely on the second way, which works eight out of 10 times. Some also incorporate the third, multi-asset allocations, but Janus Henderson had observed that managers who have gone down this path are good in theory but struggle to add value long-term. The Janus Henderson fund, in contrast, also engages in interest rate management to utilise all three value-adding ways. “The benefit [of interest rate management] is you can help smooth out returns and preserve capital over long periods of time,” Sivapalan said, adding that philosophically there’s also benefits to having less reliance on credit. While incorporating interest rate management into its investment strategy means the fund tends to lag a little in strong markets,

AUSTRALIAN SMALL CAP EQUITIES FINALISTS: • FIDELITY FUTURE LEADERS FUND • ELEY GRIFFITHS GROUP EMERGING COMPANIES FUND

selection process worked through the market cycle consistently. “It allocates portfolio active space to those stocks that offer the most attractive relative valuations and allocates away from those stocks who are less desirable, so to speak,” Griffiths said. “It also adjusts for traded liquidity, so we are not forcibly buying into illiquid stocks and also dictates that the portfolio will hold between 35-55 names.” “This enables a portfolio of tradeable names that has the right amount of diversification/ concentration for risk management purposes.” James Abela, portfolio manager

WINNER: Perennial Value Microcap Opportunities Trust

ANDREW SMITH

for Fidelity Future Leaders Fund, said they had a bottom-up stock picking process, which he called “VST” for viability, sustainability and credibility. “These are the three things I look for that identify the future leaders,” Abela said.

AUSTRALIAN FIXED INCOME FINALISTS: • LEGG MASON WESTERN ASSET AUSTRALIAN BOND FUND • MACQUARIE AUSTRALIAN FIXED INTEREST FUND

Sivapalan said it means it outperforms in down markets, explaining its victory over its peers in the category this year. Last year was a softer year, and Sivapalan said those fixed income managers who had a heavy overweight to credit would’ve felt the pain whereas the Janus Henderson Fixed Interest Fund ran a lot less credit than any of its peers. Western Asset’s Anthony Kirkham also cited a defensive position toward credit as a driver of the Legg Mason Western Asset Australian Bond Fund’s strong performance over the last year, which saw it crowned as a finalist in this category. “We … positioned ourselves defensively in credit as the year progressed, while preferring to hold

WINNER: Janus Henderson Australian Fixed Interest Fund an overweight to credit to capture the extra running yield but focussing it in the short part of the yield curve to manage credit spread risk,” he said. Macquarie took a similar approach with its Australian Fixed Interest Fund, which was also a finalist. “As far as credit is concerned, our extensive research shows that downgrades occur more often than upgrades, so to add value with credit our focus is on avoiding downgrades rather than chasing yield,” the fund’s portfolio manager, David Ashton, said. “Overall this allows us to increase sources of alpha and adapt to the environment without losing diversification or lowering credit quality.”

2/05/2019 12:14:22 PM

36 | Money Management May 9, 2019

Fund Manager of the Year 2019 FOCUS ON VALUE PUTS PENDAL ATOP PROPERTY SECURITIES PODIUM BY HANNAH WOOTTON

STRIVING FOR VALUE was key to the Pendal Property Securities Fund’s success over the last year, and its success in doing so saw it take out the Money Management Fund Manager of the Year award in the Australian Property Securities category. When asked what drove the fund’s performance in the past 12 months, Pendal’s head of listed property, Pete Davidson, said: “Our focus on having a

PETE DAVIDSON

valuation toolkit, [and] using a variety of valuation measures meant we could identify value in stocks that had strong equitystyle valuation”. Within this, Davidson noted that in the last year traditional NTA-based stock valuation had lagged, with many NTA-supported stocks becoming value traps rather than traditional value. Drilling down into where value could be found, the Pendal Property Securities Fund’s strong performance in the last year was supported by overweight allocations in funds managers, industrial and logistics stocks, with falling bond rates supporting the fund managers. Davidson said that underweights to traditional mall retail assisted the fund’s performance, as these stocks were impacted by Australia’s weakening macroeconomic

AB TAKES AUSSIE LARGE CAP EQUITY CROWN BY ANASTASIA SANTORENEOS

THIS YEAR’S FUND Manager of the Year, AllianceBernstein, has also taken out the Australian Large Cap Equities category with its AB Managed Volatility Equities fund, beating out finalist fund managers, Bennelong and Platypus. The fund implements a managed-volatility equities strategy that aims to reduce volatility by identifying and investing in highquality listed equity securities, and it’s a strategy that has driven outperformance, according to chief investment officer – Australian equities Roy Maslen. Another focus of the fund’s strategy is on limiting downside risk, so the portfolio loses less than the market when the market falls, and Maslen said stock selection plays a key role in this. “While a portfolio of stocks with

06MM09045_18-47.indd 36

low volatility or relatively stable share prices might sound low maintenance, it shouldn’t be confused with a passive strategy,” he said. “’Smoothing the ride’ through the market’s ups and downs requires careful design and dynamic active management.” Critical to the team’s stock selection process is investing in stocks with attractive stability, quality and price attributes, and avoiding what Maslen coined “volatility traps”, which are stocks that have shown low volatility but could change. And while AB claimed top spot, it wasn’t without battling headwinds like the good performance of volatile sectors over the last 12 months. Maslen said the strategy generates its returns by avoiding volatile stocks, and investing in high quality, stable cashflows at a reasonable price, so stocks like

AUSTRALIAN PROPERTY SECURITIES FINALISTS:

WINNER: Pendal Property Securities Fund

• LEGG MASON MARTIN CURRIE REAL INCOME FUND • CHARTER HALL MAXIM PROPERTY SECURITIES FUND

environment. He believed that this under-allocation would continue to support the fund going forward, suggesting that asset value in the sector would decline in the coming year. Interestingly, a finalist in the category, the Charter Hall Maxim Property Securities Fund, was also underweight to retail, which Charter Hall head of listed securities, Winston Sammut, also found key to the fund’s success. “From a top down perspective, we took the view early on that the retail environment was going to be difficult, particularly in the discretionary retail sub-sector, coupled with concerns relating to the residential market,” Sammut

said, with the fund weighting its portfolio accordingly. The Legg Mason Martin Currie Real Income Fund’s, portfolio manager, Ashton Reid, was optimistic about the strength of the Australian property securities sector in general going forward. “The underlying growth in income of the Real Income Fund holdings remains population growth,” he said. “Australia has very strong population growth in a global context, and the leverage that real assets have to this strong population growth provides a long-term sustainable income growth opportunity that few other asset classes can match.”

AUSTRALIAN LARGE CAP EQUITIES FINALISTS: • BENNELONG AUSTRALIAN EQUITIES • PLATYPUS AUSTRALIAN EQUITIES

resources, which performed well, were a headwind. But while most managers would cite last year’s Q4 as a rough ride, AB said it was actually a good alpha period for the strategy as it’s designed to outperform in a declining market. According to Maslen, being underweight the Commonwealth Bank of Australia contributed to performance during the first quarter of this year, while detractors from performance included Resmed, which suffered a slight fall in non-US sales and acquisition costs, and Spark New Zealand, which suffered challenging business conditions recently.

