Financial Standard volume 18 issue 21

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26 October 2020 | Volume 18 Number 21

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Pyrford International

Vanguard, Rest

Super Booster

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Anthony Doyle Fidelity Australia

Managed accounts

Joe Magyer Lakehouse Capital

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www.financialstandard.com.au

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13

22

Pyrford International

Vanguard, Rest

Super Booster

11

14

32

Anthony Doyle Fidelity Australia

Managed accounts

Joe Magyer Lakehouse Capital

Product showcase:

Opinion:

Asset consultants forge new path Kanika Sood

sset consultants have long been regarded as A gatekeepers to superannuation money but as more funds merge, these service providers are evolving their offering.

Advising on trillions of super assets, they have long been aware of the threat to their business from in-housing and merging.

But now, the revenue stream from their prime client base is under greater pressure than ever on both these fronts.

According to Rainmaker data on profit-to-member super funds, 20% of combined investments are now managed internally, 13% of total assets are under an internal consulting arrangement, and 22% are using more than one asset consultant.

In this shifting landscape, JANA, Frontier Advisors and Willis Towers Watson (WTW) – which together have an 83% share of the profitto-member super market – are evolving.

At Frontier Advisors, super funds account for about 85% of its revenue. In the next five years, it wants non-super clients’ revenue contribution to go up from current 15% to 30%.

And it is looking for opportunities both at home and overseas, having realised around 2014 it needed to diversify its client base.

“I think the ultimate consolidation in super has been talked about for a long time,” says Frontier Advisors chief executive Andrew Polson.

Locally, Frontier is tapping into what it calls emerging institutional investors (endowments, universities, insurers), where it hopes platforms like HUB24 and Netwealth will make its advisory job easier by allowing them on platform infrastructure.

However, it is staying away from managed accounts or the adviser-led market, which JANA recently entered. Its role is advising, not implementing, Polson says.

Frontier is working on a retirement income solution, again as an adviser versus a product manufacturer. And it has been investing in a technology platform that now accounts for 12% of its revenue.

It is also looking for new international markets to tap into. Top of the list is Japan, with trillions in pension assets, funds that are increasingly looking to invest outside government bonds and have low historic involvement of independent asset consultants.

However, it is a long road ahead. Frontier has been cultivating relationships in the re-

gion for five years and has yet to score a client.

Its competitor, JANA says its super clients are asking for ESG deep dives and stress-testing of their funds.

“If you went back a decade ago, we were primarily dealing with maybe a chief investment officer and an investment committee whereas now we’re spending a lot more time with specialists that funds have developed in internal teams,” says JANA principal consultant Duncan Smith.

JANA has also been a beneficiary in super funds’ shift to project work from retainers, and to using multiple consultants, as it features in many of these arrangements.

“We are getting more requests to do project work [such as on investments or operational consulting], either from existing clients or from external clients. And I think that is an ongoing trend,” Smith says.

Mercer seems to share its strategic view. It also works with the adviser-led market and sees opportunity in mid-sized super funds.

Mercer’s institutional wealth leader for Pacific Simon Eagleton says what’s going on is nothing new.

“The big new thing is that mid-sized industry funds are looking to implement via asset consultants. That’s more so with the budget [reforms]. They are looking for ways they can reduce costs or improve performance,” Eagleton says, referring the government plan to cut flow of new members into any funds that fail twice on a new APRA-administered annual performance benchmarking.

By ‘implementing’ it means, the fund delegates to Mercer the job of picking individual managers, negotiating fees, due diligence and daily balancing in lieu of a daily unit pricing and reporting.

So, are they still the gatekeepers?

“I think that aspect of being gatekeepers is slightly old,” WTW director of investments Martin Goss says.

He says it’s now a combination of the asset owners and consultants.

“I definitely don’t look at it as: unless you could get rated by the four consulting firms, you’re not going to get anywhere [as a fund manager]. That’s definitely not the case anymore,” Goss says.

“But if you get well rated by a consultant, does that help your business? Absolutely.” fs

26 October 2020 | Volume 18 Number 21 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Executive appts:

Feature:

Featurette:

Profile:

ASIC reviews life insurance advice Annabelle Dickson

Andrew Polson

chief executive Frontier Advisors

The Australian Securities and Investments Commission is conducting a review of life insurance advice and plans to consult with the industry on scaled advice this year.

Speaking at the Association of Financial Advisers Conference, ASIC senior executive leader, financial advisers Kate Metz revealed work has commenced on its review of advice in life insurance in 2017 despite delays from COVID-19.

“We have already started on that work, but we have now served notices on about 130 licensees that is calling for 2017 advice files. In most cases we have asked licensees for one or two files,” she said.

Metz said the regulator is looking to see if the advice provided complies with the best interests duty and related obligations.

“We’re looking to see what position consumers have been placed into as a result of getting the advice. We will be doing the same process again for 2021 advice,” she said.

Metz stressed that it is unlikely that ASIC will Continued on page 4

Hume clarifies super reforms Elizabeth McArthur

Senator Jane Hume has clarified why the government’s latest reforms will seek to identify underperforming MySuper products.

Hume was speaking at a Financial Services Council (FSC) event about the Your Super, Your Future package announced as part of the federal budget package.

FSC chief executive Sally Loane started the event by pointing out that Hume “gave nothing away” about the impending changes to superannuation in her pre-budget media appearance on the ABC, surprising many in the industry.

But, Hume insisted reform was necessary – especially to enhance the performance of default MySuper products.

“There are over 90 MySuper products, which are supposed to be the most basic that people get defaulted into,” Hume said.

“We’ve decided that the best way for consumers to engage with that system is if they can see all of Continued on page 4

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News

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

Aussie asset managers fourthfastest in global growth

Editorial

Kanika Sood

Jamie Williamson

A

Editor

In this fortnight’s edition, we celebrate the seventh annual FS Power50, highlighting the 50 most influential financial advisers in Australia today.

Compiling such a list is no mean feat; the four rounds of due diligence conducted on finalists alone is monumental.

After several months of preparations, nominations, box ticking and interviewing, the final 50 is here and Financial Standard couldn’t be more proud to congratulate them.

This year’s line-up is strong, featuring a diverse range of talent from across the nation, along with varied specialisations and reasons for being deemed ‘influential’.

Some are influencing the advice industry, be it through regulatory bodies or peer groups, others are influencing the delivery of advice and the client experience through technology and innovative business models.

And others are leveraging their roles as advisers to make a meaningful difference in their community or communities abroad.

There are plenty of fresh faces achieving all this too, with 23 appearing in the Power50 for the first time. However, there’s no beating experience, as I’m sure the 218 Power50 alumni can tell you.

And we are not going backwards in terms of gender either, with females representing 38% of the list.

All said, this year’s crop of advisers have a lot to be proud of. As with anything, particularly since the advent of social media, there are those that look to discount others’ achievements or to muddy their experience – but they are the minority.

Despite all that’s gone on in recent years, advisers – Power50 or not – shouldn’t be discouraged from publicising and celebrating their successes. The job they do is a tough one and it’s only getting tougher.

At the recent Association of Financial Advisers’ annual conference, Senator Jane Hume confirmed that after much delay the single disciplinary body and compensation scheme of last resort will be legislated by mid-2021, describing them as “game changers”.

Just days later, the Financial Services Council released its Future of Advice report, calling for an overhaul of the industry in order to ensure affordability and sustainability. One of its recommendations was splitting advice into the two distinct categories of ‘strategic advice’ and ‘financial product advice’. Within those categories would be sub-categories such as general information, simple personal advice and complex personal advice.

These are just two examples of the constant change the advice community faces and the pressure mounting on advisers.

To still be able to do the job that they do each and every day is to be commended, and they should feel free to commend themselves whenever and wherever they please - and don’t forget to tag Financial Standard so we can celebrate with you! fs

ustralian asset managers are the fourthfastest growing of their global peers, clocking in 11.9% in compounded annual growth over the last five years, says a new report from Willis Towers Watson.

Willis Towers Watson’s Thinking Ahead Institute published a joint study of the world’s 500 largest managers based on 2019 assets with Pensions & Investments.

US names (BlackRock, Vanguard and Fidelity) came out as the largest managers but the report found fast growing asset management markets (in local currency terms) are China (25.5% CAGR over five years), India (14.4%), Brazil (12.9%) and Australia (11.9%).

Developed countries like the US and UK are growing their asset management markets at a much slower rate of 7% and 4.9% respectively.

“The last decade has seen an increase in the representation of managers from US, Canada, China and Australia. In contrast, some European countries have lost market share during this period,” it said.

The only Aussie asset manager to crack the

top 100 was Macquarie Group with its US$412 billion in assets earning it the sixtieth spot. [All references hereon to $ are USD].

IFM Investors ($163 billion), Colonial First State ($160 billion), AMP Capital ($142 billion), NAB Asset Management ($141 billion) and Pendal Group ($70 billion) made it to the 100-200 largest asset managers around the world.

Magellan Asset Management ($68 billion) came in 205, followed by QIC ($58 billion) at 235 and Challenger ($57 billion) at 237.

Pinnacle’s combined multi-affiliate FUM ($43 billion) put it at 265. Property manager Goodman Group was at 294.

Six Australian managers were in the 300-400 largest including Tactical Global Management, Vinva, Charter Hall, QBE, Dexus, Platinum, Perpetual and GPT Group.

Morrison, Navigator, Paradice, Maple-Brown Abbott and Cooper Investors were in the 400500 largest.

About 46% (or 232) asset managers that were in the 2009 list had disappeared from the 2019 list, which the report said, hinted at quickening in consolidation among asset managers. fs

BT cuts Wealth Connect Ally Selby

The quote

We regularly review our business models to ensure we have the best possible operating model to meet our customers’ needs.

BT has proposed changes to its Wealth Connect business which could see at least 38 roles become redundant, as Westpac continues to review its wealth platform, superannuation, investments and insurance businesses.

BT’s Wealth Connect team provides general financial product advice and deals in life insurance, managed funds and managed investment schemes; platforms, wraps and portfolio services; retirement savings accounts; superannuation; cash accounts and term deposits; securities and structured alternative investments.

In an internal memo presented to staff on Thursday and obtained by Financial Standard, BT announced the “Wealth Connect model in its current form is longer required”.

In response to reduced client demand, the wealth giant announced general advice will no longer be delivered by Wealth Connect and its team of 50, and will instead transition to its customer relations team.

The strategy shift would see the role of Wealth Connect national manager of super, platforms and investments “no longer required”, with managerial positions across direct wealth, super retention, and platform engagement also terminated.

Additionally, 34 wealth consultant roles across super retention, direct wealth and platform engagement are also being made redundant. Two direct wealth roles (a conversation manager and subject matter expert) will also no longer be required.

As part of the changes, there will be a new team manager role created within BT’s customer relations team, with nine new roles created in its “resolve” team set to report to the newly created manager position.

The restructure will also see the transition of 10 roles reporting to existing team managers within the customer relations team, to be decided by a contestable role process.

If BT proceeds to implement the changes after a consultation period - set to conclude on October 28 - the restructure will result in the net reduction of 30 roles.

A spokesperson for BT said there would be no announcement at this time, as the wealth giant is currently consulting with its people on the proposed new structure.

“The proposed new structure will see a number of roles in Wealth Connect folded into existing teams and some new roles created,” the spokesperson said.

“We regularly review our business models to ensure we have the best possible operating model to meet our customers’ needs.

“Our priority is to ensure we support our people and provide opportunities within the proposed new structure as well as redeployment within the broader Westpac Group.”

Wealth Connect launched in 2011 and was then called ‘Scalable Advice’. A team of around 30 provided general advice to BTFG customers across life insurance retention, new superannuation sales, consolidation and super retention.

The business was rebranded to ‘Scaled Advice’ in 2013, with intra fund advice and insurance sales now included in its offering. The business was rebranded again as Wealth Connect in 2015, with its team shifting to become digital or virtual wealth consultants.

In October 2017, BTFG consolidated its advice and private wealth divisions.

In September 2018, BTFG announced it was reviewing its business model for financial advice and would be scrapping its virtual advice initiative, resulting in significant redundancies.

Finally, in May of this year Westpac announced it was reviewing its business units after determining several lack sufficient scale or risk outweighed return. fs

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News

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

01: Sam Henderson

ASIC reviews risk advice

former financial adviser

Continued from page 1 be taking any enforcement action as a result of the review.

“We’re not looking to catch people out, this is a review in the ordinary course for us,” she said.

Furthermore, ASIC is urging financial advisers to make financial advice more accessible, affordable and ‘bite-sized’ to meet consumer demand.

The regulator will be releasing a consultation paper later in the year to understand the impediments advisers face in providing affordable limited advice.

The consultation comes as ASIC undertook work to hear what consumers wanted from advisers, furthering work undertaken in 2010 on access to advice issues.

“ASIC has given guidance in the past that we support limited or scaled advice but we are hearing from licensees that they don’t want their advisers in that space,” she said.

Metz said there is nothing in the law stopping advisers from offering scaled advice but thinks there is a misapprehension that the corporate regulator will crack down on them. fs

Hume clarifies super reforms

Sam Henderson sentenced Elizabeth McArthur

S The quote

As a financial adviser, Mr Henderson built a level of trust with his clients. However, by engaging in dishonest conduct, he broke that trust.

Continued from page 1 those funds ranked in order of performance as well as fees.”

She said funds will be notified of underperformance at the end of each financial year and will be required to inform members that a MySuper product is underperforming by October of the same year.

“We’re talking about underperformance over eight years. It’s not about funds having a bad quarter or one bad year,” Hume said.

She said MySuper fees have increased since the products were launched, despite competition in the market growing so much. This was concerning to the government, Hume suggested, as the Productivity Commission had found keeping fees in these default products as low as possible was integral to retirement outcomes.

A new, clearer articulation of best interests duty for super trustees was also a surprising reform to come out of the budget. The new duty makes it clear that trustees must act in the best financial interests of members at all times.

Asked whether the new best interests duty will mean an end to ESG investing, Hume replied “no” and said the government does not want to be that specific or stop anyone from doing business.

“There’s plenty of research out there that ESG investing is a pretty basic risk filter,” Hume said.

“We don’t want it to be prescriptive… Trustees already have a higher responsibility; they already have a fiduciary duty. This just frames that duty as acting in the best financial interests of members, not just the best interests of members.”

Asked to speculate on the knock-on effect of these latest reforms on not only super but the funds management industry, Hume maintained that her focus was on consumer outcomes.

“The government’s responsibility isn’t to create a thriving funds management industry,” she said. fs

am Henderson 01 was sentenced in the local court after pleading guilty to three charges of dishonest conduct.

Henderson was fined a total of $10,000 and released without any jail time on the condition of good behaviour for two years.

The former celebrity financial adviser was fined $7000 on a charge of giving defective financial services and a further $3000 for dishonest conduct in relation to a financial service.

“As a financial adviser, Mr Henderson built a level of trust with his clients. However, by engaging in dishonest conduct, he broke that trust. His sentencing sends a strong message that ASIC will investigate and act against dishonest conduct, and that dishonest advisers will face the consequences,” ASIC executive director, financial services enforcement Tim Mullaly said.

The judge applied a 25% discount to the sentence due to Henderson’s guilty plea.

ASIC alleged that Henderson engaged in dishonest conduct while chief executive, director and senior financial adviser of Henderson Maxwell by claiming that he had a Master of Commerce when he did not.

The regulator found 115 PowerPoint presentations he gave to clients between 2010 and

2016 which it allegedly contained false claims that Henderson had the degree.

Further, ASIC said the Master of Commerce claim was mentioned on the Henderson Maxwell website between 2012 and 2016 and in Henderson Maxwell brochures distributed between 2013 and 2017 as well as in an information memorandum dated May 2011.

Henderson was the subject of a case study on bad financial advice at the Royal Commission and was subsequently banned from providing financial services for a period of three years.

During the Royal Commission, audio was played of one of Henderson’s employees impersonating a client to a superannuation fund.

The commission found that same client was given a statement of advice by Henderson which contained a recommendation that she leave her super fund and establish an SMSF - the recommendation would have seen the client $500,000 worse off.

When that client complained to the Financial Planning Association of Australia, Henderson allegedly called her “aggressive” and “nit-picking”.

Commissioner Kenneth Hayne did not accept Henderson’s defence that the advice he provided to that client was a “draft”.

Henderson declined to comment. fs

Sunsuper cops rating downgrades Annabelle Dickson

All four of Sunsuper’s superannuation investment options have had their ratings downgraded by Morningstar following its revised ratings framework.

The $70 billion industry fund’s balanced, growth, conservative and retirement options are now rated as bronze, having previously been silver.

A Sunsuper spokesperson told Financial Standard it has reached out to Morningstar to better understand the reasoning behind the decision and the updated methodology.

Despite this, Morningstar’s review said that while the revised ratings approach has placed an emphasis on benchmark relativities, Sunsuper still remains a worthy choice.

Morningstar director of manager research Tim Wong said multisector strategies have been hampered by the revised framework.

“Not many multisector funds which include Sunsuper are able to pass that benchmark over time and that kind of raises a hurdle for multi-sector funds to retain the high level ratings it held before,” he said.

“Even so, this vehicle still has some strong pieces that provide reason for upholding a confident view in its prospects.”

Morningstar revised its methodology in November 2019 for its gold, silver, bronze, neutral or negative analyst ratings.

Now Morningstar puts greater emphasis on fees and its existing five-pillar rating process (people, process, parent, performance and price).

Previously the first three pillars were rated on a three-point scale - positive, negative and neutral but the ratings on these moved to five-point scale (high to low).

“Morningstar’s new ratings framework sets the bar high for funds to achieve the highest ratings. Only a small proportion of rated funds achieve a medal rating and we are pleased to have achieved a bronze rating, which acknowledges Sunsuper as a high-performing fund,” the Sunsuper spokesperson said.

“Although this last year has been a challenging one for all investors, Sunsuper’s balanced option has consistently outperformed the industry average over rolling three, five, seven and 10 years.”

The research house said it was reassuring that Sunsuper did not run into any problems with demand for liquidity as a result of early release of super scheme.

Furthermore, Morningstar noted the industry fund’s strong governance and investment expertise capitalises on its inflows and the longer time frame afforded by its member base.

“The largest component of active risk will stem from allocations to private markets such as private equity, infrastructure, and property. Sunsuper’s long time horizon is supported by its relatively young member profile and strong contributions,” it said.

“Still, it is an effective and sensible differentiator, with Sunsuper using its fee budget judiciously through large swathes of inexpensive indexed listed equities.” fs

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Important Information The information on this page is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (‘MLCI’), Responsible Entity of the MLC Wholesale Inflation Plus – Conservative Portfolio, MLC Wholesale Inflation Plus – Moderate Portfolio and MLC Wholesale Inflation Plus – Assertive Portfolio, a member of the National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) (NAB) group of companies (NAB Group). An investment with MLCI does not represent a deposit or liability of, and is not guaranteed by, the NAB Group. The information provided is general information only and does not take into account your personal financial situation or needs. We recommend you obtain financial advice for your personal circumstances before making any investment decisions. You should obtain a Product Disclosure Statement (PDS) relating to the MLC Inflation Plus portfolios issued by MLCI and consider it before making any decision about whether to acquire or continue to hold those products. A copy of the PDS is available upon request by phoning 1300 738 355 or on our website at mlcam.com.au/MLCWholesale. A157874-1020

6

News

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

OnePath takes over mandate OnePath has won a group insurance mandate for a well-known football association, replacing Resolution Life.

The AFL Players Association (AFLPA), which represents male, female and past player members, has appointed Zurich-owned OnePath to take over from December 1.

