Financial Standard Volume 18 Number 22

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23 November 2020 | Volume 18 Number 23

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AMP Capital

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Feature:

Profile:

Product showcase:

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Executive appts:

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Opinion: John Harvey Bennett and Philp

2021 Outlook

Events:

32

John McMurdo Australian Ethical

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www.financialstandard.com.au

23 November 2020 | Volume 18 Number 23

09

12

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AMP Capital

AMP, LUCRF Super, State Super

Retirement Income Forum

Feature:

Profile:

Product showcase:

11

Opinion: John Harvey Bennett and Philp

Admin fee exclusion misses the mark Karren Vergara

he exclusion of administration fees as a T key metric in prescribed benchmarks calls into question the logic and accuracy behind the newly proposed MySuper performance test.

The annual test, slated to take effect on 1 July 2021 under the federal government’s Your Future, Your Super package of reforms, will prohibit super funds from taking on new members if they underperform their benchmarks by 0.5 percentage points for two years in a row.

It is the focus on net investment returns – which factors in investment fees, costs and taxes but omits administration fees – that left MP Andrew Leigh, the deputy chair of a recent Standing Committee on Economics inquiry into super, dumbfounded by the logic.

“Why shouldn’t there be performance benchmarks that include all fees and costs? A fee is a fee; at the end of the day, it’s money that is coming out of the account,” Leigh asked the leaders of retail super funds appearing before the committee.

The new test adds another layer of red tape to the industry, designated as the primary tool for measuring underperformance. APRA’s yearly performance reviews under the heatmap (which separates admin fees in its calculations) and member outcomes assessment will be amended accordingly to work alongside the new test.

Mills Oakley Lawyers partner Mark Bland says excluding admin fees puts this metric of underperformance out of sync with PDSs and dashboards.

Consequently, members with low balances may be encouraged by the fledgling comparison tool to move to funds with high admin fees

but strong investment performance and as a result will be “worse off”.

APRA confirmed to Financial Standard that it expects to continue to produce the heatmap into the future, including versions for choice products, in conjunction with the new test.

Talking to the heatmap, APRA determined that developing assumptions for a benchmark level of admin fees to be “simplistic and doesn’t adequately capture the complexities of fee structures”.

Fee structures (particularly admin fees which have a fixed-dollar component and a percentage-based component, as well as fee caps) have different impacts according to account balance size, a spokesperson said.

BT general manager superannuation Melinda Howes appeared before the hearing, explaining why a staggering number of BT MySuper products were slapped with a “sea of red” in the first iteration of the heatmap for underperforming and charging sky-high admin fees.

Mercer Australia chief executive David Bryant also admitted before the committee that admin fees charged as high as 2.3% across several of the retail fund’s products were “not where we want to be placed” on the heatmap.

In response to Leigh, Howes says any future changes to fee disclosures will not make a difference in how BT reports.

“We are transparent on all fees that we deduct whether they be dollar or percentage based and we disclose everything on a post-tax basis as required,” she says.

“Whichever way [the regulators and the benchmark choose] to be implemented, as long as it is on a like for like basis across the industry we’d be comfortable with that.” fs

Executive appts:

14

2021 Outlook

Events:

32

John McMurdo Australian Ethical

ASIC consults on scaled advice Annabelle Dickson

Melinda Howes

general manager superannuation BT

The Australian Securities and Investments Commission (ASIC) is calling on financial advisers to provide feedback to its consultation paper on affordable scaled advice.

As previously announced last month, ASIC’s latest consultation paper, Promoting access to affordable advice for consumers, is looking to explore the issues relating to the supply of good quality affordable advice and what steps can be taken for consumers to access it.

ASIC is seeking feedback from advisers as to whether they are currently providing scaled advice, how many times they would provide it each year, whether they would like to provide Continued on page 4

Culture creates better outcomes Investment leaders from around the world believe workplace culture is more integral to influencing good organisational outcomes than business strategy, a new study shows.

The Thinking Ahead Institute’s latest survey of 27 global decision makers from 15 investment organisations with assets under management over US$8.5 trillion, undertaken by Willis Towers Watson, reveals 89% of respondents believe culture is more important than business strategy for outcomes.

In addition, 80% consider COVID-19 as a catalyst for focusing more attention on organisational culture.

Willis Towers Watson Australia head of Continued on page 4

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www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

AustralianSuper backs net-zero emissions

Editorial

Karren Vergara

Jamie Williamson

A

Editor

Schadenfreude. It’s one of the most complex emotions humans are capable of feeling yet we probably feel it more than we’d like to admit.

A 2014 study from the University of Haifa in Israel found that humans derive pleasure or joy from others’ misfortune from as young as two years of age. The only difference is that, as we age, we learn to conceal that joy; beaming on the inside while outwardly stoic as we watch our arrogant co-worker spill coffee down their front.

As I write this, the Australian Securities and Investments Commission is appearing before a Parliamentary Committee to explain the recent overpayment scandal involving chair James Shipton and now-former deputy chair Daniel Crennan.

For the financial advice sector in particular, I can imagine this whole saga offering many a little sense of schadenfreude.

And how could it not? The regulator has tarred financial advisers as a fee-grabbing industry with questionable ethical standards.

Then, it turns out two of the leaders of that same holier-than-thou regulator were quite happy to take home extra money.

While what happened at ASIC is somewhat different, it seems everywhere you turn, pay packets are under scrutiny at the moment.

With AGM season upon us, and several listed companies have copped first strikes for their remuneration reports.

A first strike occurs when 25% or more of shareholders vote against the remuneration of key management personnel.