WINNER: AB Managed Volatility Equities

ROY MASLEN

2/05/2019 12:11:58 PM

May 9, 2019 Money Management | 37

Fund Manager of the Year 2019

POSITIVE OUTCOMES FOR ETFs BY CHRIS DASTOOR

SINCE THE FIRM was founded in 1955, VanEck has prided itself on providing investors with access to new and exciting opportunities to grow and protect their wealth, so it’s no surprise they took out this year’s Money Management ETF Provider award. It is now one of the largest issuers of exchange-traded funds (ETFs), having embraced the investment style known for lowering the cost of accessing key investment markets. Arian Neiron, managing director and head of Asia Pacific, said the

ARIAN NEIRON

fund is proud their ecosystem of ETFs enables investors to build and maintain robust portfolios which demonstrate higher risk-adjusted returns. “We are proud of the fact that our focus on durable funds allows investors to access in opportunities that are often under-represented in their portfolios or offer a new way to invest in an established investment category,” Neiron said. VanEck differentiates itself by being privately owned and has been one of the world’s largest ETF providers, with a network of franchises across the world’s major financial epi-centres. “Being privately-owned means we are strongly aligned to investor objectives across their designated timeframe and are focussed on ensuring the desired outcome is achieved,” Neiron said. “Furthermore, the firm has an established track record in both active and passive across a range of economic cycles and we take a highly considered approach to investment solutions by avoiding

PERFORMANCE, CONSISTENCY AND STRONG RISK MANAGEMENT BY OKSANA PATRON

IT IS THE quality, longevity and alignment of its team that helped the Solaris Long Short Fund (LSH) differentiate from competitors and earn the top spot in the long/short equities category at this year’s Money Management and Lonsec Fund Manager of the Year Awards. The fund has a wealth of investment experience behind it, with its seven most senior team members having spent around 20 years with the fund, which was augmented by the alignment that comes with staff being both majority owners of Solaris and material investors in LSH with their own funds. The fund attributed its win to the consistency of its performance, which exceeded its objective, and its

06MM09045_18-47.indd 37

strong risk management. Solaris Investment Management’s chief investment officer and analyst, Sean Martin, stressed that investing confidence and consistent performance could be generated when a strong team had this stability, and had invested together over such a long period. “Solaris has a strong risk management culture embedded into the investment process, which has been extended to LSH. Funds in this Long Short category have historically exhibited quite high-risk profiles enabling this characteristic to be a strong differentiator for Solaris and the fund,” Martin said. Bianca Ogden, Platinum’s fund manager and a former scientist before she transitioned to fund management, said of her fund: “One of the key differentiators for

ETF PROVIDER FINALISTS: • BETASHARES • VANGUARD

fads or chasing what is in vogue.” There are three key ETFs they believed had performed well: the VanEck Vectors Australian Equal Weight ETF (MVW), the VanEck MSCI World Ex Australia Quality ETF (QUAL) and the VanEck Vectors China New Economy ETF (CNEW). Neiron predicts in the next year ETFs will become mainstream among financial intermediaries, particularly those advisory firms aligned to large institutions. “There has been an opening up of approved product lists enabling advisers to employ ETFs in their clients’ portfolios,” Neiron said. “Furthermore, we see institutions increasing their usage of fixed income and sustainable ETFs.” Alex Vynokur, chief executive officer of BetaShares, said their offering relies on the fact they are an Australian ETF manager.

WINNER: VanEck

“We at BetaShares are very focused on delivering responsible innovation to Australian customers, our product range reflects those values,” Vynokur said. Balaji Gopal, head of product strategy for Vanguard Australia, said the main traits investors should look for in ETFs are low-costs, broad diversification, transparency of investment strategy, pricing, and liquidity. “These are the traits Vanguard prioritises when we consider and deliver ETF products to market,” Gopal said. “Our approach to product development is responsible, considered and focusses on introducing products following a critical evaluation of their ability to benefit investment portfolios, and carry common traits of low cost and diversification.”

LONG/SHORT EQUITIES FINALISTS: • ANTIPODES GLOBAL FUND • PLATINUM INTERNATIONAL HEALTHCARE FUND

us is that, first of all, it’s healthcare, and the other thing is that we look very much deep into the science as well as these people who run these companies and trying to understand really what’s happening.” Antipodes Partners, a pragmatic value manager and another finalist, said that one of the key differentiators for its strategy was the fund’s active approach to currency. “Currency is a major issue for anyone investing internationally, of course,” Andrew Findlay, Antipodes Partners’ general manager, said. “We have an active approach to managing currency while other

WINNER: Solaris Australian Equity Long Short Fund

SEAN MARTIN

managers just consider currency passively or ignore it completely. And that has proved to have the added value over time.”

2/05/2019 10:51:01 AM

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1/05/2019 10:23:02 AM

40 | Money Management May 9, 2019

Fund Manager of the Year 2019

FINDING VALUE IN CHINA BY CHRIS DASTOOR

A VALUE CONTRARIAN investing approach which focuses on identifying intrinsic value of individual companies across the breadth of the Chinese Market, rather than identifying investment themes, is the driving force behind Fidelity China Fund. That direction helped them secure the win in this year’s Money Management Global Emerging Market Equities category. Jing Ning, portfolio manager for the Fidelity China Fund, said the fund expected to generate a healthy performance in a market driven by fundamentals. “In a market where investors often come seeking growth opportunities and willing to pay premium valuations for it, I believe value opportunities are available across all sectors in China and at attractive valuations,” Ning said. “Periods of mean reversion would be a highly favourable environment for the fund’s performance.”

“In contrast, given I have a long value/short growth style, growth rallies impact short-term returns.” The fund’s performance success was attributed to overall security selection, driven over a variety of sectors including information technology, health care, real estate, materials and industrials. “Over the last 12 months to 31 March 2019, the fund posted healthy absolute returns and delivered noteworthy excess returns compared to its index,” Ning said. “This goes to demonstrate that a well-developed value strategy can contribute meaningful alpha. “At individual security level, the key contributors were positions that were initiated at discounted valuations after identifying that short-term disappointment had overshadowed their structural growth potential.” The fund a clear preference for durable business models that offer earnings visibility from a three to five-year perspective. “I look for out of favour opportunities, where sentiment is

• PRINCIPAL GLOBAL PROPERTY SECURITIES FUND

WINNER: Quay Global Real Estate Fund

• SGH LASALLE GLOBAL PROPERTY-RICH FUND

BY OKSANA PATRON

A TRULY INDEX unaware mandate that allows managers to simply look for the best opportunities in the market has helped the Quay Global Real Estate Fund win the Global Property Securities category at this year’s Money Management/ Lonsec’s Fund Manager of the Year Awards. Quay’s principal, Chris Bedingfield, said that the fund’s mandate couple with its ‘all-weather portfolio’ was the key to the fund’s success. “I really think it all comes down

06MM09045_18-47.indd 40

FINALISTS: • COLONIAL FIRST STATE ASIAN GROWTH FUND

WINNER: Fidelity China Fund

• ROBECO EMERGING CONSERVATIVE EQUITY FUND

subdued by short term issues or cyclical factors, but underlying longterm fundamentals remain intact and the company can return to normal profitability/growth,” Ning said. “Such stocks are therefore unnoticed or overlooked by the larger market and trade at attractive asset-based valuations.” The stock selection had been the mainstay of the significant alpha generation over Ning’s tenure. Finalist Colonial First State’s Asian Growth Fund defined quality companies as those that had an effective management team, high governance standards, a long-term mind-set, strong competitive advantages and an established track record of surviving previous cycles. Robeco’s Jan Sytze Mosselaar,

JING NING

Portfolio Manager Conservative Equities, said their fund was a rulesbased defensive equity fund, or a so called low-volatility fund. “We provide investors with a diversified, actively positioned portfolio of EM stocks that exhibits lower risk than the market, combined with a high dividend yield, attractive valuation and positive momentum,” she said.

IT’S ALL ABOUT THE MANDATE

GLOBAL PROPERTY SECURITIES

FINALISTS:

GLOBAL EMERGING MARKET EQUITIES

CHRIS BEDINGFIELD

to mandate which is to be truly index unaware and just looks for the best opportunities. And really focus on the capital preservations, and being relatively defensive I think, the way we think about the portfolio, the way we think about our securities,” he said.