“This arrangement is an extension of our partnership with the AFL Players Association, through our community program, Tackle Your Feelings,” Zurich said in a statement.

Head injuries, such as concussions, are common in Australian football. Zurich said more research on the long-term impacts of concussion is coming to the fore.

“But core to our promise as an insurer is to provide coverage that’s appropriate to the needs of our customer segments, and to provide support in any way possible at claim time. Cover for concussion is important for this group and we are proud to offer it in this case.”

It’s been widely reported recently that Shaun Smith, a former AFL player, won a $1.4 million payout from his insurer MLC as a result of a serious concussion during his career.

In May, the AFLPA extended its 20-year-long partnership with AMP to provide superannuation for over 3500 past and present AFL players. fs

Societe Generale cops $30k fine Annabelle Dickson

Societe Generale pleaded guilty to four counts of client money obligation breaches in Sydney’s local court and has been ordered to pay $30,000 in addition to further AFS licence conditions imposed

by ASIC. The bank breached s993B(1) of the Corporations Act (the Act) on two separate occasions by receiving client money and not depositing it into an authorised deposit-taking institution or an approved foreign bank.

The first count took place between December 2014 and February 2017 when the bank withdrew client money over 4500 times from Australian clients and deposited the money into client accounts held by its Hong Kong operations.

The second count took place within the same time frame, when Societe Generale deposited client money into five overseas unapproved bank accounts on around 7363 occasions.

The average end-of-month total value of clientmoney during the breaching periods totalled approximately $771 million and the bank was fined $15,000 for these two counts.

Furthermore, the third count was for breaches during January 2017 through to January 2018 where on 20 separate occasions part of Societe Generale’s intercompany margin call/reconciliation process included withdrawing approximately $500 million in client money from client segregated accounts.

Count four took place between January 2015 and September 2016, when around $144,000 in bank fees and charges were withdrawn from the client-segregated accounts.

These breaches cost the bank a further $15,000. fs

01: Dante De Gori

chief executive Financial Planning Association of Australia

BetaShares Core portfolio ETF solutions

Cost of advice soars as red tape grows: Study Eliza Bavin

W

ith research showing the average cost for a Statement of Advice has increased 10% in 12 months, the Financial Planning Association of Australia (FPA) is warning of the detrimental impact ongoing reform is having.

The FPA said the establishment of a single disciplinary body must be used to reduce red tape and untangle an “unreasonably complex” regulatory framework that is stifling the industry and driving up the cost of advice.

The FPA said its research indicates the average cost for a statement of advice is around $2700, marking a 10% increase on the previous year and reflects the increased cost of operating as an adviser in the current environment.

FPA chief executive Dante De Gori 01 said the current wave of reforms sweeping through the financial planning profession is creating significant risks.

“While we welcome reforms that improve the overall standard of financial advice, financial planners and their clients are paying an unreasonably high price for it,” De Gori said.

The FPA found that, when asked, 41% of

Australians said they wanted to get advice.

“Many of them won’t proceed because of the cost or the complexity of getting that advice.

Without the government’s focus on this critical issue and the parliament’s support, we will resign ourselves to a future in which only the wealthy can afford to access financial advice,” De Gori said.

The FPA said the regulation of financial advice has become increasingly complex and costly, leading to many advice practices struggling to remain commercially viable.

“The cost of operating a financial planning practice is significant,” De Gori said.

“The cost of professional indemnity insurance has skyrocketed in recent years and regulatory and compliance costs continue to rise.”

De Gori warned there is a real risk that the new single disciplinary body becomes yet another agency that financial planners must fund to continue providing advice to Australians.

“This is a major opportunity for the government to consolidate the fragmented regulatory regime and create a sustainable system that will support our growing profession,” he said. fs

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STRENGTHEN YOUR CORE Super needs improvement: Report card Karren Vergara

Australia’s pension system has fallen short of its world-class status, according to a global study, which rated the $3 trillion superannuation industry a ‘B’.

The Mercer CFA Institute Global Pension Index ranked Australia fourth out of 39 countries in its annual study, trailing behind the Netherlands and Denmark, which received high distinctions, and Israel, which placed third.

Australia’s score decreased from 75.3 in 2019 to 74.2 this year, earning an overall B grade, meaning that while the pension system has many good features, it has areas for improvement that differentiates it from an A-grade system. (Mercer also attributed the drop in rankings primarily to a reduction in the net replacement rates published by the OECD.) Within the sustainability and integrity subindices, Australia ranked third and sixth respectively.

Australia could improve its ranking in a number

of ways, the research suggested, starting by increasing the pension age and requiring members take benefits as an income stream.

Moderating the assets test on the means-tested Age Pension to increase the net replacement rate for average income earners, and raising the household saving and reducing the level of household debt, are other areas of improvement.

The onset of the global pandemic has had several immediate effects, leading to significant devaluation of asset values in the first quarter of 2020. The pandemic also saw many governments open the floodgates to pension benefits.

Australia’s early release of super scheme enabled members whose income had dropped by more than 20% to access up to $20,000.

India allowed partial withdrawals for COVID-19 treatment which did not exceed three months of wages and allowances. Peruvians were permitted to withdraw up to 25% of their savings accounts, with a limit of 12,900 soles ($5082). fs

News

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

Westpac fine third largest globally

01: Liza McDonald

head of responsible investments Aware Super

Eliza Bavin

Global banks have paid out around US$10.5 billion in fines so far this year, with Westpac taking out third place thanks to the AUSTRAC scandal.

The research, provided by Finbold, listed the top 10 biggest fines paid by global banks with US institutions taking out four of the 10 top spots.

Westpac came in at number three after reaching the record breaking deal with AUSTRAC following 23 million breaches of the nation’s antimoney laundering laws.

Westpac was forced to pay $1.3 billion in September this year.

The Federal Court is now considering the fine’s appropriateness.

Goldman Sachs was number one, having paid US$3.97 billion in relation to settlement charges in Malaysia against the Wall Street bank for its role in helping to raise hundreds of millions for a sovereign wealth fund that was used as a personal piggy bank.

The bank was fined $2.5 billion and guaranteed the return of $1.4 billion in assets from the theft of billions of dollars from a Malaysian government fund.

The US’s Wells Fargo was in second place, having paid US$2.96 billion this year. Wells Fargo was hit with the fine by federal authorities in relation to millions of fake accounts created at the bank over many years.

Other nations in the top 10 include Israel’s Bank Hapalim, Sweden’s Swedbank and SEB bank, the US’s CitiGroup and Cherry Hill, Germany’s Deutsche Bank and Canada’s Scotiabank.

Bank Hapoalim, Israel’s largest bank, and its Swiss subsidiary are set to pay a total of US$904

million to state and federal authorities in separate settlements.

One case relates to the bank’s role in a massive tax-evasion scheme, while the other concerns its role in a money-laundering conspiracy with soccer federation FIFA. Sweden’s Swedbank was fines EUR360 million for deficiencies in its risk of money laundering in its Baltic operations.

CitiGroup was served a cease and desist order from the US Federal Reserve for falling short of risk management and internal controls.

The order requires CitiGroup to correct practices and the bank agreed to pay US$400 million and must now seek authorisation from the government for any major acquisitions.

Deutsche Bank agreed to pay US$150 million for compliance failures in connection to the banks relationship with convicted pedophile Jeffrey Epstein.

Canada’s Scotiabank reached settlement agreements with the US Department of Justice and the Commodity Futures Trading Commission over charges of metals market manipulation. fs

7

Aware Super shakes up socially responsible option Elizabeth McArthur

A The quote

Nearly 80% of our members have told us that responsible investing is important to them.

ware Super has tightened the screens on its socially responsible investment (SRI) option as the $97 billion fund beefs up its ESG credentials, reshuffling investment mandates in the process.

The managers with SRI mandates from Aware Super include Redpoint for Australian equities, Hermes Investment Management for international equities and Vanguard for fixed income.

From November 1, BlackRock will manage the ESG Australian SRI bond function for the fund and RealIndex will be managing Australian and international SRI equities.

The new screens on the SRI option will exclude businesses that earn 5% or more of revenue from fossil fuels and their supply chains, and provide scope to remove organisations that don’t meet ESG standards.

“Our members are increasingly telling us that environmental, social and governance issues are extremely important to them. Nearly 80% of our members have told us that responsible investing is important to them,” Aware Super head of responsible investments Liza McDonald01 said.

“We have responded to this by providing

members with updated SRI options that exclude fossil fuels and their supply chain services and businesses that do not meet strongly defined ESG criteria.”

The diversified SRI option will have exposure to all investment sectors including property and private equity. Aware Super also has a variety of property and infrastructure managers including Palisades, Darby and Lendlease.

The fund committed to reducing emissions in its listed equities portfolio by at least 30% by 2023 and a net zero position by 2050.

The previous SRI options at Aware excluded fossil fuel producers with a greater than 20% market capitalisation; the new options exclude those that earn 5% or more of revenue from coal and coalfired power generation; oil and gas (conventional and unconventional) as well as transportation.

This new criterion also removes businesses that earn more than 5% of their revenue from the fossil fuel supply chain and significantly reduces tolerance thresholds on many other industries, including gambling, alcohol, and nuclear power. The new SRI options also have a new screen on live animal exports. fs

A critical decision for advisers is the choice of core exposures, which serve as the long-term foundation of client portfolios, independent of market cycles.

It’s more important than ever to ensure your clients’ portfolio core matches asset allocation objectives, demonstrates compelling value, and contributes to the portfolio’s overall stability.

ETFs are compelling investment vehicles for core exposures, making it simple for advisers to construct a liquid, transparent and cost-effective foundation for their clients’ portfolios.

Explore the range of BetaShares Core portfolio ETF solutions at

WWW.BETASHARES.COM.AU/CORE-SOLUTIONS BetaShares Capital Ltd (ABN 78 139 566 868 AFSL 341181). Investors should read the relevant PDS at www.betashares.com.au and consider whether the product is right for their circumstances. Investing involves risk.

8

News

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

Geoff Lloyd to leave MLC

01: David Neal

chief executive IFM

Kanika Sood

Geoff Lloyd will leave MLC at October end after two years at its helm, following its recent agreement to sell the business to IOOF. MLC’s chief corporate services officer Andrew Morgan will oversee MLC’s day-to-day operations while the sale to IOOF is completed.

“This is a natural progression and reinforces the focus he brought to the process and to achieving the best outcome for customers, colleagues and shareholders. Having completed the task with distinction, he is now able to take some welldeserved time and consider his next role,” NAB chief executive Ross McEwan said in an email to NAB and MLC employees.

“In his time with us, Geoff has built the highest quality leadership team and set about building, communicating and driving a strategy that gave clarity to refocus, modernise and grow.

“The team has significant momentum with the wrap business back into net inflow, significantly increased client NPS [net promoter score] and reduced longstanding outflows on the master trust business.”

In his letter to MLC staff, Lloyd thanked McEwan, the NAB board and executives and MLC’s boards.

“Having had the opportunity to lead MLC over the past two years, I feel a great sense of pride and gratitude,” Lloyd said.

“I am proud to have taken on this challenge.

The level of change required was definitely larger than I first anticipated however you all quickly got behind the refreshed strategy, including those of you who preceded me and also those who joined to help reset and reshape MLC. Like me you all saw the opportunity in this great brand and the need for leadership in the wealth market.” fs

Netwealth sees rise in inflows Netwealth has experienced a leap in inflows for the September quarter of $1.9 billion, bringing total funds under administration to over $34 billion.

The figure represents a 24.5% increase in FUA net inflows against the prior corresponding period.

Its managed accounts balance also increased 109.7% compared to the same period last year, reaching a balance of $6.5 billion as at 30 September 2020.

In August Netwealth announced the launch of two news funds on its platform, both managed

by Magellan Asset Management.

The platform provider said those funds mark the first in a series of new Netwealth specialist funds which will be rolled out progressively in the next year.

“Netwealth remain confident of our growth momentum and continue to benefit from ongoing industry consolidation, adviser movement and transitions and the end of grandfathers commissions on 31 December 2020,” Netwealth said.

It also reported that it has a cash transaction account balance of around 9.1% of FUA to allow for ample liquidity. fs

IFM jumps on net zero bandwagon Eliza Bavin

I

The quote

Having had the opportunity to lead MLC over the past two years, I feel a great sense of pride and gratitude.

FM Investors has committed to reducing greenhouse gas emissions across its asset classes, targeting net zero by 2050.

IFM said the move is an extension of action already being taken by its infrastructure assets to reduce emissions through investment in renewable energy and other carbon reduction initiatives.

IFM said it has established a multi-disciplinary taskforce to support the commitment, spearheaded by its investment team.

It will establish clear frameworks and policies to guide and support sustainable decision-making processes that are designed to mitigate climate change risk exposure and help meet the net zero by 2050 target.

The taskforce will consider establishing emission reduction commitments, developing policies for net-zero transition plans for new and existing unlisted assets and enhancing investment decision-making and governance frameworks when considering climate change risks and alignment with emission reduction objectives.

In addition, it will consider identifying investment opportunities in decarbonisation and climate-resilient assets, and ensuring that IFM continues to develop capabilities to capture these opportunities and the evolu-

tion of technologies and better understanding likely transition pathways, especially in the energy mix.

IFM chief executive David Neal 01 said the firm was committed to reducing the carbon impact of its investments.

“This is a natural step and an important one if IFM is to continue delivering on its purpose to protect and grow the long-term retirement savings of working people,” Neal said.

“The investment horizon of IFM and our investors is often measured in decades, not years, and it’s vital that we actively manage the risks posed by climate change.”

He said the actions taken by IFM will help ensure the firm continues to deliver longterm risk-adjusted returns for its investors and their members and beneficiaries.

IFM is implementing strategies to reduce carbon emissions across its infrastructure portfolio companies by putting in place targets at Australian assets to reduce emissions by 200,000 tonnes by 2030, and developing targets for global assets.

In addition it said it is investing in renewable energy projects to help power assets and establishing Nala Renewables, the joint venture with Trafigura, which will invest in solar, wind and power storage projects. fs

Advice reforms to be legislated: Hume Annabelle Dickson

After having previously been placed on hold, the single disciplinary body for financial advisers and the compensation scheme of last resort is set to be legislated by mid-2021.

Speaking at the 2020 Association of Financial Advisers Conference, Senator Jane Hume said the government agreed with the Hayne recommendation for the single disciplinary body and believes it will encourage greater professional discipline in the industry.

“We are working through the detail and we intend to introduce the legislation by mid-2021,” she said.

Furthermore, Hume said the government’s forward-looking compensation scheme of last resort, is also set to be introduced in mid 2021.

“This is a substantial step in rebuilding trust in dispute resolution,” she said.

“I look forward to hearing from you all when consultation resumes on the single disciplinary body and compensation scheme of last resort measures.”

Hume went on to say financial advisers are a key part of the economy and will be critical in the recovery and that she and the government are listening to advisers’ concerns.

“I am working to address your biggest concerns. I’m constantly looking for opportunities for red tape reduction,

identifying obstacles to productivity and profitability and reducing the burden on your industry and participants,” she said.

The single disciplinary body, Hume said, will assist with these opportunities and will be a “game changer”.

“We have been listening to what the AFA wants and what the community wants. We want to make sure there is far better alignment of the regulatory requirements and legislative requirements,” she said.

Hume referred to the current array of organisations and requirements as an “involuntary colonoscopy” as advisers are overburdened by compliance.

“We are hoping there a fewer of them and a clearer path for expectations,” she said.

Further to this, she said she is optimistic about the future of the financial advice industry as 900 students are currently enrolled in FASEA-approved degrees.

By 2026, Hume said financial advisers will have completed an approved exam, hold a bachelor’s degree and undertake mandatory continuous professional development.

“The reforms are working their way through the system and I’m confident the standards will ensure consistency across the industry and all financial advisers have the skills necessary to provide high quality advice,” she said. fs

Product showcase

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

9

01: Tony Cousins

chief executive & chief investment officer Pyrford International

Generating long-term positive performance With just two negative calendar year returns in its 26-year history, Pyrford International’s absolute return strategy has proven its ability to overcome even the toughest of challenges. he Australian Institute of Business predicts T the average employee will change jobs 12 times throughout their working life, with an average tenure of just over three years in each role.

In terms of career changes, the average stands at five to seven in a lifetime.

With the rise of job mobility, the number of career changes a person goes through and jobs they hold is expected to rise as the length of tenure falls.

Now, whether you believe this shift to be a positive or a negative, one consequence is all but guaranteed – as the years wear on you will come across less and less individuals as experienced as Pyrford International chief executive and chief investment officer Tony Cousins.

An investing veteran, Cousins has served more than 30 years with Pyrford, having joined the firm in its early days back in 1989.

Established over three decades ago, Pyrford’s global absolute return strategy has only ever de­ livered negative returns in two calendar years.

“The worst of those was in 2002 when equity markets were down more than 20%,” Cousins explains.

“In 2008, which was possibly the worst year in that period for investment returns for clients, markets were down in excess of 30% in many cases, but we were able to deliver more than 12% positive rate of return.”

Similarly, introduced to Australian retail investors in June 2014, the local iteration of the Pyrford Global Absolute Return Fund managed to deliver a positive return in 2018; a time when few others did, as global stocks lost about $18 trillion of value and investor portfolios suffered.

“This may have only been 2% but it was against the backdrop of double digit negative rates of return in the final quarter of that year and also against a peer group which mostly delivered negative returns for investors,” Cousins says.

Even in the throes of COVID-19 – an unprecedented, once in a century event – Pyrford has been able to deliver positive results. In the 12 months to August 31, the Pyrford Global Absolute Return Fund achieved a net return of 1.43%.

Going forward, and in the absence of a Vshaped recovery that many expected, Pyrford remains focused on capital preservation, and the way it’s doing this is three-fold; not overpaying for earnings, identifying strong balance sheets

and compounding attractive dividend yields.

It’s this priority that has, since inception, seen the Australian fund net returns of 4.49%. This success has netted the fund a ‘Recommended’ rating from Lonsec.

It all comes down to the firm’s closely followed, extremely disciplined and rigorous investment process, Cousins says.

“This is very numbers-driven and focuses on value and quality,” Cousins says.

“In bonds, quality means the very highest government credits, and in equities it means companies which are consistently able to deliver high levels of return on equity without having to use a lot of debt to do so.

“It’s very important to consider what you don’t own as much as what you do own.”

One of the secrets to Pyrford’s success over many years has been to avoid investment pitfalls, he adds.

It’s also been made possible by the added scale Pyrford gained when the then 30-yearold investment manager was acquired by BMO Global Asset Management in 2007, becoming a wholly owned subsidiary.

Cousins says the experience of being acquired by a major institution has been good for Pyrford’s clients.

“Our clients have benefitted from the tremendous infrastructure of a global investment management company while also having access to a very focused boutique investment firm which manages with a great degree of autonomy and independence,” he says.

The autonomy is exercised by Cousins’ 14-strong investment team across Asia Pacific, Europe, the UK and the Americas, taking a straightforward and repeatable approach.

Through the fund, the team seeks to provide a steady stream of real returns over the long term with low absolute volatility and substantial downside protection. This is done by way of a global multi-asset absolute return investment strategy comprising equities, cash and government bonds.

As a group, Pyrford is a steadfast advocate for responsible investment and has been from day one. A signatory to the United Nations’ Principles for Responsible Investment, Pyrford believes that relationships with suppliers, customers, employees and shareholders are central to a business’ suc-

The quote

It’s very important to consider what you don’t own as much as what you do own.

cess, along with its impact on the environment.