The fund is not tied to any index and its management can focus entirely on finding the best real estate opportunities globally. “If you look at the sort of assets and the sectors that we are in – we are – or the fund has exposures to sectors that tend to be resilient during the periods of economic downturns. So that might include the areas such as healthcare, affordable housing, student accommodation - these sectors have historically performed very well when markets have been and the economy has been at its worst,” he said. “At the end of the day I think that is what a lot of investors look for, it’s fine to get returns when things are good, it’s when the things are bad you know, can you hold the capital, can you preserve the capital that it’s been probably our biggest winner

over the last 12 months,” Bedingfield said. Global head of product at LaSalle Investment Management, Steve Ralff, said that he believed that long-term performance of real estate securities was driven by the performance of their underlying assets and the ability of their management teams to create or destroy value. “Our core strength is our exclusive focus on real estate which allows us to dedicate substantial resources to real estate research and analysis,” he said. Janine Yoong, Principal Real Estate Investors’ portfolio manager, said her fund was recognised for its consistent track record of outperformance and the consistency in its investment approach, which remains unchanged since inception in 2007.

2/05/2019 2:44:59 PM

May 9, 2019 Money Management | 41

Fund Manager of the Year 2019

GOVERNMENT BONDS SEE COLCHESTER GLOBAL EXCEL BY HANNAH WOOTTON

After a volatile year for global bond markets, the Colchester Global Government Bond Fund has taken the crown in the Global Fixed Income category in a field littered with big-name fund managers. Colchester Global Investors investment officer, Martyn Simpson, credited the fund’s “tried and tested value investing style” for its success in a tough time for the sector, as well as the fact that it only invests in government bonds. In the last year, especially in the fourth quarter, credit and other riskier fixed income products struggled, but the Colchester Global Government Bond Fund held up well due to its portfolio of government bonds. Simpson pointed to the fund’s allocations to Australian and New Zealand bonds specifically as contributing to its success, with both central banks remaining on

hold, as well as targeted small allocations to emerging markets such as the Colombian and Malaysian bond markets. PIMCO, who was a finalist with its Global Bond Fund, sought to navigate the market volatility through diversification instead, with its investment team citing allocations to various sectors including duration, credit, securitised and modest currency exposure enabled its outperformance over the last year. The Colchester offering, too, looks beyond just bonds, which it values by their real yield, to also offer investors consistent alpha from currency. The fund manager values this latter asset class by the real value of the exchange rate. According to Simpson, Colchester’s long position in the British pound led the strong results from its currency allocations. “Whilst most people were pre-occupied with the Brexit process and the political

LONG-TERM, SUSTAINABLE STRATEGY KEY TO GLOBAL EQUITIES SUCCESS BY ANASTASIA SANTORENEOS

GENERATION INVESTMENT MANAGEMENT’S Generations Wholesale Global Share fund has won the Global Equities category at the 2019 Money Management Fund Manager of the Year Awards, beating out this year’s Fund Manager of the Year, AllianceBernstein, and Ironbark Royal London. Established in 2004, the firm has

SCOTT TULLY

06MM09045_18-47.indd 41

over 190 years of combined investment experience, and according to Colonial First State’s general manager of investments, Scott Tully, has honed its process over a range of market conditions to become a stable and experienced manager. Tully told Money Management that the fund’s investment philosophy was led by the conviction that long-term investing was best practice, and sustainability factors, including economic, environmental, social and governance criteria, could materially affect long-term business profitability. “Generation’s competitive advantage is based on its ability to successfully integrate sustainability research with fundamental equity analysis into a seamless investment approach,” Tully said. “This strategy

GLOBAL FIXED INCOME FINALISTS: • PIMCO GLOBAL BOND FUND • LEGG MASON WESTERN ASSET GLOBAL BOND FUND

machinations in the country, by concentrating on the fundamental value in the currency we were able to capitalise on this,” he said. Co-head of global portfolios at Western Asset, Gordon Brown, who was a finalist with the Legg Mason Western Asset Global Bond Fund, also believed that the receding risk of Brexit would open up value opportunities across European government bonds. “With US Treasury [bonds] now more in line with our longstanding view of the US maintaining a moderate growth speed, [our] global portfolios team has been exploring relative value opportunities across European and emerging market government bonds and credit markets,” Brown said. “We believe both areas stand to benefit as risks such as Brexit

WINNER: Colchester Global Government Bond Fund

MARTYN SIMPSON

and trade tensions recede, and global growth conditions stabilise further.” Looking forward, Simpson believed that Colchester’s offering would continue to provide clients with alpha although government bond markets had rallied. He also said that, should global growth falter or a recession hit, that global bonds would rally further.

GLOBAL EQUITIES FINALISTS: • IRONBARK ROYAL LONDON CONCENTRATED GLOBAL SHARE • AB GLOBAL EQUITIES

focuses on identifying high-quality businesses with high-quality management teams that Generation believe offer a significant margin of safety from a valuation perspective.” Runner-up, the Ironbark Royal London Concentrated Global Share Fund, credited its success to an exceptional year of stock picking, and its managers require strong balance sheets and a margin of safety in every investment. The AB Global Equities Fund was also a runner-up, which similarly employs a bottom-up stock picking approach, with particular attentions to companies’ long-term (10 years

WINNER: Generation Wholesale Global Share Fund and above) ability to consistently grow the value of their business, their management culture of respecting stakeholders, and using estimated cash flows to identify when to buy and sell stocks. “Our approach to picking stocks is entirely benchmark unaware, and our analysts are free to look for opportunities in the broadest universe of public equities,” co-chief investment officer, Global Core Equity, Klaus Ingerman said. “However, our portfolio is constructed in a manner that ensures a behaviour that mimics the broad global equity market.”

2/05/2019 12:35:03 PM

42 | Money Management May 9, 2019

Fund Manager of the Year 2019

CREATING A UNIVERSE BY CHRIS DASTOOR

THE WINNER OF the Money Management Infrastructure Securities award, Magellan Infrastructure Fund, relies on a strong quality bias to screen out stocks that don’t fit their investment universe. Ofer Karliner, Portfolio Manager for Magellan Infrastructure Fund, said securities that met Magellan’s proprietary infrastructure classification criteria were included in what is known as their investable universe. “During the year there are times when qualities were in and out of

OFER KARLINER

favour, through the year through quite long periods of actually protecting capital and that’s one of our key investment objectives so we’re quite happy with that.” To meet that definition, its underlying business provided a service that is essential to the efficient functioning of a community, but had also generated cash flows not subject to external risks. Karliner used a two-step process to screen out options that add too much risk to the portfolio. “We take out things that have too much exposure to commodity price risks or competition. You end up with a very defensive portfolio, that’s step one,” Karliner said. “Step two, is from that universe we’ve got some great research the team has done to help us identify some really good opportunities and avoid the blow ups in the sector, that’s led to some great performance though the year.” Gearing levels, sovereign risk, regulatory risk and reporting

REAL ESTATE INVESTMENTS A WINNER FOR RETIREMENT INCOME BY HANNAH WOOTTON

A PORTFOLIO OF listed companies that own ‘hard’ physical assets rewarded investors in the Legg Mason Martin Currie Real Income Class A Units Fund over the last year, with its continued strong performance also seeing it crowned winner in the Money Management Fund Manager of the Year awards Retirement and Income category. The companies the fund invests in hold assets such as property, utilities and infrastructure, which Martin Currie Australia portfolio manager, Ashton Reid, cited as key to its resilience and strong performance in 2018. “Real asset companies such as shopping centres, ports, toll roads, electricity and gas grids, and airports are an integral part of everyday life and are often monopolistic in nature,” he said. “Their demand profile is

06MM09045_18-47.indd 42

therefore relatively inelastic and not pegged to the business cycle, hence these companies have more predictable free cash flow and dividends. “Due to their strong market positions, and the growing demand driven by Australia’s population growth, real asset companies have the ability to raise prices, in some cases above inflation, irrespective of the business cycle.” Put simply, real assets can generally protect future income from inflation. As relatively defensive assets they offer protection in periods of market downturn, such as the unexpected slump last December, helping explain the Legg Mason Martin Currie offering’s success. On the suitability of these assets to retirement and income investors, Reid pointed to the low volatility of the income provided, as that’s what helps maintain retirees’ lifestyles.