It’s the companies that demonstrate leadership in these areas, not those surviving in the shortterm, which tick all the right boxes for Pyrford, helping the investment team meet its goals.

As Cousins explains, the Global Absolute Return Fund has three distinct goals.

The first and most important goal, he says, is to preserve capital; “Do not lose the money.”

The fund’s second objective is to grow clients’ investments at a rate of 4% above inflation. And the third and final goal is to deliver those returns to clients with very low absolute volatility, Cousins says.

At the end of the day, the overarching approach taken by Pyrford’s team is one of value and quality.

“We only invest in high quality equities, high quality government bonds and cash, and employ an overarching currency strategy which identifies the risks and opportunities in the international markets in which we invest,” Cousins explains.

This is largely because the bulk of Pyrford’s investors through financial advisers tend to be those either in retirement or counting down the days to it.

“The common goal of all our investors is capital preservation,” Cousins says.

Retiree investors trust in a process which is able to avoid large drawdowns but still capable of generating long-term returns, well above inflation, while exhibiting low absolute volatility.

“No investors like large drawdowns, but this is particularly important in retirement,” he says.

“Investors in retirement want to avoid sequencing risk and this is what we provide to them.” fs

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News

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

BOQ sells life insurance arm

01: Josh Wilson

founder & former chief executive Grow Super

Eliza Bavin

Bank of Queensland (BOQ) has entered into an agreement to sell its St Andrew’s Insurance business to Farmcove Investment Holdings for $23 million.

The bank said the sale is consistent with its refreshed strategy announced in February this year to deliver more simplified benefits BOQ chief executive George Frazis said the sale of St Andrew’s represents an important strategic milestone for the bank.

“We are delighted to have secured a buyer that has a long term vision for the business which includes meeting the continued obligations of policyholders,” Frazis said.

“The divestment enables us to focus on our niche customer segments while simplifying out business model.”

Farmcove managing director Matt Lancaster said the company is looking at its purchase of St Andrew’s with a “long horizon” mindset.

“St Andrew’s has insured more than 600,000 Australians over its two decade history and we look forward to seeing the company deliver simple and cost effective insurance solutions for more Australians over the coming decades as an independent, Australian owned competitor in the insurance marketplace,” Lancaster said.

BOQ said the transaction is expected to result in an indicative post-tax statutory loss on sale of around $27 million to $30 million. fs

OneVue approves of takeover The OneVue board has encouraged shareholders to vote in favour of the takeover proposal put forward by Iress after another shareholder started a campaign against the scheme.

In a letter, the OneVue board said it has become aware of recent media coverage, that a OneVue shareholder is encouraging others to vote against the proposed scheme of arrangement with Iress.

OneVue is referring to Alex Waislitz, whose companies under the Thorney umbrella have voted against the deal and encouraged other shareholders to do the same.

“It is unfortunate that OneVue clients are being exposed to the media coverage of the matter,” the board said.

“OneVue’s directors respect every shareholder’s right to a point of view, however we would like to reinforce the director’s unanimous support for the scheme and out strong recommendation that shareholders vote FOR the scheme.”

The board emphasised that in the absence of a better proposal and subject to an independent expert continuing to conclude that the scheme is fair and reasonable and in the best interest of shareholders.

“We emphasis the importance of you taking the time to vote and ensuring that you have a say in the outcome. We also thought it would be useful to reiterate the basis on which the directors continue to unanimously support the scheme,” it said. fs

Grow Super founder sentenced in betting scandal Elizabeth McArthur

T

The quote

The last five months have been some of the strangest, toughest and defining of my life.

he founder of Grow Super has been sentenced, after pleading guilty to gambling with insider information.

Appearing on October 14, Joshua Wilson01 was sentenced in Downing Centre Local Court to 18 months good behaviour.

He was not fined or given a custodial sentence, instead released on the condition that he not commit any other offence.

Wilson was charged after placing bets on Melbourne Storm coach Craig Bellamy to win Coach of the Year at the NRL’s Dally M Awards in 2019.

Another company Wilson founded, StatEdge, had a contract with the NRL for various data man-agement tasks which included collecting votes for the Dally M Awards. This meant that Wilson had access to the votes and knew who was likely to win.

The NRL Integrity Unit reported suspicious betting activity on the Dally Ms to the police in No-vember 2019.

For a period of time between 2018 and 2019 Grow Super and StatEdge shared an office in Surry Hills.

Wilson resigned from his role as co-founder and chief executive of Grow Super in May this year due to charges being laid over the Dally M bets.

The Sydney Morning Herald reported that Wilson told the court that he has lost $10 million in

shares that he had in Grow and StatEdge, though he did not expand on the exact nature of these shares or why he no longer retains them.

Wilson made just $1975 on the bets he made in his own name.

Ben Trevisiol was Wilson’s co-accused in the case. He had a senior role at StatEdge and was formerly general manager at Grow; however did not work at the fund during the time the bets were placed.

Trevisiol also received an 18-month good behaviour bond. Two more Grow employees stepped aside in relation to the incident as an internal investigation into the matter was conducted. The names of those employees have not been revealed.

IOOF, which is a minority shareholder in Grow Super with a director on the board, said at the time charges were laid that it was satisfied with the fund’s handling of the matter.

Wilson took to LinkedIn following his sentencing to share some lessons learned, and foreshadow his next move.

“The last five months have been some of the strangest, toughest and defining of my life. To every-one who reached out, checked in, messaged, visited or (my favourite) sent a virtual hug my way, thank you,” he said.

“I’m pumped for what’s next and know that better days are ahead. See you all soon.” fs

American manager eyes local market Kanika Sood

An American manager has partnered with local distributor Brookvine to pitch its flagship systematic global macro strategy.

Welton Investment Partners is 15-year-old quantitative investor that manages money for institutional, endowment and private investors in the United States and Europe.

The strategy it is pitching to Australia and New Zealand investors with Brookvine is called Welton Global and targets uncorrelated returns from equity indices, fixed interest, commodities and currencies.

“It uses a proprietary set of 30+ underlying strategies spanning trend, enhanced trend, short-term, non-directional and risk-off alpha, and is designed for investors wanting to take advantage of strongly trending markets whilst remaining cognisant of tail risks in equity markets,” the firm said.

“Our proprietary allocation engine analyses the evolution of covariance amongst strategies as well as assets through a range of scenarios.

This trait better equips Welton Global to navigate

shifts in volatility regimes and convergence of correlations,” Welton chief executive Basil Williams said.

“Similarly, allocations to risk-off alpha strategies are driven by a variety of signals that engage during equity market sell-offs. This kind of responsive allocation helps this group of strategies provide equity tail-risk protection that does not drag on returns over the medium to long term,” he said.

Welton Global delivered 12.9% in first quarter of 2020, and has delivered 8.1% p.a. above cash since full implementation of Welton’s current strategy in October 2013 according to Brookvine chief executive Steven Hall.

“With a correlation to the S&P500 over the same period of -0.05, its success is in no small part due to sophisticated and adaptive strategies that engage during equity market selloffs and seek to deliver strong positive returns in more normal times,” Hall said.

Brookvine offers fund managers services including fundraising, investor relations, fund administration, advisory and structuring. fs

Opinion

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

11

01: Anthony Doyle

cross asset specialist Fidelity Australia

Should the Reserve Bank of Australia give people money? any of us are now familiar with the impact M of low interest rates on our savings. For those unhappy with the meagre return on cash and term deposits, spare a thought for those in Europe, Japan or Switzerland where official interest rates are negative.

Whilst the very idea of a negative interest rate confuses most Australians, imagine a world where borrowers are paid to take out mortgages.

A mortgage with a negative interest rate means the borrower will pay back less than they borrowed. If this seems fanciful, it isn’t - last year a Danish bank launched the world’s first negative mortgage. This is possible because Danish banks can borrow from institutional investors at a negative rate, and simply pass on a less negative rate to their customers. The world of banking has been turned upside-down.

In addition to negative interest rates, central banks are quick to point out that they have developed a range of “unconventional measures” to support their economies. “Forward guidance”, “Yield Curve Control” and the “Term Funding Facility” are a few of technocratic sounding terms that the Reserve Bank of Australia has recently adopted in addition to reducing the cash rate to an all-time low of just 0.25%. Speculation continues to grow amongst RBA watchers that further monetary easing is inevitable as the economy struggles to generate inflation in an environment of deteriorating labour markets, weak wage growth, and rising insolvencies.

Central banks hope that unconventional monetary policy will lead to higher aggregate demand and higher inflation by reducing yields on government debt, which is a reference point for long-term borrowing by the private sector and households. But government bond yields Figure 1: Global 10 year government bond yields

are already very low, and it appears that the availability of credit is not an issue today. Instead, we are likely to see asset price inflation, as investors are increasingly herded into riskier asset classes to generate positive real returns.

This of course benefits the owners of financial assets, which tend to be wealthier households who have the capacity to invest, while poorer households see their living standards stagnate.

It also appears that younger workers will be hit particularly hard by the COVID-19 crisis.

Academic studies in the US have shown that being unemployed while you are young has long-term implications for future earnings.

These earnings losses appear to be the result of lost work experience, falling labour market skills, relatively lower perceptions of labour market worth, and the negative connotations that unemployment has with employers.

So how can policy support those who are most impacted by the current crisis?

Australians are already familiar with the response of the Labour government after the global financial crisis - it sent people money.

Today, fiscal policy has done a lot of the heavy lifting, with over three million Australians on the JobKeeper allowance which is due to end entirely in March 2021. However, could the central bank assist in financing payments to Australian households, potentially assisting in returning the real economy to growth?

In this scenario, a central bank could finance the transfers to households by creating electronic money, just like it currently does with quantitative easing or yield curve control. Rather than rely on the banks to lend the money, why not simply deposit it in the accounts of citizens on low incomes? In the spirit of the equality debate, higher earners or those

The quote

When interest rates are close to zero, strange things happen.

whose income has been unaffected by the current crisis would not qualify.

Arguably, “helicopter money” would provide a more effective short-term aggregate demand hit than traditional quantitative easing, without the negative impacts on income inequality. So, what’s the problem?

Critics of helicopter money suggest that the multiplier effect - the amount of additional GDP created for every dollar of spending - may be less than has historically been the case, limiting the demand boost. Additionally, recipients may choose to pay down debt rather than spend the money. Finally, the independence of the central bank may be called into question leading to negative financial consequences such as rising bond yields and a much weaker currency.

Another more recent phenomenon has been development of central bank digital currencies (known as CBDCs). The Swedish Riksbank is already looking at developing a technical solution for Swedish Krona (the e-krona), the US Federal Reserve is “committed to understanding how technological advances can help the Federal Reserve carry out [its] core missions”, while the RBA thinks that “it will be important to closely watch the experience of other jurisdictions that are considering implementing CBDC projects”.

In 2030, will every Australian have an account at the RBA? This could pave the way for the RBA to raise the money supply during the next downturn in an attempt to raise inflation and lower unemployment rates.

If this all sounds fanciful, Former US Federal Reserve chair Ben Bernanke has described helicopter money as a “valuable tool”. He has also noted that “under certain extreme circumstances—sharply deficient aggregate demand, exhausted monetary policy, and unwillingness of the legislature to use debt-financed fiscal policies— such programs may be the best available alternative. It would be premature to rule them out.”

When interest rates are close to zero, strange things happen. Australia is late to the low-rate party, giving the RBA and federal government some valuable insights into the unintended consequences of quantitative easing and unconventional monetary policy. Monetary policy’s huge distributional consequences and far reaching side effects will have important ramifications for Australians over the next decade. Direct transfers of money to those in our society that are suffering most as a result of the current crisis may be the best way of supporting the Australian economy. fs

12

News

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

Colonial First State wins CX title

01: Sally Loane

chief executive Financial Services Council

Karren Vergara

A retail superannuation fund has taken the top spot in a comprehensive member satisfaction and experience survey, bumping off AustralianSuper.

Colonial First State has regained the top spot in the Forrester Research’s 2020 Australia Superannuation Customer Experience Index for its ability to provide members “effective, easy and emotionally positive experiences”.

Sunsuper came in second, followed by BT Financial Group’s super offering and industry fund Rest.

AustralianSuper dropped to number five in the Australia CX Index. Superannuation offerings from MLC and AMP took the sixth and seventh spots respectively.

Forrester Research, a US market research firm, surveyed more than 2800 members of the seven super funds at the thick of the pandemic from May to July.

Apart from the highly positive experience members highlighted, CFS also exceeded industry averages in terms of customer service, website and mobile app, investments and advisers, and communication.

While AustralianSuper’s ranking plummeted, its score did not drop significantly, rather its competitors made large gains over the super fund in 2020. AustralianSuper still outperformed its peers in areas like communication, the report said. fs

Advice overhaul needed, says FSC, Rice Warner Annabelle Dickson

T The quote

The aim is to build a new model for financial advice which not only makes professional quality advice more affordable and accessible for consumers, but also removes the mass of costly compliance and regulatory burden on the sector.

Stats show adviser value APRA and ASIC have published the latest data on life insurance claims and disputes, demonstrating the difference financial advisers make when it comes to TPD and trauma claims.

ASIC’s MoneySmart life insurance claims comparison tool has been updated with the latest data.

Between advised and non-advised clients, there was only a small disparity in the amount of claims paid for death – 42% paid for advised cover and 40% for non-advised.

However, when it came to total and permanent disability and trauma the difference a financial adviser made was much greater.

Non-advised individuals only had 35% of TPD claims and 44% of trauma claims paid, while advised clients had 49% of TPD claims paid and 57% of trauma claims paid.

The claims paid statistics cover the 12 months to June 2020.

According to the updated data on the MoneySmart site, the industry average for claims accepted on life insurance through a financial adviser is 80.8%. AMP, CommInsure, MLC and Zurich were all above that average (CommInsure had the highest claims acceptance rate at 89%).

Asteron, OnePath, TAL and Westpac were below the industry average.

OnePath had the slowest average claim time among the insurers, with claims through a financial adviser taking an average of 8.6 months. MLC had the shortest average claim time at five months.

When it came to disputes, the industry average is 36.2 disputes per 100,000 lives insured. Westpac had the highest average with 53 disputes per 100,000 lives. fs

he Financial Services Council (FSC) has launched a report by Rice Warner that makes a series of recommendations that would significantly change the status quo of financial advice and lead to policy debate.

Rice Warner’s Future of Advice report proposes a raft of changes to definitions, documentation, tax deductibility and system principles.

FSC chief executive Sally Loane01 said quality financial advice is now needed more than ever due to COVID-19.

“The Rice Warner Future of Advice report starts an important policy debate on how we can re-build a simpler and more affordable advice industry,” she said.

The report proposes that all advice should one of two categories which are strategic advice and financial product advice.

Strategic advice is used to help an individual control their finances and set a financial plan with generic products whereas financial product advice would be required to implement any strategic advice but could be provided without it.

Of this, the research suggests that education, information and general advice should fall under the term general information while personal advice should be separated into either simple or complex advice.

Simple personal advice is advice that deals with superannuation, life insurance, debt and budgeting and whereas complex personal advice specifically includes more complex and or risky products or topics.

The report noted the cost of advice can deduct from the value of advice. However, people who receive advice are generally happier.

The proposal for simple personal advice would be cheaper and less of a compliance burden with a review able to be done without needing a comprehensive analysis “The aim is to build a new model for financial advice which not only makes professional quality advice more affordable and accessible for consumers, but also removes the mass of costly compliance and regulatory burden on the sector,” Loane said.

Furthermore, Rice Warner recommends that financial advice should be tax deductable, up to $500 per year for an individual or $1000 for a couple.

The measures recommend the new model follows the principles of simplification, affordability, accessibility, consistency and quality of advice in order to reduce the risk of consumers being placed in inappropriate products.

The FSC said along with the research it will engage with stakeholders ahead of launching a policy document in 2021. fs

Australia among strongest on governance Elizabeth McArthur

New research from the Calvert Institute has identified the countries with the strongest and weakest corporate governance practices, with Australia among the top of the pack.

Calvert examined 10 governance factors, including accounting risks and shareholder rights, across 8500 companies in 72 countries to see how governance materially impacts financial performance.

It found that the impact governance factors had on corporate financial performance differed depending on the strengths of rules and practices in the country the businesses were based in.

For example, Austria, Canada, Finland and France were found to have strong governance practices but weak rules in place.

Meanwhile, Chile, Columbia, the UAE, Pakistan and Poland had both weak practices and weak rules.

Japan, Hong Kong, China and India were among the countries with strong rules but weak governance practices.

According to the research, Australia sat among the group of countries with both strong practices and strong rules.

Australia’s peers in this group were Belgium, Denmark, Germany, Ireland, Israel, Netherlands, Norway, South Africa, the US and UK.

The 10 governance factors Calvert looked at included accounting risk, audit oversight, board effectiveness, board independence, director elections, ownership structure, pay figures, pay oversight, pay performance alignment and shareholder rights.

For those in the same governance cluster as Australia (strong practices and strong rules) the most material governance factors were found to be pay performance alignment, board effectiveness and accounting risk.

For those with weak practices and weak rules the most important factors were ownership structure and pay figures.

“The country-level cluster classifications outlined in this research serve as a foundation for further research that investigates the relationship between corporate governance and financial performance,” the Calvert research found.

“Given the amount of publicly available information on the governance topic, this research guides company-level assessments toward those factors that are financially material depending upon where a company is domiciled.

“We think these findings can empower the broader investment community to more meaningfully integrate corporate governance assessments into investment and engagement decisions.” fs

News

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

13

Executive appointments 01: Jessica Cairns

Vanguard boosts Aussie executive team Vanguard announced it has bolstered its risk management with the appointment of a head of risk management in the Australian executive team.

Curt Jacques will take the position following a comprehensive recruitment process and will join Vanguard as it continues its growth and expansion in Australia.

Vanguard Australia’s managing director Frank Kolimago said: “Curt’s appointment further adds to the depth of skills and knowledge of the team at Vanguard Australia as we continue the steady journey of building presence and earning greater trust with more direct investors and financial advisers.”

Prior to joining Vanguard, Jacques was with Macquarie Group for over three years, most recently as the division director for risk transformation.

Within Macquarie he also works as the associate director, head of operation risk solutions and oversight, and associate director, head of operational risk for the Americas.

Jacques also worked at PwC for over 14 years, having spent the majority of his time there as director, risk assurance.

Vanguard said Jacques brings close to 20 years of risk expertise working alongside asset managers and global banks in enhancing their risk programs and frameworks.

Jacques is set to begin in his new role on 18 November 2020.

Alphinity appoints to new role The boutique fund manager appointed Jessica Cairns01 to the newly created role of ESG and sustainability manager.

Alphinity said the creation of the new role was aimed at more deeply integrating ESG related matters across its domestic and global equities funds as well as the Alphinity Sustainable Share Fund.

Cairns was most recently senior sustainability adviser at Transurban, responsible for the company’s response to the Taskforce on Climaterelated Financial Disclosure recommendations.

Prior to that, she was a case manager at Infrastructure Sustainability Council of Australia.

Cairns’ appointment is just the latest in Alphinity’s move to bolster its ESG capabilities.

Jacob Barnes and Andrey Mironenko both joined Alphinity as research analysts earlier this year.

Barnes joined from First State Super where he was a senior investment analyst in the direct equities team and Mironenko joined from McKinsey.

“Jessica is already playing an important role in assisting the Sustainable Share Fund Compliance Committee in refining the investment universe for the fund which considers companies’ contribution towards achieving the UN’s Sustainable Development Goals (SDG). Along with the analysts, she will also help to drive company and market engagements, and ensure Alphinity remains a leading thinker in ESG and SDG matters,” Alphinity principal and portfolio manager Stephane Andre said.