INFRASTRUCTURE SECURITIES FINALISTS: • COLONIAL FIRST STATE GLOBAL LISTED INFRASTRUCTURE SECURITIES FUND

WINNER: Magellan Infrastructure Fund

• RARE EMERGING MARKETS FUND

transparency were other criteria used to evaluate the appropriateness of the security. Each security undergoes detailed analysis of the company’s external environment, its business specific issues, it’s historical financial performance and valuation. “Quality is first and foremost something we look at, stability of cash flows,” Karliner said. “We spend a lot of time doing a lot of research on the stock and identifying any other risk factors around that quality definition and also to come to a view on value.” “We now apply a number of risk factors to try and recognise we can’t capture all the risks in the discounted cash flow (DCF) model. “It’s obvious we have a very concentrated portfolio so it’s very

important for us avoiding a downside risk, so protecting capital in down markets.” For Magellan, it’s not just about picking the winners, but also avoiding the losers and they are adamant they had done a good job. “We screen our companies and exclude companies where we see the range of outcomes has been very large,” Karliner said. Finalist Colonial First State Global Listed Infrastructure Securities Fund’s success came from a belief in investing in longdated assets, which required a longterm perspective. The assets invested in by finalist RARE Emerging Markets fund are infrastructure utility assets that are regulated or with long-term concessions, because of that they have quite predictable cash flows.

RETIREMENT AND INCOME FINALISTS: • CHALLENGER ANNUITIES, • PENDAL MONTHLY INCOME PLUS FUND

“Real assets have two important features that help them deliver a steady, low volatility income stream,” he said, pointing to their low correlation to the business cycle and dividend stability. “So even if the share prices of real asset companies fall in response to macro-economic events or shifts in share market sentiment, the income generated by these companies is likely to remain stable. And this is what matters most to income investors.” The Pendal Monthly Income Plus Fund, a finalist in this category, took a more diverse approach to its investments, with its combination of Australian equities, interest rates and credit allocations all driving

WINNER: Legg Mason Martin Currie Real Income Fund Class A Units

ASHTON REID

strong performance. Pendal portfolio manager, Peter Farac, said the investment in interest rates were most advantageous over the last year, while equity markets struggled. Annuities, in contrast, are a more traditional approach to retirement income, with finalist Challenger’s products seeking to provide stable lifetime income.

1/05/2019 3:35:12 PM

May 9, 2019 Money Management | 43

Fund Manager of the Year 2019

AUSTRALIAN ETHICAL PROVES IT’S NOT JUST A GREEN LABEL BY ANASTASIA SANTORENEOS

AUSTRALIAN ETHICAL HAS proven it isn’t just a green-washed label, with its Australian Ethical Australian Shares Fund the recipient of the Responsible Investments award at this year’s Money Management Fund Manager of the Year Awards. The fund’s portfolio manager, Andy Gracey, told Money Management that the firm extensively screens its domestic equities universe, making the team sector specialists, and giving it an advantage over generalist

ANDY GRACEY

managers who invest more widely in the market. “Our stocks are extensively screened for ethical considerations against Australian Ethical’s Ethical Charter, which has guided our investment process for more than 30 years,” Gracey said. “It’s this marrying of the most comprehensive ethical assessment process in the market with fundamental bottom up stock analysis and conservative portfolio construction that has driven investment performance over the years.” The Ethical Charter Gracey referred to is a set of 23 principles which determine the fund’s investment universe, and the investment team works hand-inhand with the in-house ethics team, employing both positive and negative screens, to rule out negative companies and industries, and proactively seek out companies

CAPITAL PRESERVATION AND STRONG SELL DISCIPLINE BY OKSANA PATRON

THIS YEAR SAW the Lennox Australian Small Companies Fund, managed by Liam Donohue and James Dougherty, take out the Money Management/Lonsec Emerging Manager title. The actively managed, styleagnostic fund that aims to identify companies with compelling medium-term valuations, and which has been nominated for the second year in a row, said it believed it did not disappoint the market this year. The fund managers said their investment approach was based on fundamental analysis and in-depth research, and that they focus on businesses that have strong management teams, sustainable earnings profiles and favourable growth prospects. “The team has a long and successful history of investing in

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Australian small and microcap funds. We are genuine long-term, disciplined investors, investing on a three-year horizon using independent research and extensive company engagement,” Donohue and Dougherty said. “We are focussed on capital preservation, with high hurdles for investment and a strong sell discipline.” Speaking on their investment team’s approach, the fund managers said that Lennox’s investment philosophy and processes aimed to exploit inefficiencies in the market that lead to pricing discrepancies and investment opportunities for its clients. In particular, the philosophy was based on three core pillars: the qualitative attributes of a company that might influence the manager’s ability to forecast real earnings, a small number of key drivers determining a business’s success

RESPONSIBLE INVESTMENTS FINALISTS: • ALPHINITY SUSTAINABLE SHARE • PENGANA WHEB SUSTAINABLE IMPACT

and sectors that do good. “Our robust ethical assessments draw on all Ethical, Social, and Governance [ESG] considerations going beyond ESG criteria alone.” He said. “Using our positive screens, companies are selected for the benefits their products and services provide and for the responsible management of their social and environmental impact.” And the ethical managers have put their money where their mouth is, having recently divested from AMP and IOOF for failures to meet ethical standards, while the renewable energy and technology sectors have received some attention from the firm. “We have been long-term

WINNER: Australian Ethical Australian Shares shareholders in the renewable electricity generators/retailers out of New Zealand and have built a position in Australian wind energy company Infigin Energy more recently,” he said. “We are firm believers in a future powered by renewables.” Finalists, the Pengana WHEB Sustainable Impact fund and the Alphinity Sustainable Share fund similarly strived to generate positive social and environmental impact alongside a financial return. “As the world transitions towards a more sustainable economy, companies that enable this shift are likely to experience significant structural growth,” Ted Franks, Pengana WHEB fund manager, said.

EMERGING MANAGER FINALISTS: • DAINTREE CORE INCOME TRUST • QUAY GLOBAL REAL ESTATE FUND

and short-term earnings expectations that were expected to be met. “We believe our active, fundamental approach allows us to gain key insights into the companies we invest in whilst avoiding those we believe will disappoint the market,” Commenting on the fund’s nomination, Donohue and Dougherty said: “We hope we have been nominated as a result of adding value for our investors both in the past year but also in previous years where many of our investors have been very supportive of our longer term investment approach.” Daintree Capital’s director, Mark Mitchell, stressed that one of the biggest advantages of the nature of

WINNER: Lennox Australian Small Companies Fund

LIAM DONOHUE, JAMES DOUGHERTY

his fund was its significant amount of flexibility and a dynamic approach that helped generate returns from a number of different sources. “Having that type of framework is essential to being able to add value and generate good risk adjusted returns for your clients,” he said.