Perpetual talent departs Perpetual Private has lost its head of multi manager, who has been with the firm for more than 17 years, and a research analyst.

Theos Sofios departed at the start of the month, a spokesperson for Perpetual confirmed.

Sofios had been with Perpetual for 17 years and five months. Prior to joining the company he was a portfolio manager at Optimix Investment Management.

Also departing on the same day was Thomas Kapellos, a research analyst.

Kapellos had been with Perpetual for almost six years. He started his career as an associate with Macquarie.

In its August results, Perpetual saw its net profit after tax fall 29% year on year. The business blamed increasing outflows from its investment business and COVID-19 for the decline.

Revenue for the full year also dropped, down 5% to $489.2 million, reflective of a lower level of funds under management (FUM).

WTW director departs for LIC Wilson Asset Management has nabbed Willis Towers Watsons’ director of manager research and head of real assets Australia after a decade with the financial services giant, set to lead the investment manager’s new alternative assets strategy.

Dania Zinurova 02 is the listed investment company’s new portfolio manager, where she will focus on investing in alternative asset opportunities and aiding the company’s share price to trade at a premium to its pre-tax NTA. During her decade with Willis Towers Watson, Zinurova worked across multiple continents – New York, London and Sydney – where she specialised in real assets investments.

Zinurova is currently a committee member at Women in Super and Crescent Wealth Super, roles which she has held for more than three years, respectively.

Prior to her tenure with Willis Towers Watson, Zinurova worked as a senior business analyst at 3H Partners in London, where she consulted for pharmaceutical and service industry companies.

She also spent more than three years with Russell Investments in London as an investment analyst, covering real estate strategies in EMEA and North America and portfolio management of Russell’s GREITs funds.

Prior to this, she worked in the Chelyabinsk region of Russia as an accounting intern and currency/inter-banking trader.

Willis Towers Watson director of investments Australia Martin Goss said the financial services giant was sad to see Zinurova go.

“While we’re sad to lose Dania, who has made an extraordinary contribution to Willis Towers Watson and our clients, we know her passion is for real assets and this was simply too good an opportunity,” he said.

Rest appoints three investment specialists Rest announced the appointment of three new members to its board investment committee, including the former chief executive of Pendal Group and a UBS veteran.

Michael Bargholz, Deep Kapur and Anne Anderson will join the five person investment committee, with Rest saying they will enhance its leadership and investment industry experience.

Bargholz has extensive executive leadership experience in investment management. Most recently, he was the Pendal Group chief executive, Australia from 2016 to 2018.

Prior to that, Bargholz held various executive positions at fund management firms, including managing director, Australia at Fidelity International, and chief executive, Australia and New Zealand at Alliance Bernstein.

He was appointed to the Rest board investment committee effective 1 September 2020.

Kapur is a professor of practice with the Monash Business School, a member of the School Executive Committee and concurrently director of the Monash Centre for Financial Studies.

02: Dania Zinurova

He has more than 28 years’ experience in the investment industry in senior roles encompassing portfolio management and research, including Asia based managing director positions with Salomon Smith Barney, Citigroup Global Markets and Daiwa Capital Markets.

Kapur’s appointment to the Rest board investment committee was also effective 1 September 2020.

Anderson was appointed to Rest’s board investment committee effective 9 October 2020 and brings more than 35 years’ direct experience in financial markets.

Anderson was most recently managing director and head of fixed income and investment solutions Australia at UBS Asset Management.

She joined UBS in 1993 and held several leadership positions including as a fixed income and multi-asset investor and running the investment businesses in Australia and the APAC region.

Prior to joining UBS, she gained a further 10 years in finance and corporate treasury roles.

Rest chair Ken Marshman said: “The appointment of three eminent investment experts to the board investment committee is part of the overall redesign of the investment governance structure, which complements the recent appointment of Andrew Lill as Rest’s chief investment officer.”

MLC Wealth GM jumps to Ashurst The former general manager of regulatory change and remediation at MLC Wealth has moved to law firm Ashurst.

Chris Baker spent more than 12 years with National Australia Bank and MLC in various leadership roles and was general manager, regulatory change and remediation up until October 2020.

Now he will step into the role of head of managed services, risk advisory at Ashurst.

“We are thrilled to appoint Chris Baker as head of managed services, risk advisory in Sydney.

Chris is highly regarded in the financial services sector as a remediation expert, and brings large scale regulatory change, regulatory response and managed services skills to the growing Ashurst Consulting division,” Ashurst head of risk advisory Philip Hardy said.

“His diverse background and depth of expertise will significantly strengthen our expanded offering for clients.”

Ashurst said that Baker’s appointment demonstrates the firm’s expansion of its consulting business, which was launched at the end of March 2020.

“I am delighted to join Ashurst’s risk advisory business as head of managed services. This is an exciting period of growth in the firm’s consulting business and I look forward to adding further value to broaden the offering to complement the firm’s core legal services,” Baker said.

Baker led the remediation of customers at MLC following the Royal Commission as well as MLC’s response to the ongoing regulatory investigations resulting from the conduct issues that were exposed. fs

14

Feature | Managed accounts

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

ONE STEP AHEAD The managed accounts growth story seems too good to be true. But the global pandemic is reinforcing their merits and differentiating the hype from reality. Karren Vergara writes.

ONE STEP AHEAD The managed accounts growth story seems too good to be true. But the global pandemic is reinforcing their merits and differentiating the hype from reality. Karren Vergara writes.

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

O

ne of the strongest, if not indomitable, forces reshaping the retail financial advice landscape is the increased use of managed accounts.

Rainmaker estimates that nearly $70 billion of funds under administration, spread over 100 managed accounts products, represent just 10% of the overall platform sector.

Pitted against the investment wrap IDPS segment, managed accounts take up a larger portion of nearly 40%. Figures 1 and 2 show regular platforms lagging behind the booming managed accounts sector, which by 2026, will overtake wraps.

Demand for managed accounts has grown, Rainmaker executive director of research Alex Dunnin01 says, because they are new, exciting and fresh, and offer something different that is attracting a new set of clients.

On the flip side, financial advisers are telling Institute of Managed Account Professionals (IMAP) chair Toby Potter02 that inflows are principally coming from migrating existing clients from advice-only services to managed accounts to provide better client outcomes.

This has been a significant part of the managed accounts story – if not the most significant – as many advisers are keeping clients' best interest front of mind and assessing if managed accounts are fit for purpose, he says.

The global pandemic has added another layer of complexity to the several challenges advisers were facing: geopolitical tensions, a low-growth environment, trust crisis, and educational requirements together with regulatory upheavals.

Could managed accounts be one form of saving grace for these time-strapped advisers? And for those who swear by the solutions, have managed accounts delivered on their much-praised benefits during this period of turmoil?

One of the benefits managed accounts has “gifted” to advisers and their clients, in spite of everything that is going on, is confidence and active management and review, Potter says.

“A client whose portfolio is subject to continual review and management is likely to be better off as opposed to a client who gets ad-hoc review,” he says.

“Being able to execute effectively in real time adds value, particularly at a time like this.”

Fit for purpose When the pandemic hit, no one could have predicted that global indices would revert to their all-time highs so quickly. Many are left scratching their heads why there is such a glaring disconnect between the economic slump that’s worse than the Great Depression and reminiscent of the Global Financial Crisis.

Many analysts concur that the divergence seems to lie in tech firms. Looking under the hood of the major US share markets, a handful

Managed accounts | Feature

15

01: Alex Dunnin

02: Toby Potter

executive director of research and compliance Rainmaker Information

chair Institute of Managed Account Professionals

of tech companies are rallying, while local unicorns like Afterpay continue to soar.

Praemium chief commercial officer Mat Walker03 saw an unprecedented level of activity when the pandemic hit our shores.

“We saw an increase in transaction volumes by investment managers in March, whereby the number of trades jumped by about 120% relative to the average of previous months,” he says.

The platform recorded a 35% jump in allocation to cash and a 10% increase in Aussie equities, while an increase to alternatives and gold via ETFs was also evident.

Many portfolio managers like MLC Asset Management’s John Woods 04 says that the dislocation is driving wealth managers to think about asset allocation on another level.

It is not as simple as characterising the current crisis as a “bull, bear and a base case”, he says, rather a myriad of scenarios could play out. Neither is it worth advisers trying to predict what can happen in the future.

What advisers should keep in mind is the type of opportunities available to diversify in this uncertain environment and for asset allocators to make decisions that take advantage of the strength of the individual markets, he says.

For a managed accounts portfolio with an equities component, active allocation makes sense.

When constructing a separately managed account (SMA), the strength that Australian equities bring to the table is high franked dividends, Woods says, as they can excel at delivering benefits of direct ownership all the way to the end investor.

“It’s about knowing when to differentiate the hype form the reality and keep in check those valuations that don’t make sense,” he says.

Such turbulent periods are conducive to bringing the adviser and client together. Walker says managed accounts provide a better framework for client engagement as currently, clients tend to be more interested in their stocks.

“And for them to have greater transparency and 24/7 access to their portfolio means that there can be more quality engagement between advisers and clients,” he explains.

Hewison Private Wealth managing director and private client adviser Andrew Hewison05 says during periods of high volatility, people tend to sell assets because they simply can't cope with the uncertainty.

“As advisers, we really add value to clients during periods of volatility because our job is to talk them back off the plank and say, ‘listen, I know that your heart’s racing and but we need to stay the course’,” Hewison says.

“What we recommend is that they consider rebalancing their portfolio. For example, we might advise taking some money out of fixed income and investing in some high-quality companies that are being oversold.

“That can be very counterintuitive for some clients but in basic terms, that is the process behind not making emotional decisions.”

Let’s talk about structures

We make sure that based on research and tax circumstances and other considerations that it's going to be in their best interest to sell or buy at the right time.

Andrew Hewison

While it is early days, Dunnin predicts that SMAs will become the dominant player and subsume the managed accounts market over the next few years.

SMAs generally work for clients with smaller investible amounts of money and often do not require ongoing engagement.

In explaining the differences, Walker says professional investment managers can make changes to SMA portfolios on behalf of clients quite quickly. On wrap platforms however, the adviser has to continually go back to investors for consent on every transactional change.

An SMA is a managed portfolio with a professional investment manager, where in effect, everything is outsourced, Walker says. An individually managed account, or IMA, on the other hand is like a wrap, with a universe of individual investments to choose from to build a bespoke portfolio.

At the lower-net-worth end, advisers and clients are typically looking for a simple solution, and it's very easy, for example, to choose an SMA solution that keeps things simple but still provides an interesting investor experience, he says.

At the other end of the spectrum, managed accounts, which have traditionally sat in the domain of high-net-worth clients, continue to be a popular choice for this cohort.

Some of these clients still prefer the simpler SMA approach, Walker says, and equally others might want a more tailored or bespoke approach where the IMA solution may suit.

“Managed accounts are suitable for the majority of client segments in our view. The actual solution that's adopted in each case might be slightly different,” he says.

For Hewison, IMAs are a tried and true approach conducive to client engagement. They are the best way to look at clients in the eye and say: “We have developed a strategy that is specific to you and your goals. It is not a cookiecutter approach.”

The process starts by asking clients numerous risk-based questions to determine their level of comfort and appetite for investing in growth versus defensive and so forth.

“We don't risk profile, so every client that comes in and sits in front of our advisers provides their unique goals and objectives, timeframes, etc. and it's our job to build an investment strategy that is going to deliver on those goals,” Hewison says.

An asset allocation is then created from scratch based on the practice’s APL that builds a portfolio of individual investments with a strong preference for direct investments where possible.

“We prefer to stay away from open-ended funds because part of a direct-investment philosophy means that our clients have more control and flexibility over their investments,” he explains.

Praemium.

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The research has identified that financial advisers, regardless of size, only manage 78% of their client’s wealth on a platform.1 That means 22% of client work either isn’t managed by you or is managed the old-fashioned way. Loads of paperwork, time wasted and inefficient tax reporting.

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Welcome to the upgrade

Source: Praemium/Investment Trends July 2020. Praemium Australia Limited (ABN 92 117 611 784) issues this advertisement for information purposes only. This advertisement is intended for financial advisers and is not directed at private individuals. Praemium has not taken into consideration your personal circumstances or financial objectives and nothing in this advertisement should be construed to be financial product advice. Praemium offers a range of products and services and investors should consider the relevant Product Disclosure Statement (PDS) before choosing to invest or continue to hold an interest in any product. The PDS is available at www.praemium.com or by calling 1800 571 881.

Praemium will not be liable for any harm or damage suffered by any person arising out of or related to its content, except to the extent of any liability implied by law.

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18

Feature | Managed accounts

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

03: Mat Walker

04: John Woods

05: Andrew Hewison

chief commercial officer Praemium

portfolio manager MLC Asset Management

managing director and private client adviser Hewison Private Wealth

Figure 1: Managed accounts vs overall platforms FUA

Source: Rainmaker Information

Figure 2: Managed accounts 2026

Source: Rainmaker Information

Figure 3: Managed accounts ongoing fees 2020

0.45% Average managed accounts admin fee for entry level investors.

“They decide based on our recommendation and they decide when they're going to buy and sell an asset. We make sure that based on research and tax circumstances and other considerations that it's going to be in their best interest to sell or buy at the right time.”

The Melbourne-based firm has a client base of 800 with investable assets of about $1.2 million on average.

Hewison says: “We're non-discretionary; clients at the end of the day have to sign off on how their money is invested. I think that's why there are other advisers who are better suited to clients who don't want any engagement at all.”

“We are pretty assertive with our clients that it's important they understand their investments. It's also part of our philosophy not to provide recommendations in complicated products and structures they can’t understand.”

One significant trend the industry can expect is the evolution of SMAs into IMAs – keeping in mind the after-tax capability of an IMA structure, says Peter McVeigh06 , a director at Elston Private Wealth.

“This is what I call the democratisation of investment solutions for clients, which were traditionally available to the higher end of town, will be made available to the broader investment public. It will be a benefit to the end client and drive more of an uptake of managed accounts solutions,” McVeigh says.

McVeigh is coming from a portfolio managers’ perspective overseeing a direct Aussie equities exposure over multiple accounts of varies sizes, time in the market and different client tax structures on behalf of multiple advisers.

He says IMA structures provide a very efficient and equitable way of managing portfolios for after-tax outcomes. While this is possible from an SMA perspective, it is generally only on an account-by-account basis which ultimately is not an efficient way.

“In an IMA structure, the portfolio manager has full transparency to the portfolio and manages the portfolios as distinct separate portfolios,” he explains.

“If managing on an SMA platform, the manager is generally managing multiple accounts to a model. There is not as much flexibility available to the portfolio manager.”

One example to be mindful of when managing after-tax outcomes is if a client crystallises huge gains for the year. That could lead to a large CGT impost and requires some assets to be sold in order to raise cash.

“We can focus on selling the most appropriate holdings to minimise any more gains and/ or potentially reduce the gains for the year by crystallising losses,” he says.

Navigating labyrinths Source: Rainmaker Information

The managed accounts sector isn’t without complexity. While they might be a fantastic way to package new products and reinvent distribution

Managed accounts | Feature

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

06: Peter McVeigh

07: Shannon Bernasconi

08: Eylem Kamerakkas

director Elston Private Wealth

managing director WealthO2

associate director Macquarie Investment Management Australia

structures in this fragmenting market, Dunnin says, some tend to operate in a complex, multilayered structure, and have the potential for fee layering – particularly within bespoke models.

Another oddity is that some investment managers are competing with their own clients.

“When you talk to some financial planning groups that are trying to reengineer and restructure their businesses, they have their heart set on being investment managers. Because they are running an advice group, already they almost have a vertically integrated distribution system,” he says.

There’s also the looming managed discretionary account (MDA) review that was looking into financial capital requirements of MDA providers. For now, it has been shelved.

Two ASIC senior managers spoke at an IMAP adviser roadshow in March, stating that having conducted the review, “it didn’t appear that there would be urgent regulator change”.

From 5 April 2021, the Design and Distribution Obligations regime takes effect, forcing most players in the financial services industry that issue and distribute financial products to have a governance framework that ensures products are targeted to the right consumers.

The Markets in Financial Instruments Directive 2 (MiFID II), which has been in force for almost three years for European Union countries, imposed stricter reporting requirements and tests that aim to provide better transparency in financial markets.

Walker says Australia might see MiFID IItype regulation in the way Praemium experienced it with its UK business.

“In future, it's likely that product PDSs or platform PDSs will have to be very clear about how a particular product or particular solution is relevant for a particular client segment,” he says.

“That's another reason we think the path we are going down with an integrated managed accounts platform, with significant choice of managed accounts solutions and investments, is very relevant.”

Let’s not forget that financial services is also in the midst of a fee war. New platforms like Superhero bursting onto the scene and promising nextto-nothing trading costs have started a race to the bottom that has never been more fierce.

While technology solutions and the range of managed accounts have evolved, the costs of SMAs have in most part either remained the same or increased, says WealthO2 managing director Shannon Bernasconi07.

Many platforms have dropped headline administration fees, but increased per account and cash-account fees. Others have recently increased managed accounts fee payable by the investment manager to levels of $15,000 p.a. or 12bps.

“Often platform providers would negotiate with fund managers and offer to put them in a managed accounts model or multi-manager fund for a discounted or rebated MER fee. For example, the fund manager would effectively rebate/pay the platform a discounted MER of for example, 20bps, whilst the client is paying 60bps,” Bernasconi says.

Other platforms rebrand a fund their own, increase the MER of the fund and keep that difference that the client is paying.

“This is a practice that is continuing unfortunately, which I thought would have been stopped by the Royal Commission. I know of products that launched recently that operate like this. The problem is that this is very hidden,” she warns.

“The mums and dad, and even the high-networths don’t always know what they are paying for. Advisers that are educated in this space should be aware.”

After an examination of about 40 managed accounts products, Rainmaker calculated the average managed accounts admin fee to be 0.45% for entry level investors with about $10,000.

Fees then drop as the assets increase to $1 million to 0.15%. Investment fees can average 0.75% in a standard managed portfolio (see Figure 3).

One way of passing on lower fees to clients comes from the benefits of scale. This is by netting off equity trades in portfolios during considerable volatility leading to high volumes of transactions, Walker says.

He explains: “We net off trades across all of our FUM within our managed accounts structure, which is close to $6 billion. Around 15-20% of trades don't end up paying brokerage on the trade as one investors’ transaction on the same stock is netted against another investors’ transaction.”

Manage more of your clients’ assets than any other platform.

You need to upgrade to the Platform of Everything. praemium.com/everything

Welcome to the upgrade

19

Part of the furniture

$70bn Managed accounts FUA, according to Rainmaker data.

With so many layers of complexity shrouding the managed accounts sector, for the uninitiated adviser, is it worth making the switch?

If the latest industry figures are anything to go by, managed accounts are no longer considered a trend or ‘nice to have’, but are increasingly becoming part of the industry norm.

From a survey of 135 practices, of which 72 use managed accounts, Praemium found that firms using the solution for more than three years made an average profit of 34% uplift.

That’s $337,298 on a per principal basis.

For the non-financial effects, Macquarie Investment Management associate director Eylem Kamerakkas 08 sees how the solution helps clients become more motivated, calmer and have greater faith in their adviser’s ability to navigate the uncertainty, as well as achieve their goals.

Firms that provide this premium service, she says, are able to charge accordingly as clients are more willing to pay for quality as well as peace of mind. Moreover, they build deeper and more meaningful relationships with clients making them “stickier” and less likely to leave for competitors.