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44 | Money Management May 9, 2019

Fund Manager of the Year 2019

SUPERIOR STOCK SELECTION DRIVES OUTPERFORMANCE BY ANASTASIA SANTORENEOS

WITH SEPARATELY MANAGED accounts (SMA) hitting top speeds in terms of growth, AllianceBernstein’s Concentrated Global Growth Equities Portfolio has cemented its position in the SMA space by taking out the Separately Managed Accounts category at this year’s Fund Manager of the Year Awards. According to chief investment officer, Mark Phelps, the firm’s SMA offering is a concentrated portfolio of high-quality growth companies trading at attractive prices, and it’s managed to outperform the MSCI World Index over the long-and-short-term. Phelps said the firm only targeted stocks that it believed could grow earnings at 10 per cent a year or more over five years. “The portfolio is concentrated for the simple reason that

relatively few such stocks exist,” he said. So how does AB choose stocks when those that tick its (many) boxes are so few and far between? Well, Phelps said it begins by narrowing down the opportunity set to an investment universe of around 100 companies, and then its investment team does some serious research to determine which ones make the cut. “Each analyst focuses on a small number of companies, usually a maximum of 10, enabling them to fully investigate all aspects of the businesses,” Phelps said. “We believe that our analyst-to-company ratio is one of the highest in the industry.” The rigorous research process is what allows the AB team to prepare five-year projections for all investment prospects, and those projections are a critical tool in developing a comprehensive and detailed

MULTI-ASSET

WINNER: BMO Pyrford Global Absolute Return Fund FINALISTS: • CBUS INDUSTRY GROWTH • MLC WHOLESALE INFLATION PLUS MODERATE PORTFOLIO

MICHAEL ANGWIN

BY CHRIS DASTOOR

BMO PYRFORD GLOBAL Absolute Return Fund’s goal is to provide a stable stream of long term returns with low absolute volatility and significant downside protection, using a global multi-asset absolute return investment strategy to

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achieve this. This gives them the ability to move flexibly as determined by the investment manager between three global asset classes: equities, cash and government bonds. Michael Angwin, director of intermediary business at BMO Global Asset Management (Asia) Limited, said the multi-asset strategy implements a long-only and unconstrained approach to delivering absolute real returns to

SEPARATELY MANAGED ACCOUNTS FINALISTS: • QUEST AUSTRALIAN EQUITIES CONCENTRATED PORTFOLIO • iSHARES ENHANCED STRATEGIC GROWTH

evaluation of a company’s business, which, according to Phelps, allows AB to act with confidence. BlackRock’s iShares Enhanced Strategic Growth SMA and the Quest Australian Equities Concentrated Portfolio were finalists in the category, and both were glad to see SMAs finally being recognised. BlackRock’s Michael McCorry said the renaissance of managed accounts provided investors greater access to professionally managed strategies, and Quest’s Christopher Cahill shared the same view, adding that SMAs allowed investors to enjoy total portfolio transparency, and to avoid any unintended tax consequences.

WINNER: AB Concentrated Global Growth Equities Portfolio

MARK PHELPS

ABSOLUTE RETURN FOR BMO PYRFORD investors. “The Fund has been awarded a ‘Recommended’ rating by Lonsec and currently has over $900 million in assets under management, so yes there’s a good level of support for the fund,” Angwin said. “We attribute performance to our approach of seeking to deliver absolute real rates of return by investing in the highest quality equities and government bonds along with cash and active management of foreign currencies within the fund.” “In the past year, all asset classes within the portfolio have made a positive contribution with Australian and international equities the main contributors.” The guidelines used by the fund are to apply 20 per cent or less of

the fund’s value invested in equities in emerging markets, each equity investment is five per cent or less of the total fund value, and the fund’s holding consists of at least 40 securities. With an estimated investment timeframe of five years, BMO aims for a return of four per cent or higher than the fund’s benchmark of the Australian Consumer Price Index. “The equity component of our fund seeks to hold on average a higher yield, higher return on equity and lower debt to equity than the global equity market,” Angwin said. “These three components help to achieve the fund’s long-term goal of delivering the consumer price index (CPI) of plus four percent with low absolute volatility”

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May 9, 2019 Money Management | 45

Fund Manager of the Year 2019

AUS UNITY PROVES A STANDOUT PROPERTY FUND MANAGER BY HANNAH WOOTTON

AUSTRALIAN UNITY IS clearly doing something very right with its property investments, with its Retail Property Fund and Diversified Property Fund both being finalists for the Money Management Fund Manager of the Year awards Direct and Hybrid Property category and the former winning. When asked what had driven the Retail Property Fund’s success in recent years, Australian Unity Wealth fund manager, Nikki Panagopoulos, pointed to both diversification and improving assets. Although retail property seems too narrow to offer much diversification, Panagopoulos said there’s actually many sub-sectors within it, making it one of the most complicated asset classes. The fund is invested in both neighbourhoods and service stations, amongst other sub-sectors, for example, with the

latter in particular really shining in the last year. Having bought into service stations a while ago, Panagopoulos said the fund was now seeing the benefits of the multiple income streams they offered, such as profit from the consumer goods stores located within them. While the asset class is expensive to invest in currently, Panagopoulos sees opportunity in developing and improving assets. “It’s tough, and you have to be ahead of the game,” she says, but with a skilled team and strong research you can be. The Australian Unity funds that are finalists, for example, have lots of asset managers, many of whom are senior, and an analyst with a strong economic background behind them. Panagopoulos points to one residential area the Australian Unity Retail Property Fund invested in that had been unpopular and a bit forgotten as an area to live in. By

A DIFFERENT PERSPECTIVE

DIRECT AND HYBRID PROPERTY FINALISTS: • CHARTER HALL DIRECT OFFICE FUND • AUSTRALIAN UNITY DIVERSIFIED PROPERTY FUND

improving the area – she cites opening a major supermarket as an example – the appeal of the area to tenants and owners grew. In this, Panagopoulos says that investing in real property also allows Australian Unity to help local communities. The very nature of the assets its funds invest in are utilised by community members, enabling the fund manager to give back. In contrast, the third finalist in the category, the Charter Hall Direct Office Fund, kept its investors happy with a much narrower asset allocation of institutional grade office assets. The fund acquires property with long average lease terms, very high occupancy rates, strong tenant covenants, and appeal to

WINNER: Australian Unity Retail Property Fund

NIKKI PANAGOPOULOS

tenants regardless of the investment cycle. According to head of direct property at Charter Hall, Steven Bennett, sticking to assets that met this strict investment criteria drove the fund’s strong performance in the last year as well as de-risking the fund’s cashflow and providing greater income certainty to investors.

LISTED INVESTMENT COMPANIES & TRUSTS

BY OKSANA PATRON

AN INVESTMENT APPROACH which takes into account a business as a whole has seen the Australian Foundation Investment Company (AFIC) to be named the top listed investment companies and trusts at this year’s Fund Manager of the Year awards. AFIC’s chief executive and managing director, Mark Freeman, said that the firm’s

MARK FREEMAN

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philosophy was to “approach all business buys as though we were purchasing the whole business, rather than trading in shares”. “This gives us a different perspective to many investors in the market and allows us to adjust our position in companies relative to the quality of the company over the long term, rather than getting bogged down in short term investor sentiment.” AFIC aimed to focus on quality as the primary consideration before looking into the prospects of value and growth and holding quality companies over the long term had largely formed the basis of its approach. Freeman also stressed that according to him the firm’s long term track record of adding value coupled with its unique investment approach, with no performance fee, was another

FINALISTS: • MCP MASTER INCOME TRUST • MIRRABOOKA INVESTMENTS LIMITED

strong point. “We are focused on quality companies that can perform over the long term, not on short term relative performance. “To get the full value add from being a long term investor you need to look past the five year horizon,” he said. According to Andrew Lockhart, managing partner at Metrics Credit Partners, the MCP Master Income Trust has earned its nomination thanks to its innovative approach and being unique in the context of the market globally, while offering investors a predictable and stable income. “It was the first fund of this

WINNER: Australian Foundation Investment Company kind to be listed and there were a number of people that came after us to copy what we’ve developed,” he said. Kieran Kennedy, a portfolio manager of Mirrabooka Investments, attributed the success the investment strategy to a strong focus on quality as the first filter that would come before growth prospects and value. “This means that we aim to always have a portfolio of higher quality companies than the benchmark and don’t stray as often into buying things for the wrong reasons, and don’t sell good businesses because they have hit a pre-defined price target.”

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46 | Money Management May 9, 2019

Data protection

OTHER PEOPLE’S DATA: FINANCE’S OTHER BIG RESPONSIBILITY If financial institutions hope to maintain the public trust they are seeking to rebuild in the wake of the Banking Royal Commission, Jonathan Steffanoni writes, they need to ensure that customers’ best interests are the focus of how they handle other people’s data. THE TERMS AND conditions of use for Google or Facebook share a lot in common with a financial Product Disclosure Statement. Nobody reads them. Well, hardly anybody does. And those who do, seldom understand what they’re agreeing to. It’s difficult to go about life without either financial services or data-hungry online services. This quasi-mandatory character of both online and the financial services pronounces the information asymmetry and weak bargaining position that people are in when it

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comes to negotiating a fair and balanced agreement. Clients, customers, and members just click to agree en masse. If they want to proceed, there is no alternative to do otherwise. Financial institutions are in a particularly important position, having dual responsibilities for managing both money and data, and will benefit from better management of conflicting interests and adopting a higher standard of care in managing other people’s data.

OTHER PEOPLE’S DATA… Social licence and public trust are outcomes for any industry which is seen to adopt a responsible approach in dealing with their customers. Arguably, these are two outcomes that Australia’s financial services industry is currently lacking. But if financial institutions hope to regain, and then maintain, social licence and public trust in the years ahead, it will require that the best interests of customers are also sought in their handling of other people’s data.

The challenge facing financial institutions – and the financial advisers who recommend their investment products - in managing customer data is about to become increasingly important with the commencement of the Consumer Data Right and Open Banking. The importance of getting the management of data right has been shown by the Hayne Royal Commission, but the financial services industry can also learn from the lessons around the controversy related to the use (or

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May 9, 2019 Money Management | 47

Data protection

misuse) of Facebook user data by Cambridge Analytica. At the nexus of both issues lies the conflict of interest inherent in managing a valuable commodity on behalf of another. The implications of an overreliance on disclosure and contract in regulating the relationship between the institution and individual are all too clear. Most people simply do not have the time, attention, inclination or sometimes even the understanding to grasp the complex and detailed disclosure in either financial product documents, or the terms and conditions agreed to by clicking when using online services. Accordingly, we need to consider better ways of regulating the use of people’s data by financial institutions.

WHOSE DATA? It is common for most of us to refer to information which relates to us as ‘my data’. It would probably come as a shock to most of us to hear that we don’t own much of our ‘own’ data. The challenge remains, that not all of a ‘person’s data’ is property, and therefore can’t be owned at all. This lies at the heart of many of the risks and responsibilities which are likely to become increasingly visible. If we are to make sense of regulating the use of people’s data, we need to have a clearer picture of what exactly we mean by people’s data. A sensible starting point for financial institutions is to adopt clearer classification models which extend beyond classification of personal information for privacy law purposes to assist in making it clear which data is property and which is not, and identifying the owner where the data is intellectual property. This approach will also be effective in highlighting the extent to which meta data is being collected and created, and the importance of

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ensuring that such meta-data is managed responsibly.

BEST INTERESTS? What might aligning the regulation of data used by financial institutions with public expectations look like? The treatment of meta-data is a good example. Meta-data – which is quite simply data about data which helps institutions catalogue customer activity – is a key component when it comes to regulation and privacy. There are existing legal principles which provide possible mechanisms for regulating the use of non-proprietary, non-personal information meta-data. Agreement by consent and the formation of a contract between the financial institution and customer sounds good in theory – with parties entering into the contract freely. This is the basis for most authorisation of data use by individuals, and regulation under privacy law. It is, however, becoming increasingly clear that this may not be adequate. The real issue in the Cambridge Analytica scandal was not that the laws were broken; it was that such activities occurred with the consent of individuals. Even where disclosure and contracts are extremely well drafted in simple, concise, and clear wording – the practical reality is that so many people simply do not fully understand what they are agreeing to. It’s therefore worth considering alternate approaches to regulating the use of data by financial institutions. The finance sector has a long history of relying on the archetypal fiduciary relationship of the trust as a means of protecting the vulnerable and regulating the management of property in the best interests of others.

“The challenge facing financial institutions – and the financial advisers who recommend their investment products - in managing customer data is about to become increasingly important with the commencement of the Consumer Data Right and Open Banking.” - Jonathan Steffanoni, principal consultant, QMV A model which relies on a similar best interests obligation for the management of data is something worth serious consideration. The fiduciary relationship requires the adherence to principles of loyalty (managing conflicts of interest) and prudence (adopting an appropriate standard of care). On face value, such a relationship has appeal as a means of regulating the use of other people’s data by financial institutions. However, a fiduciary duty in general law is problematic (or impossible), particularly where property rights don’t exist. Furthermore, the fiduciary relationship can be fashioned by the express trust between the parties, making it possible for the same problems which arise in contract and negligence. The flexible nature of private law (or self-regulation) leaves us with statutory reform as being the only realistic alternative if financial institutions are to maintain trust in the long-term management of other people’s data. While unconventional, legislating an irrevocable right to benefit from the use of a customer’s ‘own data’ where it records our behaviour and activities should be considered. Such an approach would enshrine in legislation that where data was held by an institution, it would have to be managed in the best interests of the individual. It may provide an innovative

approach to ensuring that institutions have the legal certainty required to own and manage their derived intellectual property, while ensuring that it is managed for proper purpose and in the best interests of individuals it relates to. This right could include giving individuals the power to transfer or license the legal right of ownership between financial institutions and themselves. It would also enable a financial value to be placed in data, and could see consumers deriving financial benefits from licensing their own data to third parties. A cross industry prudential standard issued by APRA on Information Ownership and Use could provide the principles-based mechanism for achieving this.

FUTURE PROOFING TRUST If we hope to avoid a future Royal Commission into the misuse of data by financial institutions, money managers and even financial planners, it is an imperative that trust is entrenched in the management of both money and data, and that both are managed in the best interests of individuals. The public trust and social licence which can come from general regulation of the use of customer and member data is an opportunity which financial institutions should embrace and actively pursue. Jonathan Steffanoni is principal consultant, legal and risk at QMV.

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48 | Money Management May 9, 2019

Toolbox

PENSION LOAN SCHEME: A VIABLE ALTERNATIVE FOR OLDER CLIENTS? Janet Manzanero-Caruana breaks down the detail of the pension loan scheme and looks at what types of retiree it could benefit. IS EXPANDED PENSION Loan Scheme (the Scheme) a viable alternative for retirees who are asset rich but cash poor? Extra cash flow can be useful whether it’s to pay for health care or simply to facilitate a better lifestyle. The Scheme is a reverse mortgage offered by the Commonwealth Government, drawn only as an income stream. A person can choose to receive capped fortnightly payments until their loan limit is reached. A person’s maximum fortnightly loan payment is currently the difference between the actual pension they receive and their relevant maximum rate of pension (including the pension supplement, energy supplement and rent assistance, if any). To date, very few people have used the Scheme as retirees who don’t meet both the assets and income tests and full

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pensioners are excluded. To save on aged care costs the Government encourages older Australians to stay longer at home. However, clients with minimal assets apart from their home are unable to do so if they cannot afford support and care services delivered at home. In the past, there were calls to include the full value of the home in social security and aged care means tests or use home equity to help those with the means to contribute more for their care. To date, the home is a ‘sacred cow’ that remains exempt for the social security (includes Department of Veterans’ Affairs (DVA)) assets test. Present and previous Governments have not been willing to make it fully assessable. On 1 July 2014, an asset test was introduced for new residential aged care residents. The asset

test includes the value of the home up to a cap. The Government made changes to the Scheme to allow retirees access to home equity, so they have more money to spend. On 1 March 2019, The Social Services and other Legislation Amendment (Supporting Retirement Incomes) Bill 2018 became law. It contained changes to the Scheme to make it more sustainable and to allow more people to join the Scheme. From 1 July 2019, the following changes will become effective: • the maximum fortnightly payment increases from 100 per cent to 150 per cent of the person’s relevant maximum pension rate; • all pensioners and self-funded retirees who do not meet either or both means tests can join the Scheme; • the ‘guaranteed amount’ is

replaced with a ‘nominated amount’ from which the Government can recover any remaining debt; and • new age component amounts will be used to determine the maximum loan available. For retirees who have minimal assets apart from the home, or whose investments are mainly in property, cash flow can be limited, and loans or lines of credit are difficult to get when a person has retired. The home exemption is a valuable concession to pensioners. While it was recommended that it be assessed for the social security assets test it can significantly impact people who have no liquid assets and can force older Australians to sell their home. Rather than sell the home to unlock cash flow and risk losing the pension, the expanded Scheme