“Managed accounts can deliver differentiated and personalised relationships with every client in a scalable and repeated way,” Kamerakkas says.

But is bigger better?

One of managed accounts’ biggest selling point is the ability to deliver investment execution and operational efficiencies at scale with a level of consistency and reliability. Changes across portfolios with similar risk profiles for example, can take place at the same time, while the by-product would be lower fees.

Kamerakkas says scale has many other advantages such as purchasing power and leverage. The marketing and technology spend is bigger and it attracts the best talent.

“But not all growth is equal,” she says.

“If growth is adding complexity and uncertainty to the business – that is not scale where you need it.

“Businesses that have a plan for growth and understand the ‘why for growth’ are the ones best placed to succeed.” fs

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News

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

Retirees value home over super

01: Angela Ashton

founder & director Evergreen Ratings

Annabelle Dickson

Retirees wish to remain in their own home despite the value of their properties being significantly more than their superannuation balances, new research shows.

Household Capital’s 2020 Retirement Outcomes survey reveals 73% of homeowners aged over 60 want to stay in their current home but the median home value is 4.5 times the value of their super balance.

For retirees living in metropolitan areas, the value of property is even higher with Sydney retirees living in their homes worth 6.2 times their superannuation balance.

Over 80% of the average respondent’s wealth is held in the value of their home with 67% owning their home outright and 12.5% holding a mortgage.

Household Capital chief executive Joshua Funder said the survey shows the family home is not only the preferred retirement housing but also the largest store of retirement savings.

“Most older Australians wish to remain in their home throughout retirement, but 74% are not confident they have adequate retirement funding and no one wants to access their super prematurely,” he said.

Retirees have not been spared by the impact of the pandemic with half of those describing their retirement lifestyle as ‘generous but secure’ are now far less secure.

This is compared to nearly all of those identifying as ‘frugal but secure’ still feeling secure. However, just 0.4% of respondents plan to access their superannuation early.

“Older Australians are among the wealthiest in the world. They have been great investors and savers, diligently accumulating capital in their home. And almost everyone is aware of the role home equity can play in helping to fund their retirement,” Funder said. fs

Clime partners with consultant Clime Investment Management appointed Mercer as an investment adviser to support its managed account portfolios.

Mercer will be supporting Clime with strategic and dynamic asset allocation advice and assisting in selecting managers for the managed fund component of Clime’s separately managed accounts.

The appointment comes as Clime sees an increased demand for its multi-asset managed account portfolios which use Clime’s equities team to manage the equities component of the portfolios.

Clime Group chief executive Rod Bristow said Clime is excited to be partnering with Mercer.

“When combined with Mercer’s global managed fund capability, financial advisers will have access to a truly unique proposition in the market that will lower costs for their business; improve the quality of investment solutions for their clients; and ensure appropriate separation of product and advice,” he said.

The partnership will provide advisers and their clients’ access to Mercer’s global information and research. fs

Ratings house launches Karren Vergara

A

The quote

There is a clear gap in the market in rating these types of investment vehicles at the very time the supply of and demand for them is growing significantly.

local consulting firm has launched a research service aiming to offer quality insights into a variety of investment vehicles, particularly targeting the ratings gap in complex products.

Evergreen Ratings, a subsidiary of Evergreen Consultants, analyses closed-ended, wholesale, illiquid and listed investment products, as well as property syndicates, private equity, venture capital and hedge funds. It is looking to launch an ESG assessment framework in the near future.

The fledgling research house, which has four commissioned research reports in the works, is led by Daniel Liptak and Mark Wist.

Liptak is the chief operating officer of Arbitrium Capital Partners and founder of Arkaba Advisors, and previously worked at Deloitte and Zenith Investment Partners.

Wist has spent his entire career in property, having spent many years researching and rating property funds at both PIR and Atchison Consultants.

Founder and director Angela Ashton01 said a key difference Evergreen Ratings offers is that

fund managers will pay a fee to have their investment vehicles and products rated, and the reports will be made available to financial advisers.

Ashton said because Evergreen Consultants has traditionally focussed on managed accounts and liquid investments, an analysis of the ‘nontraditional’ products often sits outside the scope of standard client work.

“However, we are strongly of the view that there is a place for these products across investment portfolios and we think it is important to offer a ‘whole of portfolio’ service,” she said.

“We believe there is a clear gap in the market in rating these types of investment vehicles at the very time the supply of and demand for them is growing significantly among financial planners and their clients.”

Ashton added that these are often more complex than many ‘standard’ managed funds and require significant resources and skill sets to assess them properly.

“We believe this is one of the key reasons other ratings houses have not analysed these types of products consistently,” she said. fs

AMP Capital named UNPRI Leader Ally Selby

AMP Capital has been included in a prestigious list celebrating excellence in responsible investment, amid a turbulent year during which controversy after controversy has rocked the investment manager.

AMP Capital was named alongside 16 asset owners and 20 investment managers in the United Nations’ Principles for Responsible Investment (PRI) Leaders’ Group 2020, all celebrated for their responsible investment work in climate reporting.

While the leaders group was largely evenly split between investment managers and asset owners, there was a better representation of asset owners in the group relative to the PRI’s total reporting base. Some 4% of all asset owner signatories made it to the 2020 list, compared to just 1% of investment managers.

There were seven other Oceania-based signatories that made the list, including Australian Ethical Investment, Aware Super, CBUS, Dexus, Lendlease, Charter Hall Group and New Zealand Superannuation Fund.

The largest group of representatives in the list was from Europe, however, Oceania representatives were particularly well represented, with 5% of UNPRI’s Australian and New Zealand signatory base making the 2020 Leaders’ Group.

Larger signatories also were better represented within the group than smaller ones, the PRI said, with nearly 10% of the signatories that made the Leaders’ Group in 2020 having an asset under management above US$250 billion. Less than 1% of signatories with an AUM below US$10 billion made the cut.

UNPRI said signatories in the Leaders’ Group all have welldeveloped processes for reporting on climate-related practices, and also have robust governance structures to manage them.

“Ultimate oversight and accountability for climate-related issues tends to lie with boards, but many leading signatories also demonstrate well-established internal climate and ESG functions, such as cross-functional advisory groups, committees and task forces,” it said.

Among the Leaders’ Group, senior level staff will often have management and assessment responsibilities relating to climate issues, UNPRI said.

“They review strategies and policies on climate which cover the entire investment process, from investment beliefs to evaluation, and set priorities and review targets,” it said.

“We see examples of leading signatories that address climate change through an overarching risk reporting framework, where data-driven dashboards are used for senior management to monitor climate risks.

“Boards receive regular and comprehensive updates to monitor and oversee the progress made on climate-related targets and goals.”

Leading signatories were also transparent about their governance functions in their UNPRI Transparency Reports, and often mentioned specific internal roles with climate responsibilities, it said.

“Some of our leading signatories also apply a variety of instruments to foster board and management-level competency on climate issues and link their KPIs and remuneration to climate-related targets, making climate an integral part of their organisations,” it said.

In its climate report, AMP Capital acknowledged the transition to a low carbon economy was underway, and that meeting the Paris Climate Change commitment will take significant decarbonisation over the coming decades. fs

News

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

21

Products 01: Joe Fernandes

Australian Unity launches new fund Australian Unity has launched the Australian Unity Future of Healthcare Fund aiming to increase the wellbeing of all Australians by investing in the future healthcare needs of the community.

Australian Unity said the “first of its kind” fund will invest across a range of sectors and asset classes including venture capital and private equity; domestic and international listed equities; and social infrastructure such as medical and health-related real estate.

Australian Unity managing director Rohan Mead said Australian Unity has a distinguished track record in providing innovative health solutions to its customers and members.

“Australia needs purpose-driven investments that address our ageing population, the rise of chronic and non-communicable disease, disability, mental health, and the shortage of social and medical infrastructure,” Mead said.

“The Future of Healthcare Fund is a natural progression for Australian Unity. It builds on our past, brings together our unique capability, and will enhance the wellbeing of Australians through investment in preventative and remedial healthcare and health associated businesses and assets.”

Chief investment officer, Australian Unity Wealth & Capital Markets, Joe Fernandes01 said the fund will draw on Australian Unity’s breadth of expertise and long-established capability in the health sector.

“As an investment manager, we’re ideally placed to bring together Australian Unity’s experience and insights from its diversified businesses across private health insurance, healthcare, aged care, healthcare property, social infrastructure, funds management and venture capital,” he said.

LUCRF launches new passive range The $6 billion industry superannuation fund has introduced a range of low-cost, indexed investment options for members as it closes two other options.

LUCRF Super has made changes to its range of investment options to offer members a wider range of low cost options.

Effective October 8, the super fund now offers three passive options: Indexed Balanced, Australian Shares (Indexed) and International Shares (Indexed).

With an investment fee of just 0.06%, the Indexed Balanced option’s objective is to achieve a net return exceeding the increase in CPI by at least 3.25% per year over 10 years.

To compare, no investment fee is charged on Rest’s indexed balanced option.

The new Australian Shares (Indexed) option aims to achieve a gross return matching that of the S&P/ASX 100 Accumulation Index over three years. The investment fee charged on this option is set at 0.07%.

Meanwhile, the International Shares (Indexed) option will look to match the returns of the MSCI World ex-Australia Total Return Index, 70% unhedged and 30% hedged in Aussie dollars over three years. It

Hostplus freezes premiums As life insurance premiums continue to soar, industry fund Hostplus has managed to negotiate a premium freeze for members.

The $48 billion super fund has secured a three-year freeze, which will maintain the current rate of death and total and permanent disability premiums with its group insurer MetLife.

A spokesperson for Hostplus confirmed the premium freeze was secured as part of the fund’s recent three-year rate guarantee negotiation with MetLife. It will apply until June 2023.

The existing three-year premium rate with MetLife was due to expire when the new freeze was negotiated.

Hostplus appointed Metlife as group insurer in 2013, switching from ANZ’s OnePath.

also incurs an investment fee of 0.07%.

To avoid confusion, LUCRF Super has renamed its Australian Shares and International Shares options to Australian Shares (Active) and International Shares (Active) respectively.

In launching the new options, LUCRF Super has also closed its existing Indexed Shares option. It has also closed its Targeted Return option, switching to its Moderate option which has a different investment mix and strategy while maintaining the same return objective and risk level. It is also lower cost, LUCRF said.

Vanguard launches new ESG offerings Vanguard Australia has launched a new Australian shares ETF with an ESG focus.

The Vanguard Ethically Conscious Australian Shares Fund and ETF will invest in approximately 240 ASX listed shares with a series of ethical screens.

The product will remove companies with significant business activities involving fossil fuels, alcohol, tobacco, gambling, military weapons and civilian firearms, nuclear power and adult entertainment.

The fund and ETF will also exclude shares in companies with conduct that contravenes the principles of the UN Global Compact pertaining to labour rights, human rights, environment and anti-corruption.

“In this range, we are focused on delivering funds that screen for the evolving needs and preferences of ESG investors while staying true to the core principles that underpin all of our products: clear goals, broad diversification, low costs and a long-term view,” Vanguard Australia head of product Evan Reedman said.

“We’ve seen a growing demand from both our financial advisor and retail clients for responsible and ethical products, demonstrated by consistent growth in our existing Ethically Conscious funds, which were launched in September 2018.”

The fund is benchmarked to the custom-built FTSE Australia 300 Choice Index and seeks to track the return of this index before taking into account management fees, expenses and tax.

The new products bring the total number of fund offerings for Vanguard Australia to 83, including 30 ETFs. “Investors want funds that are consistent with their values without having to make the trade off with performance or their financial goals, and we continue to seek ways to deliver on that need,” Reedman said.

Class launches new product Self-managed super fund administration and software provider Class has launched an accounting and administration product for the growing number of discretionary and unit trusts.

Class Trust is said to make the administration process easier for financial advisers and accountants by automating parts of the process from deed establishment and management through to closure.

02: Andrew Russell

Class chief executive Andrew Russell02 said the product comes from its existing customers’ wish to simplify trust administration.

“Class software product expertise is solving customer pain points through complex rule-based coding. The launch of Class Trust is a natural extension of our product suite for our customers,” he said.

In a pilot of the product, Class Trust was able to save an average of three hours of administrative work and jobs could be processed in half the time after its research showed that Excel was used for trust administration.

“As we have seen through our in-depth customer research, managing trusts is complex and while we have used the components of the Class engine, our Trust product has been designed and built to address the specific challenges we know exist for professionals that administer trusts,” Russell said.

Perpetual axes geared options Perpetual has terminated its Geared High Growth option, Geared Australian Share option and its Capital Guarantee option for Perpetual Select Super members.

Members were notified that from 21 October 2020 these options would be terminated, with Perpetual ceasing accepting new members into the options as well as withdrawal and switch requests from 14 September 2020.

“After a comprehensive review, we’ve determined that it is in the best interests of members to ceased offering and terminate the above investments options as there has been a low level of interest from members in these types of investments,” Perpetual told members.

“As we approach the termination date, to facilitate the termination process we may increase our cash allocation in the geared options above the maximum cash allocation set out in the investment guidelines in the PDS as we sell out of the underlying funds.”

Members will be automatically switched into other options with similar asset allocations and investment objectives. However, the successor options for the geared funds do not use borrowing as part of their investment strategy.

Those in Geared High Growth will be switched to Perpetual’s High Growth option, those in Geared Australian Share will go to Australian Share and those in the Capital Guarantee option will be switched to Perpetual’s cash investment option.

In 2019, Rainmaker research showed geared super options enjoyed a bumper year of returns in excess of 50%.

However, Perpetual’s Geared High Growth fund shows five-year returns of 6.8% per annum and one-year returns of -4.6% per annum as of 31 August 2020.

The Geared Australian Share fund had oneyear returns of -32.2% and five-year returns of 0.82% as of the end of August.

The Capital Guarantee option had one-year returns of -0.39% and five-year returns of -0.11%. fs

22

Roundtable| Super Booster Featurette

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

The $34bn shortfall Why financial advisers must continually educate their clients about the link between their superannuation and insurance cover.

Ally Selby

The government’s early release of superannuation scheme, introduced earlier this year and extended until 31 December 2020, has assisted millions of Australians in weathering the economic effects of the COVID-19 crisis.

Since the scheme’s inception in April, more than $34 billion has been paid out to members, with industry funds AustralianSuper, Sunsuper, Rest, Hostplus and Cbus coughing up the lion’s share of payouts to members.

“The early release of superannuation initiative has been very well received by Australians impacted by COVID-19,” Senator Jane Hume 01 told Financial Standard.

“Almost 2.9 million members took up the option of withdrawing some of their savings, and letters and calls to my office tell me it has been a lifeline for many.”

However, for those with already low balances – and especially those that withdrew their retirement savings completely – a safety net, of sorts, may have been inadvertently impacted in the process too.

Super funds - although research reveals that some Australians may not know it - provide default insurance cover to their members, with fees withdrawn automatically from accounts and claims paid out when the unexpected occurs.

Over the past year and a half, two key pieces of legislation have been introduced with direct impact on insurance inside super; the Protecting Your Super Package (PYSP) and the Putting Members’ Interests First (PMIF) legislation, effective from 1 July 2019 and April 1 this year, respectively.

The reforms aim to protect member’s retirement savings – particularly those that are already low to

begin with or those with multiple accounts - from being eroded by excessive fees and the costs of insurance cover that members may not need or want.

The changes resulted in the automatic cancellation of default insurance arrangements for people under 25, as well as for members with account balances less than $6000 on April 1 this year, unless they opted otherwise.

Since November 2019, the reforms have resulted in $2.9 billion of inactive savings consolidated into the active accounts of 1.4 million people, according to the Treasury, saving Australians an estimated $700 million in unnecessary fees and insurance premiums.

Newly released APRA data shows the reforms led to the cancellation of around 4.2 million accounts between 1 May 2019 and April 1 this year.

Hume says the legislation would not impact individuals whose account balances were above $6000 at the cut-off date and then fell below $6000 after accessing early release. However, she notes that rules around insurance could vary fund to fund.

“There must be sufficient balance to pay premiums and additionally, some funds may have their own rules on when insurance is switched off for low or nil balance accounts in line with the insurance covenant under the Superannuation Industry (Supervision) Act 1993, so members need to be aware of the rules of their fund,” the Assistant Minister for Superannuation, Financial Services and Financial Technology says.

However, there is no data available on how many accounts have been closed since the inception of ERS on April 20. A spokesperson for APRA said it was planning to make public some data on cancellations towards the end of November.

$34bn The amount removed from the super system as at October 16.

Hostplus group executive of member experience Paul Watson02 says the early withdrawal of super can have a direct impact on insurance cover, particularly in the case where that withdrawal is likely to substantially reduce a member’s balance or result in their account being closed.

“This is especially so where an account balance reaches $0 due to a full withdrawal of retirement savings, in which case typically the member’s account will be closed, and any insurance cover will cease,” he explains.

Over 305,000 Hostplus members have applied for the government’s early release scheme, representing 24% of the industry super fund’s total members.

“Sadly, of these members, 39,000 have had their Hostplus account closed, as their early release payment represented their entire account balance,” Watson says.

Hostplus members whose balances fell below $6000 due to poor investment performance, fees, or early release after April 1 would not have automatically lost their insurance cover, he says.

However, “premiums will generally continue to be deducted from members’ accounts on a regular basis, which, unless their accounts are increasing due to contributions and investment returns exceeding the cost of administration, investment and insurance costs, will likely further reduce their account balances as a result,” Watson says.

Similarly, Cbus chief executive Justin Arter explained during a hearing to the House of Representatives Standing Committee on Economics in September that the government’s ERS had adversely impacted some of the fund’s members.

Super Booster | Featurette

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

Since the inception of ERS, the industry super fund has paid out more than $2.16 billion to more than 261,000 members facing financial hardship during the COVID-19 crisis.

“However, we remain concerned about the long-term reduction of retirement incomes for members, who have typically withdrawn the full $20,000,” Arter said.

During the hearing, Arter noted that members who withdrew their entire balance would no longer receive TPD insurance with their account. This is particularly detrimental for Cbus members as TPD can be both expensive and in some cases unobtainable for construction workers, he said.

“The reason it is unobtainable at any price is that typically our workers are working at heights in dangerous occupations, and many of them are wondering whether they will go home alive at night,” he said.

“As you can imagine, being able to obtain that insurance at a reasonable price is an essential part of our offer.”

But when members drain their accounts to zero, that coverage goes away too, he said.

“We're very anxious that they do maintain a balance with us,” Arter said.

Financial adviser and founder of Master Your Money Now Chris Carlin has also seen some clients risk their insurance cover after dropping below $6000 or withdrawing due to COVID-19.

“They are not aware of the legislation which means if their balance does drop below this level they are at risk of losing their personal insurance cover, especially if there are no ongoing contributions going into the fund,” he says.

Insurance cover may cease on a member’s account if there are insufficient funds to pay for premiums, or if a contribution has not been received for sixteen consecutive months or more.

Pivot Wealth founder and financial adviser Ben Nash believes that a significant number of Australians would be at risk.

“Unfortunately, there would be a pretty significant number of people that have withdrawn all the money in their super and therefore lost their insurance cover,” he says.

Yet, MetLife chief customer and marketing officer Chesne Stafford03 says it’s still too early to tell whether these account closures have had an impact on insurance.

“While there is data about how much has been withdrawn from superannuation in total, we don’t know how many people have dropped below the balance thresholds applicable at each fund to retain insurance coverage, or have reduced their account balance to zero,” she says.

“Additionally, we are yet to see how many people may have fallen below the threshold but opted in to continue their insurance coverage.”