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WHO IS ELIGIBLE? A person must meet the following conditions to join the Scheme: • meet residency requirements for the Age Pension - the client must have lived in Australia and be an Australian citizen, permanent resident and/or a special category visa holder for at least 10 years including five years of continuous residence. • be aged at least: - aged pension age, or - if a veteran with qualifying service, a war widow or widower, be at least age 60. The partner of a veteran must have reached age pension age to join the Scheme; and: • not bankrupt and not subject to an insolvency agreement under the Bankruptcy Act 1966 • have property to offer as security for the loan and suitable insurance over the property. Single and partnered clients can join the Scheme. If the person is partnered both partners must sign applications for the Scheme or to any change to the nominated amount (discussed below).

WHAT IS THE MAXIMUM FORTNIGHTLY PAYMENT? The Pension Loan Scheme loan is drawn as fortnightly payments – no lump sums are paid. The maximum fortnightly loan payment will increase to 150 per cent of the person’s relevant maximum pension entitlement (which includes the basic pension rate, the pension supplement and rent assistance, if eligible). A person can choose any fortnightly payment which is capped at the difference between: • any actual income or asset tested pension and Defence Force Income Supplement Allowance received; and • 150 per cent of their maximum pension entitlement.

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Example 1: Brian is single. The maximum single pension rate is $926.20 per fortnight (pf) (maximum single basic rate $843.60 pf, pension supplement $68.50 pf and energy supplement $14.10 pf) and 150% of this rate is $1,389.30 pf. If Brian is a full pensioner he can choose any fortnightly loan payment up to $463.10, the difference between $1,389.30 and the $926.20 pf he receives. If Brian receives a part-pension of $500 pf he can choose a fortnightly loan payment of up to $889.30 ($1,389.30 less $500). If he was a self-funded retiree, he may choose to receive a fortnightly loan payment up to $1,389.30. Fortnightly loan payments are recalculated if the person’s pension entitlement increases so that their total pension and fortnightly loan payment exceeds 150 per cent of their maximum pension rate. A person can choose to pause or change the amount of fortnightly loan payment at any time. A person receiving a higher pension will have a lower maximum fortnightly loan payment while a self-funded retiree or a partpensioner will have a higher maximum fortnightly loan payment. The increase of the maximum fortnightly loan payment to 150 per cent of a person’s relevant maximum pension rate means those receiving little or no pension and drawing down the maximum fortnightly loan payment may hit their maximum loan limit sooner as the larger payments and compounded interest accrue at a faster rate. As soon as the maximum loan limit is reached loan payments cease.

SECURITY The loan must be secured by Australian real estate owned by the client, their partner, or both. While the home is often used as security, multiple properties including rental properties and farmland can be used as security. Property held by a company or trust controlled by the person (if the person is an attributable stakeholder) can be

used as security if the company or trustee guarantees to pay the debt when it’s due. To protect its interests and make the Scheme sustainable the Australian Government Solicitor will register a caveat or notice of charge on the property title. A property with an existing mortgage may be offered as security, however the mortgage will be considered when calculating the maximum loan limit.

NOMINATED AMOUNT A person who wishes to leave an inheritance for family members might exclude a property or part of it or nominate an amount (previously the guaranteed amount) to be excluded from the calculation of the maximum loan amount. The nominated amount or excluded property will reduce the value of security for the loan and as a result, will reduce the maximum loan amount. Unlike the guaranteed amount which cannot be used to pay off residual Scheme debt when the sale proceeds from the property sale is not enough to cover the loan, the nominated amount can be accessed to pay the remaining debt. The person may request an increase in the nominated amount if the asset under charge is enough to support their maximum loan limit.

MAXIMUM LOAN LIMIT The maximum loan amount is calculated using the age component that relates to the client’s age at that time. The age component of the calculation ensures that the property held as security will be enough to repay the loan and factors in future interest and increases in property value. The maximum loan amount is calculated each year and is based on the: • value of the security (rounded down to the nearest multiple of $10,000) less: - any nominated amount; - the value of any life interest held by a person other than the person’s spouse; and/or - an existing mortgage; and • an age component amount based on the person’s age (if

the person has a partner, then the age of the younger partner). The Social Security (Pension Loans Scheme – Age Component Amount) Determination 2019 released a new Age component amount, as shown in table one. Table 1: Age component amount table Age

Age component amount

Age

Age component amount

55, and each earlier year

$1,710

$3,750

$1,780

$3,900

$1,850

$4,050

$1,920

$4,210

$2,000

$4,380

$2,080

$4,560

$2,160

$4,740

$2,250

$4,930

$2,340

$5,130

$2,430

$5,330

$2,530

$5,550

$2,630

$5,770

$2,740

$6,000

$2,850

$6,240

$2,960

$6,490

$3,080

90, and each $6,750 later year

$3,200

$3,330

$3,460

$3,600

Source: Social Security (Pension Loans Scheme - Age Component Amount) Determination 2019

is a less expensive form of reverse mortgage. The expanded Scheme may allow older Australians to live longer at home, receive additional cashflow to pay for home support services, home modifications, or pay for residential aged care, and retain their pension.

Continued on page 50

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Continued from page 49 The maximum loan amount is: The age component amount X (the value of the security/$10,000) Example 2: Adrian (aged 80) and Mel (aged 75) are applying for the Scheme. The value of property held as security is $1 million. There is no existing mortgage or life interest registered over the property. Adrian and Mel elect a nominated amount of $375,000 to be set aside for beneficiaries of their deceased estate. The maximum loan amount is calculated as: $3,750 X ($620,000*/$10,000) = $232,500

INTEREST RATE The Scheme is a lower cost option compared to other reverse mortgages. The interest rate, at 5.25 per cent per year since December 1997, on the outstanding loan balance compounds every fortnight until the loan is repaid. The rate is lower compared to reverse mortgages (6.24 per cent per year or higher) and the maximum permissible interest rate (5.96 per cent per year for new residents from 1 January to 31 March 2019) used in calculating the daily accommodation payment for residential aged care.

SOCIAL SECURITY ASSESSMENT

*$620,000 is $1,000,000 less $375,000 = $625,000 rounded down by $10,000 The maximum loan amount is adjusted yearly as the age component amount increases with the person’s each birthday. Chart two shows the increase in maximum loan limits as a person ages from 70 to 90 based on a property valued at $750,000.

Social security treatment of a Scheme loan is more concessional than the general rule. A charge over an exempt asset like the principal home does not ordinarily reduce the value of assessable real property. The Scheme loan, however, will reduce the value of assessable property, such as rental property or a holiday home, where the loan is secured by the principal home

and assessable real estate. Fortnightly loan payments are excluded from the income test. Example 3: Scott is a single age pensioner. His only assets are his home, which is worth $700,000 and a holiday home, which is worth $600,000. He needs additional income but does not wish to sell either property. He offers both properties, totalling $1,300,000, as security to join the Scheme. If his outstanding Scheme loan is $200,000, his holiday home would be valued at $400,000 ($600,000 less $200,000). The home is exempt. He receives a fortnightly loan payment of $500 pf which is exempt income for social security and aged care means tests. As Scheme debt increases the social security assessment of the holiday home reduces (assuming no increase in property value), leading to increases in Scott’s Age Pension. Scott may choose to reduce fortnightly loan payments.