While Stafford noted that MetLife saw a lift in claim applications at the beginning of the crisis, she said she couldn’t “directly pinpoint whether that was related to COVID or to the legislation, as they both happened at the same time”.

01: Jane Hume

02: Paul Watson

03: Chesne Stafford

assistant minister, superannuation and financial services

group executive, member experience Hostplus

chief customer and marketing officer MetLife

“Based on what we are hearing and what we are seeing and what our super funds are saying, we are not expecting a discernible impact on overall insurance flows,” she says.

Super funds typically provide two types of insurance to members, including life insurance, paid out to beneficiaries in the case of a member’s death) and total and permanent disablement (TPD) insurance, paid out if a member cannot work again. They may also provide members with income protection (IP) and terminal illness cover.

“For most Australians, the insurance cover they have within their super is generally the only life or disability insurance cover they have,” Watson says.

“If an unexpected event happens, such as an illness, injury or death, having the right insurance can help ensure they or their family’s lifestyle is financially protected, especially when they rely on the income of that person.”

Yet, research undertaken by MetLife found that many Australians were unaware that they had insurance cover at all.

“Around 73% of Australians are aware that they have insurance inside super, however only half of them know the specific level of cover they have and then even less know that they can adjust and change that level of cover,” Stafford says.

Research undertaken by Hostplus uncovered similar results.

“A survey of Hostplus members last year found that 87% of members were aware that insurance was generally provided as part of super arrangements, however, 41% of members weren’t aware that they themselves had insurance as part of their Hostplus membership,” Watson says.

For member’s whose accounts are closed as a result of ERS or the PYSP and PMIF reforms, getting the same insurance cover they had previously is not as easy as one may think.

“Even if the person were to establish a new super account, with the same or a different fund, this may not result in the person being able to restore their previous insurance cover, either automatically or if opted-into,” Watson says.

The customer may need to undergo health checks or an underwriting process in a bid to get the same coverage back, Stafford adds.

“You need to go through an underwriting process if you want to reinstate that cover and go back through a non-automatic application process on that basis,” she says.

As a result, those with health conditions or in dangerous occupations may not be able to receive the same cover.

“I always speak to my clients about the restrictions of personal insurance cover within superannuation, especially nurses who are five times more likely than other occupations to be forced into retirement with a back injury,” Carlin says.

One word can make all the difference in a successful TPD claim, he notes.

“If you have TPD cover solely in super the definition to make a successful claim is if you are

To find out more

visit

www.moneymag.com. au/superbooster

23

unable to work in ANY occupation, which means if a nurse does their back, but they can still pick up a phone and work in a call centre, then their TPD cover may not pay out,” he explains.

“However, if you hold TPD cover… either under a Superlink arrangement or as a policy held solely in your personal name, the definition can change to OWN occupation, which means if you are unable to work in the occupation you have been trained for i.e. as a registered nurse, then this cover pays out.”

Nash noted that a number of his clients choose to maintain multiple super fund accounts to keep their preferred insurance cover in a previous fund.

“Anyone that has a medical history that would preclude them from getting new insurance cover on terms that they are prepared to accept would choose to keep their existing cover,” he says.

“Basically, as soon as you have a skin cancer that's above a certain size, any new insurance cover could have a cancer exclusion placed on it.”

Similarly, women who receive an abnormal pap test will also face a multiple-year exclusion on cervical cancer, he says.

For those wanting to reapply for insurance following the cancellation of their account (or for those who become eligible after surpassing a $6000 balance), Nash warns that they will also automatically face changes to their disclosure obligations.

“The duty of disclosure requires members to tell the insurance company everything they could reasonably be expected to want to know to assess whether they want to give you an insurance application or not,” he explains.

“For the first three years, even if it’s inadvertent disclosure, that policy will be considered to never have existed in the first place, as it is in breach of that part of the Insurance Contracts Act.” In addition, pre-existing condition exclusions apply on almost all group policies for a set period of time, Nash says, so cancelling and replacing a policy could result in that period restarting.

Nonetheless, Stafford maintains that insurance inside super will have a particularly important role to play as we emerge from the COVID-19 crisis.

“The fear of getting sick, the fear of potentially being stood down from work, isolation – all of those things are having an impact on mental health,” she says.

“For those people who end up in a difficult situation as a result of that, insurance inside superannuation can provide those benefits that they may not have expected they would ever need.” fs Proudly supported by

24

International

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

Vanguard awards $3.4bn mandate

01: Alex Hoctor-Duncan

global head Aberdeen Standard Investments

Karren Vergara

Vanguard has awarded a US$3.4 billion mandate to a boutique fund manager, replacing Franklin Templeton subsidiary Edinburgh Partners.

Sprucegrove Investment Management will manage about 35% of the Vanguard International Value Fund, which has US$9.8 billion in assets under management.

Lazard Asset Management and ARGA Investment Management are co-managers of the fund, which invests in global companies from developed and emerging markets viewed as temporarily undervalued.

The US-domiciled fund’s expense ratio is expected to increase one basis point to 0.38%.

The head of Vanguard’s portfolio review department Kaitlyn Caughlin said: “Vanguard has decades of experience in selecting and partnering with active managers. We continuously search for world-class investment talent that brings a particular expertise and experience to specific mandates.”

Vanguard has some US$1.6 trillion in active assets and manages US$6.6 trillion globally.

Toronto-based boutique asset manager Sprucegrove employs a value-investment strategy and has US$13.8 billion in AUM. Arjun Kumar and Shirley Woo will co-manage Sprucegrove’s portion of the fund.

Franklin Templeton acquired Scottish fund manager Edinburgh Partners on 1 May 2018.

Edinburgh Partners was co-founded by Sandy Nairn, who became chair of the Templeton Global Equity Group after the acquisition. fs

M&S appoints Northern Trust Northern Trust has been awarded a $19.8 billion pension fund mandate by a leading retailer, replacing a longstanding partnership with State Street.

Marks & Spencer’s Pension Trust appointed Northern Trust to provide asset servicing solutions, such as custody, financial reporting and analytics, to the M&S Pension Scheme, a defined benefit pension scheme of which M&SPT is trustee.

The scheme has about £11 billion in assets, making it one of the top 25 largest corporate pension funds in the UK. Northern Trust will also provide fund administration and analytics for M&SPT’s private market portfolio, as well as transparency over its environmental social and governance (ESG) risk exposures through its ESG Insights service.

The scheme became a signatory to the United Nations Principles for Responsible Investment (UNPRI) in 2010.

M&SPT head and chief investment officer Simon Lee said: “We require an asset servicing provider able to support the requirements of our broad, complex portfolio of investments and adapt to the scheme’s requirements as we progress through the de-risking journey.

By appointing Northern Trust, we knew we were selecting a team and institution with the track record, technical expertise and long-term commitment to do that.” fs

ASI names global head Annabelle Dickson

A

The quote

It is important that our clients feel confident in the strength of our partnership and the value we can provide.

berdeen Standard Investments has named a former BlackRock executive to the newly created position of global head.

Alex Hoctor-Duncan01 has been with ASI for two years as global sales director, prior to which he was at BlackRock for over 21 years, most recently as head of retail.

“In my two years at Aberdeen Standard Investments, we’ve taken excellent steps forward and I’m delighted with what we’ve achieved for clients, particularly in the midst of a pandemic, but there’s much more we can do and I’m excited for the next stage,” Hoctor-Duncan said.

In his new role, he will lead the global clientfacing asset management distribution function, reporting directly to Standard Life Aberdeen chief executive Stephen Bird.

Commenting on the appointment, Bird is delighted to have Hoctor-Duncan join the leadership team.

“It is important that our clients feel confident in the strength of our partnership and the value we can provide,” he said.

“We need to connect more as when we listen intently to our clients and fulfil their needs effectively, quickly and consistently – we will build

a sustainable pattern of growth and achieve our purpose of investing for a better future.”

The appointment follows ASI promoting Natalie Tam to deputy head of Australian equities after 15 years on the team.

It comes just weeks after ASI appointed a new global head of private markets in Mark Redman.

He replaces Peter McKellar who is set to to retire at October end.

Redman joins from Ontario Municipal Employees’ Retirement System.

The hire also follows that of a new deputy head of Australian equities.

Natalie Tam is moving into the role after 15 years on the team.

She first joined Aberdeen as an analyst covering media stocks in 2005 from Deutsche. Prior to this, she worked at Rothschild in investment banking, Coca Cola Amatil in corporate strategy and Royal & Sun Alliance in group finance.

In another promotion, Camille Simeon is moving to investment director after 12 years on the team.

She joined Aberdeen in 2008 from Citigroup where she was vice president institutional research sales in Australia and New York. fs

Half of UK pension funds seek buy-out Jamie Williamson

About half of all UK defined benefit pension funds are now targeting a buy-out as their long-term objective, new research shows.

A survey of 100 DB pension scheme trustees by consultancy Hymans Robertson revealed the number of pension funds aiming for selfsufficiency has dropped markedly in the past four years, down to just 37% from 81%.

Now, the number of funds aiming for a buy-out has increased to 49% - up from just 15% four years ago. The remaining 14% are targeting a form of consolidation, Hymans Robertson said.

The firm’s half-year risk transfer report found $45 billion of pension scheme risk was insured in the first six months of this year, and that 40% of FTSE100 companies that sponsor DB schemes have completed buy-ins, buy-outs or longevity swaps.

“This growing demand from pension schemes means that, even with the additional challenges posed by COVID-19, we expect the total number of buy-ins and buy-outs in 2020 to increase from the 153 transactions seen in 2019,” Hymans Robertson head of risk transfer James Mullins said.

However, Mullins said the average value of those transactions is expected to decrease, with the firm anticipating total transaction value for 2020 to be about $54 billion compared to $79 billion in 2019.

The survey shows that pension scheme enthusiasm for buy-ins and buy-outs continues to grow, he added, saying demand is expected to average $66 billion a year over the next decade.

“This is due to a combination of factors such as funding requirements meaning that sponsoring employers will need to fund pension schemes to a higher level and the cost of insuring deferred member liabilities having reduced materially in recent years,” Mullins said.

“These points mean that the additional money a pension scheme needs to get to buy-out is less than it has been in the past. This gap will reduce further as pension schemes mature, as more contributions are paid in and as investment risk is reduced further.”

Hymans Robertson surveyed 100 trustees of private DB schemes with upwards of $90 million in assets. fs

Keep up to date with Financial Standard’s latest news and events on LinkedIn

Between the lines

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

Aware furthers OptiComm bid

25

01: Matthew Fletcher

managing director MSC Group

Elizabeth McArthur

Aware Super has provided a proposal to the board of OptiComm to acquire 100% of the telecom company, which delivers fibre to the premises networks.

Under Aware Super’s proposal, OptiComm shareholders would receive cash proceeds of $6.50 per share (inclusive of a dividend of 10 cents).

“Aware Super considers this to be a compelling proposal for OptiComm shareholders and looks forward to working with the OptiComm board,” the fund said.

If the proposal receives support from the OptiComm board the transaction would be an off-market takeover offer, subject to a minimum acceptance condition of 50.1% and a limited number of other defeating conditions.

The fund said its proposal is not subject to any further due diligence requirements.

“OptiComm is an exceptionally well-run company that has established itself as a leader in the delivery of high-speed fibre-to-the-premises (FTTP) networks,” Aware Super said.

Aware Super (formerly First State Super) confirmed that it would be making a bid to take over the company on September 8, offering $5.85 per share at the time.

OptiComm already had another takeover proposal from Uniti Group, which has offered $5.20 per share on 15 June 2020.

Uniti matched the Aware offer on September 15. fs

Melbourne firm wins $1.1bn in mandates Kanika Sood

The quote

We are delighted to accept these trustee and administration appointments on behalf of all investors.

M

elbourne’s MSC Group has been appointed to provide trustee and fund administration services to three Australian fund managers that are 50% owned by Oaktree Capital Management.

Argyle Capital Partners, January Capital and Fortitude Investments Partners will use MSC Trustees and MSC Abacus, its funds administration business.

Argyle is Brisbane-based water and agriculture manager led by Kim Morrison. MSC will provide trusteeship for $30.5 million of Argyle’s assets across eight funds and fund administration for $144.6 million of assets across 17 funds.

January Capital is a Singapore/Australia based private equity firm led by Ben Dunphy and Jonathan Hodson. Here MSC will work across 15 funds, with trusteeship and fund ad-

Rainmaker Mandate Top 20

ministration assets of about $188 million each.

The Fortitude win is the biggest of the three for MSC. The Australian private equity firm led by Nick Dignam and Nick Miller will use MSC for trusteeship and fund admin for 32 funds totaling about $279.1 million in assets.

“We are delighted to accept these trustee and administration appointments on behalf of all investors, and the endorsement by a respected global investment firm in Oaktree,” MSC Group managing director Matthew Fletcher01 said.

“Each of these three fund managers ran independent processes and selected MSC services amongst competition…”

MSC (Melbourne Securities Corporation) was founded eight years ago, offering corporate trustee services. It has since expanded into fund registry and accounting services. fs

Note: Select international equities investment mandate appointments

Appointed by

Asset consultant

Investment manager

Mandate type

AustralianSuper

Frontier Advisors; JANA Investment Advisers

UBS Asset Management (Australia) Ltd

International Equities

254

Aware Super

Willis Towers Watson

Fidelity International Limited

International Equities

557

Aware Super

Willis Towers Watson

Sustainable Growth Advisers, LP

International Equities

322

Care Super

JANA Investment Advisers

GQG Partners (Australia) Pty Ltd

International Equities

104

Construction & Building Unions Superannuation

Frontier Advisors

Other

Global Equities

173

Construction & Building Unions Superannuation

Frontier Advisors

GQG Partners (Australia) Pty Ltd

Emerging Markets Equities

312

Construction & Building Unions Superannuation

Frontier Advisors

Realindex Investments

Emerging Markets Equities

313

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates Limited; JANA Investment Advisers

Hyperion Asset Management Limited

International Equities

Energy Super

JANA Investment Advisers

Robeco Hong Kong Limited

Enhanced Indexed Global Equities

Macquarie Investment Management Australia Limited

Independent Franchise Partners, LLP

Global Equities

Maritime Super

JANA Investment Advisers; Quentin Ayers

Other

International Equities

266

Maritime Super

JANA Investment Advisers; Quentin Ayers

Ninety One Australia

International Equities

103

State Super (NSW)

Frontier Advisors

State Street Global Advisors Australia Limited

Ethical/SRI International Equities

316

State Super (NSW)

Frontier Advisors

Schroder Investment Management Australia Limited

Emerging Markets Equities

401

State Super (NSW)

Frontier Advisors

Northcape Capital Pty Ltd

Emerging Markets Equities

174

State Super (NSW)

Frontier Advisors

Investec Australia Limited

Emerging Markets Equities

345

State Super (NSW)

Frontier Advisors

AQR Capital Management, LLC

International Equities

387

Victorian Superannuation Fund

Frontier Advisors

BlackRock Investment Management (Australia) Limited

Ethical/SRI Global Equities

WA Local Government Superannuation Plan

Willis Towers Watson

River and Mercantile Asset Management LLP

International Equities

Northcape Capital Pty Ltd

Emerging Markets Equities

Warakirri Asset Management Pty Ltd

Amount ($m)

50 544 23

91 179 1 Source: Rainmaker Information

26

Super funds

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21 PERIOD ENDING – 31 AUGUST 2020

Workplace Super Products

1 year % p.a. Rank

3 years

5 years

SS

% p.a. Rank % p.a. Rank Quality*

MYSUPER / DEFAULT INVESTMENT OPTIONS

* SelectingSuper [SS] quality assessment

1 year % p.a. Rank

3 years

5 years

SS

% p.a. Rank % p.a. Rank Quality*

PROPERTY INVESTMENT OPTIONS

Australian Ethical Super Employer - Balanced (accumulation)

2.5

11

7.6

1

7.2

7

AAA

Prime Super (Prime Division) - Property

-3.7

12

7.2

1

13.9

1

AAA

UniSuper - Balanced

2.9

7

7.5

2

7.8

3

AAA

Telstra Super Corporate Plus - Property

0.1

3

7.1

2

8.9

3

AAA

AustralianSuper - Balanced

2.6

10

7.5

3

8.0

1

AAA

CareSuper - Direct Property

1.3

1

7.0

3

9.1

2

AAA

Virgin Money SED - LifeStage Tracker 1974-1978

1.3

26

7.3

4

AAA

Rest Super - Property

-0.4

5

6.1

4

8.6

4

AAA

TASPLAN - OnTrack Build

1.8

17

7.2

5

AAA

AMG Corporate Super - AMG Listed Property

-9.7

19

6.0

5

6.3

9

AAA

FES Super - Smoothed Option (Hybrid)

3.6

3

7.1

6

6.2

35

AAA

TASPLAN - Property

1.0

2

6.0

6

AAA

Vision Super Saver - Balanced Growth

4.1

1

6.9

7

7.3

6

AAA

HOSTPLUS - Property

0.0

4

5.6

7

7.4

7

AAA

-0.8

50

6.9

8

7.1

9

AAA

Acumen - Property

-1.0

6

5.5

8

8.0

5

AAA

Cbus Industry Super - Growth (Cbus MySuper)

3.0

6

6.8

9

7.8

2

AAA

Catholic Super - Property

-1.7

7

5.3

9

7.4

6

AAA

Aware Super Employer - Growth

3.0

4

6.7

10

7.1

8

AAA

Sunsuper Super Savings - Property

-2.1

8

4.6

10

5.9

13

AAA

Rainmaker MySuper/Default Option Index

0.8

Rainmaker Property Index

-10.2

smartMonday PRIME - MySuper Age 40

5.7

6.3

AUSTRALIAN EQUITIES INVESTMENT OPTIONS

2.8

5.1

FIXED INTEREST INVESTMENT OPTIONS

UniSuper - Australian Shares

0.6

4

9.2

1

8.6

2

AAA

Australian Catholic Super Employer - Bonds

3.3

1

5.8

1

4.4

1

AAA

ESSSuper Beneficiary Account - Shares Only

4.1

1

8.1

2

8.1

9

AAA

AMG Corporate Super - AMG Australian Fixed Interest

2.8

4

4.9

2

3.7

10

AAA

Prime Super (Prime Division) - Australian Shares

0.4

5

7.2

3

8.5

3

AAA

UniSuper - Australian Bond

1.2

29

4.7

3

3.6

14

AAA

CBA Group Super Accumulate Plus - Australian Shares

0.7

3

7.0

4

7.9

12

AAA

Mine Super - Bonds

1.2

30

4.6

4

3.8

7

AAA

AustralianSuper - Australian Shares

-3.5

28

6.8

5

8.0

11

AAA

Aware Super Employer - Australian Fixed Interest

1.3

27

4.5

5

3.5

16

AAA

MTAA Super - Australian Shares

-1.6

9

6.7

6

8.1

8

AAA

Vision Super Saver - Diversified Bonds

2.4

9

4.4

6

4.0

3

AAA

Vision Super Saver - Australian Equities

-2.3

16

6.6

7

7.2

28

AAA

Intrust Core Super - Bonds (Fixed Interest)

2.1

14

4.3

7

3.8

5

AAA

Virgin Money SED - Indexed Australian Shares

-3.8

33

6.6

8

AAA

GESB Super - Mix Your Plan Fixed Interest

1.6

22

4.2

8

3.4

19

AAA

Aware Super Employer - Australian Equities

-3.5

27

6.5

9

7.7

15

AAA

QSuper Accumulation - Diversified Bonds

3.0

3

4.0

9

3.7

11

AAA

StatewideSuper - Australian Shares

-3.0

21

6.5

10

8.7

1

AAA

FirstChoice Employer - CFS Diversified Fixed Interest Select

1.5 25

Rainmaker Australian Equities Index

-3.3

5.7

7.0

Rainmaker Australian Fixed Interest Index

INTERNATIONAL EQUITIES INVESTMENT OPTIONS

1.3

4.0 10

2.9 29

AAA

3.8

3.1

AUSTRALIAN CASH INVESTMENT OPTIONS

UniSuper - Global Environmental Opportunities

34.0

1

17.0

1

14.0

1

AAA

AMG Corporate Super - Vanguard Cash Plus Fund

0.9

5

1.7

1

1.8

1

AAA

UniSuper - Global Companies in Asia

12.5

6

15.2

2

12.7

2

AAA

Intrust Core Super - Cash

1.0

4

1.6

2

1.8

3

AAA

AustralianSuper - International Shares

14.6

3

13.9

3

10.9

5

AAA

AMG Corporate Super - AMG Cash

1.1

1

1.5

3

1.8

2

AAA

WA Super - Global Shares

12.4

7

12.8

4

10.5

7

AAA

NGS Super - Cash & Term Deposits

1.0

3

1.5

4

1.7

4

AAA

Equip MyFuture - Overseas Shares

13.7

5

12.3

5

10.0

9

AAA

Virgin Money SED - Cash Option

0.7

21

1.4

5

AAA

UniSuper - International Shares

14.5

4

11.9

6

10.6

6

AAA

Sunsuper Super Savings - Cash

0.8

9

1.4

6

1.6

5

AAA

Media Super - Passive International Shares

6.3

28

11.9

7

8.9

17

AAA

Media Super - Cash

0.8

8

1.4

7

1.5

12

AAA

Aware Super Employer - International Equities

6.3

29

11.8

8

9.2

15

AAA

Energy Super - Cash Enhanced

0.8

13

1.4

8

1.6

8

AAA

Virgin Money SED - Indexed Overseas Shares

6.3

30

11.7

9

AAA

Aware Super Employer - Cash

0.8

11

1.4

9

1.5

13

AAA

FES Super - International Share Option

5.1

38

11.3

10

AAA

Rest Super - Cash

0.9

6

1.4

10

1.5

11

AAA

Rainmaker International Equities Index

5.2

8.1

7.8

Rainmaker Cash Index

Notes: T ables include Australia’s top performing superannuation products that also have a AAA SelectingSuper Quality Assessment rating.