WHO CAN BENEFIT The Scheme may be suitable for clients who want to keep their

Chart 2: Maximum loan limit increases with age

Source: IOOF

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property but who need: • extra income to pay for home care and support services or residential aged care; • to keep their pension but need more income; and/or • other top-up income, such as rent or the pension to maintain a better lifestyle. Keeping the home may protect a significant amount of assets from social security and aged care means tests. The client can save on costs of selling the property, the inconvenience of moving, or parting with a home which holds sentimental value for the client.

OTHER CONSIDERATIONS While a person can choose to repay the loan at any time, it must be repaid when the property is sold, or the person dies. If the surviving partner qualifies for the Scheme in their own right, repayment of the loan can be deferred until they also die. If the surviving partner does not qualify for the Scheme, the loan must be repaid after the 14-week bereavement period. Repayment of the loan should be discussed and planned for in advance so the person or their family can look at repayment options and avoid losses owing to a rushed sale of the property. Paying the debt partially or fully where possible can save interest costs and decelerate increases to the loan balance so that more can be left to the person’s deceased estate. The person must notify Centrelink, or the DVA, if they become partnered, separated from

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May 9, 2019 Money Management | 51

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CPD QUIZ This activity has been pre-accredited by the Financial Planning Association for 0.25 CPD credit, which may be used by financial planners as supporting evidence of ongoing professional development. 1. The Pension Loan Scheme (PLS) is a reverse mortgage that: a) I s drawn as fortnightly payment or as lump sums. b) Is drawn only as capped fortnightly loan payments. c) I s drawn as an income stream and is assessed as income for the social security income test d) T hat is open exclusively to pensioners from 1 July 2019. their partner, or relocate to another home and the former home is held as security for the loan. These events trigger a review of pension entitlements and the fortnightly loan payment. If another property will be held as security for the loan, the old loan will be repaid and a new loan established. A person who separates from their partner must qualify for the Scheme in their own right. This is an issue if the person no longer has property to offer as security for the loan. The Scheme is a loan and a financial advisor must have a credit licence to advise on the Scheme. Otherwise, the client should be referred to someone who has a licence or to a Social Security Financial Information Service officer.

CONCLUSION Changes to the Scheme are designed to increase its uptake, especially as the maximum fortnightly loan payment has increased. Around 6,000 eligible pensioners are expected to join the Scheme over the next four years. The Scheme may be the answer for those who find reverse mortgages too expensive. It also allows people to draw on their own resources for their needs, reduces reliance on Government subsidies and enables older Australians to remain in their home rather than enter residential aged care. Janet Manzanero-Caruana is a senior technical manager at IOOF TechConnect.

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2. Which of the following is not a change to the Pension Loan Scheme from 1 July 2019? ew age component amounts will be used to a) N determine the maximum loan limit. b) The maximum fortnightly payment will increase from 100 per cent to 150 per cent of the person’s relevant maximum rate of pension. ll self-funded retirees who meet either the c) A income test or the asset test, but not both, can join the Pension Loan Scheme. d) T he Government can recover remaining debt from the nominated amount if proceeds of the sale of the property held as security is not enough to repay the debt.

5. Where the maximum single rate of pension is $926.20, a single non-pensioner who receives fortnightly income of $600 can choose a fortnightly payment of up to: a) $326.20 b) $789.30 c) $ 926.20 d) $ 1,389.30 6. Which of these cannot be used as security for the Pension Loan Scheme: a) Holiday home in Cairns. b) Chalet in Switzerland. armland in South Australia. c) F d) T ownhouse in Sydney. 7. If the property offered as security is worth $800,000 and the nominated amount is $275,000, what is the person’s maximum loan limit if the person is aged 80 and their spouse is aged 78?

3. Which is not a requirement to join the Pension Loan Scheme? a) T he person must have lived in Australia as an Australia permanent resident or citizen, and/or temporary visa holder for 10 years plus five years of continuous residence b) The person must be at least age pension age or, if a veteran with qualifying service, at least age 60. c) T he person must not be bankrupt or subject to an insolvency agreement under the Bankruptcy Act 1966. d) T he person must have Australian real property to offer as security for the loan.

a) $221,025

4. When the person’s pension entitlement increases the maximum fortnightly loan payment will increase. a) True. b) False .

a) $519,448

b) $218,920 c) $ 237,120 d) $ 239,400 8. Matt’s security for his PLS loan is his home (value $600,000) and his rental property (value $550,000). His outstanding debt is $58,557. There is no nominated amount, life interest or other charge on the properties. The rental property will be assessed by social security at: b) $569,449 c) $ 491,443 d) $ 521,997

TO SUBMIT YOUR ANSWERS VISIT https://www.moneymanagement.com.au/features/tools-guides/ pension-loan-scheme-viable-alternative-older-clients

For more information about the CPD Quiz, please email education@moneymanagement.com.au

1/05/2019 3:56:15 PM

OUTSIDER

Management May April9,2,2019 2015 52 | Money Management

A light-hearted look at the other side of making money

Making sacrifices beyond the boardroom Tim Tams AS any long-term reader of Outsider would know, he occasionally (actually quite frequently) suffers from remuneration envy. Thus, he was pleased to note that in the wake of the Royal Commission the members of the National Australia Bank board were prepared to accept that the resignation of their chairman, Ken Henry and former chief executive, Andrew Thorburn, was simply not enough. They

too, it seems, would have to suffer. As NAB’s half-year results revealed, around $5.5 million in deferred remuneration has been forfeited by the bank’s executives and Thorburn himself forfeited $21 million in deferred and unvested variable reward income. “The board also recognises the need for accountability beyond the decision of Dr Henry to step down, and all continuing directors will take a reduction in 2019 will take a reduction in 2019 director’s fees, equivalent to 20 per cent of their base fee,” the NAB release to the Australian Securities Exchange (ASX) said. By Outsider’s calculation, that cut in directors fees is roughly equivalent to a number of starting salaries in the banking industry and certainly more than the cost of the board room Tim Tams. Good to see them sharing the load.

Those who have left their mark on financial services AS we draw ever closer to the 18 May Federal Election, Outsider believes it is worth reminding readers that while we may have had no fewer than five Prime Ministers over the past four Parliaments we have actually had far more financial services ministers. So, for the benefit of those with short memories, Outsider provides the following list of those who have made a greater or lesser mark/stain on financial services: • Stuart Robert; • Kelly O’Dwyer; • Josh Frydenberg; • Mathias Cormann; • Arthur Sinodinos; • David Bradbury; and • Bill Shorten. Outsider suggests that those who want to know who will be taking care of the portfolio after 18 May should consult with the bookies because the pollsters don’t seem to be able to agree on anything.

Weighing anchor on franking credits CONTEXT is everything and thus Outsider acknowledges that the ABC’s recent election-time coverage of the franking credits debate may have served Bill Shorten and the Labor Party better than it served Scott Morrison and the Coalition. Why? Because the ABC chose to interview one of those complaining about the Australian Labor Party’s policy removing franking credits aboard his somewhat impressive motor launch moored in a better than average marina. It seems the poor chap had complained to the ABC about its earlier coverage of the franking credits issue

OUT OF CONTEXT www.moneymanagement.com.au

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and then, apparently, agreed to be interviewed on his launch complaining about the manner in which removal of the franking credits refund would impact his retirement income. Now it is a long time since Outsider thought too much about political spin-doctoring, but he suspects that the chap in question would have created a better impression of loss if he had made his argument from the cold, hard seat of a two metre tinny than the well-padded stern chair of his motor launch. As an old hack, Outsider knows that there are some interviewees who just deliver more than you expect.

"How do we make sure that people are healthy on 21-hour flights? How do we give people more things to do on those aircraft?" Qantas CEO Alan Joyce on the challenges of adding 21-hour direct flights from Sydney to London

"If I could predict the future I'd be out at Randwick [Racecourse]." Alexander Downer, former Liberal leader and Foreign Affairs minister, businesses complaining about being in uncertain times.

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