Investment options are sorted by their three year net performance results. All performance figures are net of maximum fees.

WORKPLACE SUPER | PERSONAL SUPER | RETIREMENT PRODUCTS

Compare superannuation returns across asset classes using over 27 years of industry insights and research with SelectingSuper’s performance tables.

Simply visit selectingsuper.com.au/tools/performance_tables

0.5

1.1

1.3 Source: Rainmaker Information www. rainmakerlive.com.au

Managed funds

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

27

PERIOD ENDING – 31 AUGUST 2020

Size 1 year 3 years 5 years

Size 1 year 3 years 5 years

Fund name

Fund name

Managed Funds

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

AUSTRALIAN EQUITIES

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

COMBINED PROPERTY

Australian Unity Platypus Aust Equities

141

18.4

Bennelong Australian Equities Fund

563

Bennelong Concentrated Aust Equities

902

Greencape Broadcap Fund

756

8.8

5

Alphinity Sustainable Share Fund

167

1.2

15

AMP Sustainable Share Fund Greencape High Conviction Fund Aberdeen Standard Australian Equities Fund Australian Ethical Australian Shares Fund Australian Unity Platypus Systematic Growth Sector average

1

17.3

1

15.2

18.0

2

17.1

3

2

Australian Unity Diversified Property Fund

16.2

2

14.9

3

11.7

4

11.6

5

15.0

3

Investa Commercial Property Fund

5,937

6.2

3

17.4

1

Lend Lease Aust Prime Property Industrial

1,089

12.3

2

12.5

6

Lend Lease Aust Prime Property Commercial

5,154

5.2

4

10.9

7

AMP Listed Property Trusts Fund

129

-9.9

10

Pendal Property Securities Fund

14

2.5

13

10.6

6

8.8

24

424

4.7

9

10.0

7

10.8

9

46

-0.2

17

9.3

8

9.5

19

289

3.4

10

9.3

9

10.9

8

24

-2.8

30

9.1

10

9.8

15

DEXUS Property Fund

282

1

14.6

1

17.1

12.4

2

13.6

2

12.3

3

11.5

4

11.4

4

12.7

3

9.9

5

9.4

7

429

-11.9

14

8.4

6

8.7

10

-0.9

7

7.9

7

10.7

5

159

-14.0

24

7.8

8

8.9

8

16,041

1.3

6

6.9

9

9.6

6

288

-12.0

15

6.6

10

7.5

13

Ironbark Paladin Property Securities Fund

415

-4.2

5.3

7.6

Sector average

1,198

-14.1

3.4

5.7

S&P ASX 200 Accum Index

-5.1

6.1

7.5

S&P ASX200 A-REIT Index

-17.7

4.4

5.8

6.4

INTERNATIONAL EQUITIES

FIXED INTEREST

Loftus Peak Global Disruption Fund

107

37.1

1

24.2

1

Principal Global Credit Opportunities Fund

BetaShares Global Sustainability Leaders ETF

727

27.9

3

23.5

2

Legg Mason Brandywine Global Inc Optimiser Fund

Zurich Concentrated Global Growth

32

15.0

11

23.1

3

3,696

24.6

4

21.5

4

16.4

Franklin Global Growth Fund

295

24.4

5

20.5

5

Nikko AM Global Share Fund

100

13.1

16

18.9

6

T. Rowe Price Global Equity Fund

1

10,284

UBS Property Securities Fund ISPT Core Fund

14.5

Schroder Fixed Income Fund

184

10.1

1

6.6

1

55

9.9

2

6.2

2

1

2,366

2.5

21

6.2

3

4.7

14

1

Macquarie True Index Sovereign Bond Fund

610

0.7

70

6.1

4

4.6

29

16.3

2

Pendal Government Bond Fund

883

1.7

48

5.9

5

4.6

28

13.7

4

Macquarie Australian Fixed Interest Fund

222

2.0

36

5.9

6

4.9

8

14.1

3

QIC Australian Fixed Interest Fund

1,652

2.4

25

5.9

7

4.7

13

994

2.0

40

5.9

8

4.8

11

9

4.8

12

Evans and Partners International Fund

52

1.5

62

18.4

7

Capital Group New Perspective Fund

648

19.4

6

18.4

8

Apostle Dundas Global Equity Fund

994

12.4

17

18.0

9

12.6

6

Nikko AM Australian Bond Fund

188

1.8

47

5.9

Intermede Global Equities Fund

142

15.1

9

17.7

10

13.6

5

Perpetual Wholesale Active Fixed Interest Fund

457

1.5

54

5.8

Sector average

738

4.5

10.7

8.8

Sector average

945

1.8

4.2

4.0

MSCI World ex AU - Index

7.3

13.2

10.2

Bloomberg Barclays Australia Breakeven

0.4

6.2

4.8

Note: The performance figures for diversified funds are net of fees, performance figures for sector specific funds are adjusted for fees.

AMP Capital Wholesale Australian Bond Fund

10

Source: Rainmaker Information

Time to push the dial on awards hose of you working in large corporate ofT fices know the pain that occurs when staff engagement falls below a certain level.

Dial tones

By John Dyall john.dyall@ financialstandard .com.au www.twitter.com /JohnDyall

Since this reflects badly on management, senior executives hurriedly organise an offsite somewhere fabulous so they can think the problem through with no distractions.

After some deep soul searching and a couple of rounds of golf they come up with a solution: Staff awards! Movie tickets!

And so it begins. A junior staff member is tasked with organising and ensuring a pipeline of recommendations for the executive committee to decide who has gone above and beyond.

The attentive reader will have the sneaking suspicion by now that I never won one of these awards, but what I observed was that these awards were rather ad hoc. You couldn’t aspire to be a winner, because the criteria was opaque.

If the criteria is opaque, it’s not repeatable. If it’s not repeatable, enthusiasm drifts away like revellers at a beach party when the tide comes in.

Which brings me to this month’s topic, which is funds management awards. We at Rainmaker Information have just concluded the analysis for the Money magazine (sister publication to Financial Standard) Best of the Best Awards, which includes funds management.

Some funds management awards are low key and some are an excuse for a legendary (preCOVID-19) knees up. Some awards in foreign locales invite managers to submit their reasons on why they should win an award. The award is pretty much for the skill of writing a submission.

How much do awards mean to current and potential investors? I really don’t know. That’s something for the marketers to work out. It is more valuable to me that the awards have the respect of funds managers themselves. They know whether they are doing a good job or not.

When a funds manager wins an award and they know it was a matter of luck, those awards are not respected.

But if the rules are clear and repeatable and genuinely have the interests of investors at heart, that’s a different story.

Our approach is pretty simple. We all know that any sort of return is accompanied by its silent partner – risk. Therefore, the risk taken to achieve that return is just as important as the return itself.

What are those risks? Well, there’s volatility, which is how much the return bobbles around.

Volatility comes in different forms. It can be total volatility, which includes price movements both upwards (positive) and downwards (nega-

tive). It’s the size of the difference in returns from one month to the next that determines how volatile the investment turns out to be. Now, you might not care about how volatile price movements are when they are positive – “it’s all good” as the youngsters say - and this is why we also use downside volatility. This measures the volatility of returns that are either negative or fall below a threshold, such as the cash rate.

The Sharpe and Sortino ratios capture both volatility and returns. This is an attempt by finance geeks to compare investment products with different returns and volatilities. Sometimes this is referred to as return per unit of risk, where the risk is either straight volatility (Sharpe) or downside volatility (Sortino).

As an example, one of the winners in an equities category didn’t have the highest return (although still pretty decent), but absolutely killed it in the downside volatility department, giving it the highest Sortino ratio. Along with strong performance according to other measures, this was sufficient to give it the winning spot – this year. I know others may differ in this opinion, but while much is made of the “winner” in any category, any finalist is just as worthy of consideration. In fact, above anything else, consistency in investment, as it is in life, is the key success factor. fs

28

Economics

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

Splish splash budget cash Ben Ong

“Money, money, money Always sunny…”

-ABBA

M

oney, in Australian terms, amounts to $98 billion in response and recovery support.

This includes $25 billion under the COVID-19 Response Package and $74 billion under the JobMaker Plan.

Treasury is unleashing these schemes onto the economy “to responsibly deal with the greatest challenge of our time”.

It’s also looking to “rebuild our economy and secure Australia’s future... to ensure the Australian economy recovers strongly by targeting additional temporary support measures to boost household incomes, bring forward business and infrastructure investment activity, and drive the unemployment rate back down”.

There’s more money for every sector of the economy – well, almost, as “winners and losers” (the mainstay of annual budget reveals) pepper the headlines. Can’t please everyone, ey?

Budget 2020/21 winners will be singing hallelujah and losers crying “please sir, could I have some more” but the ultimate effect would be a boost – or a mitigation of the depth of the contraction – to the domestic economy due to multiplier effects of the Treasury’s cash splash.

This is underscored by the budget estimates.

While the underlying cash deficit would erode from 4.3% of GDP in the 2019/20 fiscal year to 11.0% this year, the government’s largesse would enable Australia’s fiscal balances to improve in the years thereafter – to minus

5.6% of GDP in 2021/22, minus 4.2% on 2022/23 and minus 3.0% the following year.

As the budget 2020-21 papers reveal, the government would need less deficit spending – tax cuts, business incentives, welfare expenditure – in the coming years as this year’s budget reverses a predicted economic contraction of 1.5% this year to an expansion of 4.75% in fiscal year 2021/22 and continued positive growth thereafter.

This is also predicated on the Treasury’s forecasts that the unemployment rate would steadily come down from 7.25% in 2020/21 to 6.5% in 2021/22 to 6.0% in 2022/23 and 5.5% in 2023/24.

To be sure, to be sure, this largesse would send Australia’s gross level of indebtedness up to more than a trillion A-dollars next year (based on Treasury estimates) that equates to 50.5% of GDP (from 44.8% of GDP in fiscal 2019/20) before stabilising at 51.6% of GDP the following year and the next.

But hey, Australia’s debt to GDP ratio is way better than its peers – even before accounting for their respective fiscal spend.

As at the end of 2019, the US had a debtto-GDP ratio of 107%; Japan, 237%; the Eurozone, 84.1%; the UK, 80.7%; Canada, 89.7%; China 50.5%.

And then there’s the Reserve Bank of Australia (RBA) which still has relatively more firepower than many of its counterparts and is “committed to do what it can to support jobs, incomes and businesses in Australia”.

Of course, the final outcome depends on the coronavirus. But Australians should all rejoice because we have relatively better monetary and fiscal balances, winners and losers notwithstanding. fs

Monthly Indicators

Sep-20

Aug-20 44013.00 Jun-20 May-20

Consumption Retail Sales (%m/m)

-

-3.99

3.18

2.72

Retail Sales (%y/y)

-

7.08

12.04

8.52

5.79

-21.77

-28.78

-12.84

-6.44

-35.29

Sales of New Motor Vehicles (%y/y)

16.86

Employment Employed, Persons (Chg, 000’s, sa) Job Advertisements (%m/m, sa) Unemployment Rate (sa)

-

111.01

119.15

227.82

-264.17

7.76

2.63

18.70

41.27

0.45

-

6.83

7.48

7.44

7.07

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

4.81

8.61

-4.96

-3.71

Dwellings approved, Private Sector, (%m/m, sa)

-

-1.60

12.16

-4.76

-15.28

Housing Finance Commitments, Number (%m/m, sa) - Housing Finance Commitments, Value (%m/m, sa)

-

Survey Data Consumer Sentiment Index

93.85

79.53

87.92

93.65

88.10

AiG Manufacturing PMI Index

46.70

49.30

53.50

51.50

41.60

NAB Business Conditions Index

0.36

-6.19

-0.21

-7.68

-24.43

NAB Business Confidence Index

-3.82

-8.24

-14.28

0.50

-21.38

Trade Trade Balance (Mil. AUD)

-

2643.00

4652.00

7551.00

Exports (%y/y)

-

-21.87

-21.27

-17.08

-17.80

Imports (%y/y)

-

-14.57

-16.87

-20.12

-23.59

Sep-20

Jun-20

Mar-20

Quarterly Indicators

7122.00

Dec-19 Sep-19

Balance of Payments Current Account Balance (Bil. AUD, sa)

-

17.74

9.02

2.18

7.53

% of GDP

-

3.79

1.78

0.43

1.49

Corporate Profits Company Gross Operating Profits (%q/q)

-

14.97

1.44

-3.47

-1.15

Employment Average Weekly Earnings (%y/y)

-

-

-

3.24

-

Wages Total All Industries (%q/q, sa)

-

0.08

0.53

0.53

0.53

Wages Total Private Industries (%q/q, sa)

-

-0.08

0.38

0.45

0.92

Wages Total Public Industries (%q/q, sa)

-

0.00

0.45

0.45

0.83

Inflation CPI (%y/y) headline

-

-0.35

2.19

1.84

1.67

CPI (%y/y) trimmed mean

-

1.20

1.80

1.60

1.60

CPI (%y/y) weighted median

-

1.30

1.60

1.20

1.20

Output

News bites

RBA steady The RBA kept domestic monetary policy unchanged at the conclusion of its October 6 meeting, disappointing financial markets’ expectation that the Australian central bank would lower the official cash rate from a record low 0.25% to 0.1%, and its three-year bond target and Term Funding Facility (TFF) to below 0.25%. In his statement, RBA governor Philip Lowe stressed that: “The board is committed to do what it can to support jobs, incomes and businesses in Australia”, “views addressing the high rate of unemployment as an important national priority” and therefore, “will maintain highly accommodative policy settings as long as is required and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–% target band”.

Australia business confidence The latest NAB business survey showed that Australian business confidence improved to a reading of minus 4 in September from minus 8 in the previous month – the highest since June (before Victoria’s second wave and the re-imposition of restrictions there and border closures – with confidence increasing in all industries except finance, business & property services which recorded flat outcomesxBusiness conditions also recovered – to zero in September from minus in August – with all three sub-components registering improvements.

AiG performance indices The Australian Industry Group’s (AiG) performance indices provide a snapshot of the country’s manufacturing, services and construction sectors in the month of September. Manufacturing continued to weaken – down to a reading of 46.7 in September from 49.3 in the previous month as renewed coronavirus-induced restrictions in Victoria resulted in a slowdown of orders and reduction in new orders. Likewise, the services industry index dropped to 36.2 from 42.5 in August, again due to the re-imposition of restrictions in Melbourne. The AiG performance of construction index improved (but remained at a level indicating contraction) to 45.2 in September from 37.9 in the previous month, aided by the Morrison government’s “Homebuilder” programme. fs

Real GDP Growth (%q/q, sa)

-

-7.00

-0.26

0.55

Real GDP Growth (%y/y, sa)

-

-6.26

1.56

2.28

0.51 1.82

Industrial Production (%q/q, sa)

-

-3.42

0.19

0.48

0.67

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa)

Financial Indicators

-

-5.89

-2.06

-2.68

-1.33

09-Oct Month ago 3 months ago 1Yr Ago 3 Yrs ago

Interest rates RBA Cash Rate

0.25

0.25

0.25

1.00

1.50

Australian 10Y Government Bond Yield

0.80

0.89

0.90

0.88

2.82

Australian 10Y Corporate Bond Yield

1.57

1.58

1.72

1.73

3.27

Stockmarket All Ordinaries Index

6312.5

4.19%

3.91%

-5.32%

8.74%

S&P/ASX 300 Index

6086.9

3.93%

2.79%

-6.53%

6.85%

S&P/ASX 200 Index

6102.2

3.80%

2.46%

-6.79%

6.32%

S&P/ASX 100 Index

5021.1

3.68%

2.07%

-7.39%

5.89%

Small Ordinaries

2877.5

5.79%

8.38%

0.32%

14.68%

Exchange rates A$ trade weighted index

60.70

A$/US$

0.7228 0.7273 0.6962 0.6729 0.7763

62.60

60.00

59.20

66.20

A$/Euro

0.6117 0.6158 0.6164 0.6128 0.6614

A$/Yen

76.36 77.26 74.69 72.25 87.47

Commodity Prices S&P GSCI - commodity index

360.58

341.06

333.88

400.18

392.46

Iron ore

123.49

126.78

104.61

91.59

61.60

Gold

1923.25 1947.20 1812.10 1507.25 1278.75

WTI oil

40.64

38.05

39.64

52.63

Source: Rainmaker /

49.58

Sector reviews

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

Australian equities

Figure 1: All Ords v MSCI

CPD Program Instructions

Figure 2: China GDP growth ANNUAL CHANGE %

110

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Supportive fiscal policies and China Ben Ong

A

ustralian shares continue to underperform most of its peers – and both developed and emerging market equities – this year to date.

The year 2020 has so far has seen the All Ords index 7.3% in the red. This compares with now positive performances by both developed – plus 2.2% as measured by the MSCI equity index – and emerging – plus 3.6% as measured by the MSCI emerging markets index.

The outlook for domestic equities had been dimmed by the second wave in the state of Victoria that consequently triggered the re-imposition of restrictions and border closures among the country’s states and territories.

The All Ordinaries index has little time to catch up with its global peers before 2020 ends but recent developments are supportive.

Victoria appears to have contained its second wave – and, from here a relaxation of social restrictions and lockdown rules – and some state

International equities

borders have and/or are due to reopen soon.

Overlayed against this is the Morrison government’s historic fiscal stimulus. On October 6, Treasurer Josh Frydenberg announced a growth boosting budget – amounting to around A$98 billion – that includes bringing forward income tax cuts, new infrastructure and energy infrastructure spending, business incentives including a wage incentive scheme to encourage hiring.

For its part, the RBA remains “committed to do what it can to support jobs, incomes and businesses in Australia”.

With both monetary and fiscal policies going for growth, the recession wrought on us by the coronavirus should be shallow and short-lived and even more so, given China’s recovery.

The Australian economy would have been in a recession (like many other countries including the US, Europe and Japan) during the global financial crisis had it not been for the double-digit

Figure 1: IHS/Markit Economics Eurozone PMI 65

growth in China (at the time) and its voracious appetite for our goods and services.

Despite the recent diplomatic tensions between Beijing and Canberra, the Middle Kingdom’s still supporting Australia’s economy through trade.

The Australian Bureau of Statistics’ (ABS) ‘International Merchandise Trade, Preliminary, Australia’ report shows China remains our top export market – accounting for nearly 42% of our total goods exports in August.

Rounding up Australia’s top five export markets: Japan, our second biggest export market, buys much less (11.1%); South Korea 5.7%; the US 5.4%; and, India 3.7%. China even purchases more “Made in Australia” goods than the OECD group of nations put together (33.2%).

While Australia also buys most of its imports from China (27.7% of total imports), it has a bilateral trade surplus with Beijing (A$5,241 million as at August 2020). fs

INDEX

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-1.0 MAY18

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Winter of Europe’s discontent hey’ve had their fun in the sun but now, like T it or not (certainly not), Europe could well have to sit it out and hibernate for the winter as the second coming of the coronavirus hits the continent.

There must be something in claims that the weather plays a part in the life and death and transmission of the virus.

The ‘Advisory Board’ published an article at the onset of the pandemic (26 March 2020) stating that, “…the researchers found that a 1-degree temperature increase and a 1% increase in relative humidity were associated with a lower daily effective reproductive number. As such, the researchers wrote that “[h] igh temperature and high relative humidity [can] significantly reduce the transmission of COVID-19”.

Whether it’s the weather or governments’ haste at re-opening (in time for the European

Australian equities CPD Questions 1–3

1. Which equity market index produced negative returns so far this year? a) All Ordinaries index b) MSCI Equity index c) MSCI Emerging Market index d) All of the above 2. Which factor/s is/are supportive of the local equity market? a) Monetary policy b) Fiscal policy c) Both an and b d) Neither a or b 3. The recovery in the Chinese economy should provide support to the domestic outlook. a) True b) False

Figure 2: Eurozone inflation

60

30

Ben Ong

The Financial Standard CPD Program has been developed for professionals governed by the Corporations Act 2001 and hold an AFS Licence which provides an obligation to undertake continuous professional development (CPD). Test your knowledge with the following questions.

[See next page for instructions on how to submit your answers].

4.5

35

Prepared by: FSIU Sources: Factset Prepared by: Rainmaker Information Source:

29

summer), or the flouting of already relaxed social restrictions, one thing is clear, the second wave to Europe has returned.

So much so that governments there are reimposing restrictions.

As per Factset: “German Chancellor Merkel said it will restrict the size of gatherings and fine people who flout rules but indicated there would be no national lockdown. Spain ordered a partial lockdown in Madrid and surrounding areas after a rise in cases. Under the new restrictions, residents will not be allowed to leave the area unless they must make an essential journey.

Meanwhile, France continued to grapple with more hospitalisations and tightened restrictions in the worst affected areas and could close restaurants in Parisregion ... Italian PM Conte said he will ask parliament to extend the country’s state of emergency to the end of January, as the government tries to avoid the surge in cases seen in other European countries.”

The impact on the economy is already captured in the latest IHS Markit Eurozone PMI survey. The composite index dropped back to a three-month low reading of 50.1 in September – the second consecutive month of decline.

Manufacturing activity continued to expand – 53.7 in September from 51.7 in August – due to a strong increase in new orders as export markets re-opened.

However, the service sector posted its biggest contraction (47.6) since May (30.5) as, according to Markit Economics, “face-to-face consumer businesses in particular have been hit by intensifying virus concerns”.

It’s now also reflected in inflation. Preliminary estimates show HICP inflation in the Eurozone dropped to -0.3% – the lowest reading since April 2016 – in September from August’s 0.2% deflation. The ECB’s closely-watched core inflation measure halved to a record low 0.2% from 0.4%. fs

International equities CPD Questions 4–6

4. Which country/ ies recently reimposed some sort of restrictions? a) Germany b) Italy c) Spain d) All of the above 5. Which Eurozone PMI dropped back to a reading indicating contraction in September? a) Composite PMI b) Manufacturing PMI c) Services PMI d) All of the above 6. Based on the HICP measure, the Euro area was in deflation in September. a) True b) False

30

Sector reviews

Fixed interest

Fixed interest

CPD Questions 7–9

7. Why has the UK government re-imposed social restrictions? a) Coronavirus second wave b) Brexit c) Both a and b d) Neither a or b 8. How long is the Treasury’s “Winter Economic Plan” expected to last? a) Three months b) Six months c) Nine months d) 12 months 9. The BOE cut interest rates to negative at its September meeting. a) True b) False Alternatives CPD Questions 10–12

10. How much has iron ore prices appreciated by in the first nine months of 2020? a) -35.5% b) +35.5% c) -58.3% d) +58.3% 11. Which official China PMI measure indicated expanding activity in September? a) Manufacturing b) Non-manufacturing c) Both a and b d) Neither a nor b 12. China is the biggest consumer of iron in the world. a) True b) False

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

All answers can be submitted to our website.

6.0

500000

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400000

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300000

3.0

200000

2.0

100000

1.0

0

0.0

PERCENT

PERSONS

14000

New daily cases

10000

Bank Rate

Total cases - RHS

10Y GILTS

8000 6000 4000

Prepared by: Rainmaker Information Prepared by: FSIU Source: Sources: Factset

2000 0 MAR20

APR20

MAY20

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JUL20

AUG20

SEP20

OCT20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

BOE to go negative?

Ben Ong

J

ust in time for summer, prime minister Boris Johnson declared on April 30 that the UK is “past its peak” of infections, published a roadmap out of lockdown on the May 10 and started gently easing social restrictions and lockdown rules starting on May 13.

The headlines tell what happened thereafter: “UK beaches packed on year’s hottest day after easing of coronavirus measures”, according to ABC on May 21.

“Lockdown? What Lockdown? Heat Wave Brings Britons Out in Droves”, the New York Times reported on June 26.

To be sure, there was no cause for concern – the cases of infection continued its downward trend from a seven-day moving average of around 3700 when restrictions were first eased to 1300 by the end of August.

That didn’t last for long. New daily cases of coronavirus infections in the UK soared

Alternatives

to 9116 on September 29 – surpassing the “first wave” peak of 7860 recorded on April 10 – with new daily cases continuing to rise, reaching a new high of 14,542 infections on October 6.

This has sent the seven-day moving average of new daily cases of infections up to doubledigit figures (10,735) for the first time since the pandemic started.

The country’s second wave has prompted the government to announce new restriction measures that would last “perhaps six months”.

The new restrictions include: pubs, bars and restaurants to close at 10pm and limited to table-only service, working from home if possible, limit on guests at wedding and receptions and indoor sports, face masks compulsory for bar staff and non-seated customers, shop workers and waiters, and fines for beaches doubled to £200 for a first offense and up £10,000 for businesses.

If anything proves the saying, haste makes waste, this is it.

The gains made in containing coronavirus infections are wasted. Not only that, it’s gonna cost more.

UK Chancellor of the Exchequer Rishi Sunak has been forced to top up his “A Plan for Jobs” package announced in early July with the unveiling of a six-month “Winter Economic Plan” Chancellor Sunak is yet to reveal the costing for the new “plan” but whatever it is, it’ll certainly increase the government’s already increased fiscal spend and might need to be increased even more.

The Bank of England (BOE) has kept monetary policy settings unchanged since it raised its asset purchases by £100 billion to £745 billion in June this year.

The second wave has prompted speculations that its next move would be to bring down the Bank Rate from the current 0.1% to negative. fs

Figure 2: Iron ore & Chinese steel production

Figure 1: Iron ore price 160

160

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20 US$/MT

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-8 -12

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2020

Pandemic, what pandemic?

L

Submit

Figure 2: BOE Bank Rate Target 600000

12000

Ben Ong

Go to our website to

Figure 1: UK confirmed Covid-19 cases 16000

ike the “energizer bunny”, the price of iron ore keeps on going and going and going … up.

And this, despite the coronavirus pandemic still doing the rounds of Planet Earth – ongoing first wave or second wave – with worldometer. com’s latest stats showing more than 34 million earthlings afflicted to date, including 7.7 million active cases and over a million deaths.

Iron ore prices ended the first nine months of 2020 at US$123.98/metric tonne, representing a 35.5% rally from the start of 2020 and a whopping 58.3% surge from this year’s low of US$78.33/metric tonne it plumbed in early February, after China put Wuhan in lockdown.

Being the biggest iron ore consumer (69.1% of total world iron imports), what happens to China dictates the direction of the price of Australia’s biggest commodity export.

China’s success in containing the virus posthaste and subsequent lifting of restrictions on

social interaction and business activity has prevented the economy from succumbing to the recession that has struck most nations around the world. As the OECD’s September 2020 Economic Outlook Interim Report puts it, “All G20 countries with the exception of China will have suffered recession in 2020”.

Chinese GDP grew by 3.2% in the year to the June quarter after contracting by 6.8% in the first.

Recent stats indicate the economy continuing to move onwards and upwards. The country’s official manufacturing PMI rose to a reading of 51.5 in September from 51.0 in the previous month, for its seventh straight month of expansion since the record low reading of 35.7 in February. The non-manufacturing PMI improved even more – to 55.9 from 55.2 in August and the record low 29.6 of seven months before.

The revival of the world’s biggest iron ore importer’s economy could only mean good tidings (or at least, a helping hand) to Australia -- the

world’s largest iron ore exporter -- which accounts for around 50% of total world iron ore exports.

This becomes especially crucial at a time when the Morrison government unveiled more fiscal stimulus to the Australian economy.

The continued buoyancy in iron ore prices offer it extra spending power.

In its Budget 2020-21, the government estimates the country’s underlying cash deficit to balloon to A$213.7 billion (11.0% of GDP) this fiscal years from A$85.3 billion (4.3% of GDP) in the 2019-20.

Anything could happen between now and the end of the year but given China’s strengthening economy, chances are iron ore prices would remain around the US$100/tonne mark, if not higher – supporting Australian government revenues.

Iron ore prices would also remain buoyant even if China’s outlook weakens as Beijing tries to mitigate any slowdown with increased infrastructure spending. fs

Sector reviews

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: BuyersBuyers.com.au & Riskwise

ousing in high-crime areas of Sydney and H Melbourne is outperforming the property market, according to the latest insights from BuyersBuyers.com.au and Riskwise Property Research.

Comparing the city median to the five-year growth of high-crime areas, Riskwise identified suburbs with higher crime rates are trumping their perceived safer neighbouring suburbs.

The Sydney suburbs analysed were Liverpool, Auburn, Bankstown, Busby, Granville, Greenacre, Greenfield Park, Guildford, Merrylands and Punchbowl. The Melbourne suburbs were Ascot Vale, Braybrook, Brunswick, Caulfield, Craigieburn, Frankston, Frankston North, Kurunjang, Preston and Williams Landing.

“Despite the stigma that’s typically attached to areas with crime issues, and the potential challenges that go with that over the short term, over a reasonable timeframe this has tended to be outweighed by the combined benefits of affordability, convenience of location, and gentrification, from a housing market performance perspective,” BuyersBuyers.com.au co-founder Pete Wargent said.

Higher crime, higher housing demand Jamie Williamson

“Of course, it doesn’t follow that we see buyers actively seeking out crime hotspots, but our experience - and now the actual research figures - show that these other factors tend to be bigger drivers of housing prices over time.”

There are other broader trends contributing too, including land scarcity and undersupply of houses in the cities, Riskwise chief executive Doron Peleg said, leading to greater demand in high-crime areas.

In Sydney, the 10-year capital growth rates for houses in all 10 high-crime suburbs analysed by Riskwise materially outperformed the Greater Sydney growth rate, with the weakest performer (Granville) still outperforming the wider market median price growth by 7%. In Melbourne, eight high-crime suburbs outperformed the Greater Melbourne growth rate and, while two other suburbs slightly underperformed, they still showed strong capital growth.

The trend doesn’t always extend to units, however. Units in high-crime areas have delivered stronger results while the same in Mel-

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bourne have underperformed the market. This is due to an oversupply of units in the city, Wargent said.

“In Sydney the 10-year capital growth rates in six (of the eight areas where valid data was available) high-crime suburbs materially outperformed the Greater Sydney growth rate.

Granville performed just above the market while Guildford slightly underperformed but still showed strong capital growth,” Peleg said.

“While Sydney’s median unit price sits at $761,792, Melbourne’s is $575,009, making it significantly more affordable.”

Wargent said it goes to show that high-crime rates don’t necessarily impact property price growth.

“Investors commonly attribute too much weight to crime figures or perceived problem locations, and should more objectively analyse the financial risks when making property investment decisions,” he said.

“Investors should more objectively analyse the financial risks when making property investment decisions.” fs

13. What broad trends does Riskwise’s research reveal? a) Oversupply of land has led to less demand in high-crime areas b) Undersupply of city houses has led to more demand in high-crime areas c) Investors don’t attribute too much weight to crime statistics d) Oversupply of city houses has led to demand in high-crime areas 14. The downside of being a high-crime area can be offset by which of the following? a) Convenience of location b) Gentrification c) Affordability d) All of the above 15. Riskwise found that high-crime rates don’t necessarily impact property price growth. a) True b) False

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Profile

www.financialstandard.com.au 26 October 2020 | Volume 18 Number 21

PASSION OF A LIFETIME Lakehouse Capital chief investment officer Joe Magyer began investing long before he could drive, and has a competitive streak that has seen his funds outperform their peers by leaps and bounds. Ally Selby writes.

often that one’s family can instill a pasIlivest’ssionbynotwithin us so deep that it takes hold of our the shirt collar, throwing all other future career possibilities to the wind.

For Joe Magyer, this passion was investing, and would be passed on like a baton from his grandfather, a successful entrepreneur who retired young and kept himself busy by making things with his hands and investing.

At a very early age, Magyer and his grandfather would spend hours together discussing markets and business, while his cousins and brother reveled in the simplicity of youth, playing among the pine trees by the cabin his grandfather built on glistening Lake Burton, north east of Atlanta, Georgia.

It was here, at the lakehouse, where Magyer’s grandfather would coach the future investment leader on the kinds of companies - and people worth backing.

“While most of the kids would be out swimming or shooting things with BB guns, I would be hanging out with my grandfather, reading books and talking to him about investing,” Magyer recalls.

His grandfather was big on 13th birthdays, Magyer says, and it was tradition for him to gift his grandchildren a large present to mark the occasion.

“One of my cousins got a piano, another got a hunting rifle, and he bought me 10 shares in the world’s largest carpet manufacturer; I was thrilled,” he says.

“I had the paper stock certificate and I would get quarterly dividend checks in the mail. So I was curious about investing from a very early age and it’s been a big part of my life ever since.”

This early education with his grandfather, as well as a hard-working figurehead in his father (a small business owner), helped set Magyer on his course for success.

“Between my grandfather and my dad, I guess I’ve had a very good perception of what it takes to succeed in the hustle and they certainly taught me to put in what it takes,” he says.

Amid finishing up an undergrad in Georgia, and kicking off his career in investment banking, Magyer harboured dreams of one day working for The Motley Fool, having fanatically followed it since his teenage years.

In proving the power of the law of attraction, he would go on to nab a role with the investing advice company at its headquarters in Alexandria, Virginia, after just two years in investment banking.

Although he loved it; the people, the culture, Magyer developed an “itch” to explore outside of his comfort zone, as both a person and as an investor. And, as luck would have it, a role opened up for a senior investor within The Motley Fool’s research business in Australia.

Newly married, child-free and without a home tying them down, Magyer and his wife

took the proverbial plunge and packed their bags for Sydney.

“I initially started covering small caps, which was interesting because I literally knew zero about Australian small caps when I moved to the country,” he recalls.

“I was thrown into the deep end of the pool.”

In a way, this made for a steep learning curve, with Magyer quickly picking up the tricks of the trade.

“I had to learn about all kinds of new business models, new regulatory frameworks, approaches to capital allocation, and the differences in the way chief executives and boards think about risk,” he says.

“I definitely learned a lot early on, but it was fun and rewarding.”

After about a year down under, Magyer decided to start a high-conviction small cap portfolio with The Motley Fool’s own capital, with readers subscribing to a newsletter to see what he was buying, when and how much.

“It developed a pretty big following and after two and a half years we were up 82% gross cumulatively, and our benchmark was up 15%.

So we built up a lot of trust with our followers,” Magyer says.

During this time, Magyer got to better know his colleague Donny Buchanan. Together, they realised they could better serve the newsletter’s loyal followers by co-founding a fund and “actually managing money for people”. And so, Lakehouse Capital was born.

“We didn’t know what to expect,” he says, as while The Motley Fool manages over US$4 billion globally, this would be its first foray in investment management on Aussie shores.

“We ended up getting roughly $50 million in applications in the first 24 hours,” Magyer says, rightfully chuffed.

Lakehouse Capital launched its Global Growth Fund a year later and now has a team of 11 on staff.

Its Small Companies Fund has returned 11.3% over the last 12 months to September 30, and 25.4% per annum over three years. The benchmark S&P/ASX Small Ordinaries Index has returned -3.3% and 6.5% over the same periods. Since inception in mid-November 2016, the fund has returned an impressive 23.7% per annum, compared to the benchmark’s 7.6%.

Similarly, Lakehouse Capital’s Global Growth Fund has returned 39.4% over the year to the end of September, and has returned 25.2% since its inception at the beginning of December 2017. Its benchmark, the MSCI All Country World Index net total returns (AUD), has returned 3.9% and 8.2%, respectively.

However (and perhaps despite) these enviable returns, Magyer isn’t one to rest on his laurels.

“Our investors trust their hard earned savings with us and for the average investor it’s a big part of their nest egg,” he says.

“That means a lot to us and we have to hustle every day to earn that.”

Between my grandfather and my dad, I guess I’ve had a very good perception of what it takes to succeed in the hustle and they certainly taught me to put in what it takes.

John Magyer

The secret to success, Magyer says, is a sound, repeatable process.

“A big focus for us is asymmetric outcomes, where we’re trying to find situations where we think an investment has multiple ways to win and a few ways to lose,” he says.

It is with this mindset that Magyer and his team set out to find investments, scouring local and international bourses for businesses with new products, new geographies, latent pricing power and the liquidity to make savvy, strategic investments.

Combine that with a strong balance sheet, reasonable valuation, and strong relationships with suppliers, and you will likely have a winner on your hands, Magyer says.

“We back great growth companies and we’re not shy about it,” he says.

“We don’t try to make big macro calls or try to be all things to all investors, we don’t invest in cyclical capital-hungry businesses, we don’t bounce around the market, we don’t try to get too cute; we have a framework that works for us and we stick to it.”

And now, with two children of his own, Magyer is ready to pass the investing baton on.

“I don’t want to shove them down a path,” he says.

“But I will say if either of the kids wanted to go into investing, it would make me incredibly happy.” fs

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