So far, Challenger and Evans Dixon are just some of the companies whose reports received a first strike.

They were still carried, as those in favour constituted more than 50% of shareholders, but come next year they must demonstrate that they took those shareholder’s concerns into account when they deliver the next report, or risk a board spill.

Many would argue that those in the leadership teams of ASX-listed, particularly financial services, companies have long been overpaid, but COVID19 has certainly magnified the issue.

And it’s not just public companies that are being targeted, with the AFR calling out Association of Superannuation Funds of Australia chief executive Martin Fahy for the minimal pay cut he took this year (down 3.5% to a miserly $682,000), all while the association was claiming $350,000 worth of JobKeeper.

Meanwhile, at some of the funds ASFA represents, pay cuts were deeper. LGIAsuper, for example, handed a 10% cut to executives in April and committed to this staying in place for several months.

It seems a new era is emerging where executives cannot expect to take home the pay packets they once did without at least facing some scrutiny in the court of public opinion.

Is that schadenfreude? I’m not sure, but I don’t think it’s a bad thing. fs

The quote

While there are some positive elements to the new policy, it does not categorically rule out coal mining or coal power investments.

ustralianSuper is pledging to achieve netzero carbon emissions in its investment portfolios and ramping up its commitment to renewables.

Following a board meeting in October, the super fund decided it was in members’ best interest that it positions its portfolio to a net-zero outcomes by 2050.

Since 2013, AustralianSuper has been measuring the carbon intensity of its equity portfolios via external consultant S&P/Trucost, and has made significant progress in reducing its carbon intensity by 44%, director of ESG and stewardship Andrew Gray said.

The super fund’s Australian and international share portfolios have emitted 44% less carbon than the market index.

Gray said the super fund will work with initiatives such as Climate Action (CA) 100+, the Australian Industry Energy Transitions Initiative and Climate League 2030 to achieve its target. It has also committed to invest $1 billion in renewables by the end of 2022.

The Climate Council describes net zero emissions as balancing the amount of greenhouse gas emissions produced and taken out of the atmosphere.

Net zero means being able to still produce some emissions, as long as this is offset by processes that reduce greenhouse gases already in the atmosphere, like planting new forests.

To get to net zero, companies should emit new greenhouse gas as low as possible, which means rapidly phasing out fossil fuels such as coal, oil and gas, and transition to renewable energy, the Climate Council said.

However, the promise from AustralianSu-

per was met with criticism from MarketForces.

“While there are some positive elements to the new policy, it does not categorically rule out coal mining or coal power investments, set a path to exiting the oil and gas sector, nor set short- and medium-term decarbonisation targets,” MarketForces said, which also took note of the fund confirming it has no active (but still passive) investments in thermal coal companies.

Eight of the largest 40 super funds now exclude investment in thermal coal miners like Whitehaven Coal and New Hope Group, according to the group. These are Aware Super, HESTA, UniSuper, Suncorp, NGS Super, Vision Super, Local Government Super, and Media Super, while Local Government Super and NGS also exclude investments in coal power generators like AGL. “The fund has made some good progress on decarbonising its portfolio over the past six years. However, without any interim emission reduction targets or immediate commitments to divest from the most emissions-intensive companies, there is nothing to ensure AustralianSuper will do anything to reduce the climate impacts of its investment portfolio in the shortterm,” MarketForces said.

“Further, the emissions intensity reductions achieved by AustralianSuper so far don’t take into account the emissions caused when investee companies’ products are used, as these downstream ‘scope 3’ emissions are not included in AustralianSuper’s portfolio emissions calculations. As an example, gas producer Woodside’s scope 3 emissions are almost 10 times as large as its operational emissions (scope 1 and 2), but these are not included in AustralianSuper’s portfolio emissions.” fs

World’s largest asset owners increase assets, ESG focus Annabelle Dickson

The largest asset owners in the world have increased both their monetary and social reach with active ownership becoming a key investment strategy, according to new research.

The Thinking Ahead Institute’s Asset Owner 100 (AO100) report shows the largest asset owners in this group grew by 6% to US$20 trillion in 2019.

The AO100 have integrated ESG and active ownership more steadily, aiming to have actual impacts by reporting on the impacts of their investment strategies and reducing carbon emissions from portfolios.

Thinking Ahead Institute co-founder Roger Urwin said the larger funds within the AO100 are also using universal owner strategies which aim to safeguard the financial system in conjunction with climate related risks without sacrificing returns.

“This is consistent with a new era of ESG – which we call ESG 3.0 – that is fundamentally different from previous versions in that it includes real-world impacts on the environment and society, while delivering better outcomes for beneficiaries,” he said.

The APAC region is the largest in terms of

assets under management, looking after 36.1% of all assets, while pension funds remain the single biggest group of asset owners accounting for over 60% of assets, followed by sovereign wealth funds at 32% and outsourced chief investment officers (OCIOs) and master trusts combined at 7%.

AustralianSuper ranked 43rd in the Asset Owner top 100 followed by Future Fund at 57th, Tcorp at 86th, Nulis Nominees at 89th, Aware Super 90th and BT Funds Management at 98th.

The largest asset owner is the Government Pension Investment Fund of Japan with US$1.55 trillion in AUM followed by the Government Pension Fund of Norway at US$1.06 trillion and China Investment Corporation at $940 billion.

Furthermore, Willis Towers Watson Australia head of strategic advisory Jessica Melville said asset owners continue to have more influence compared to asset managers due to stronger leadership.

“Governance is improving but has historically lagged other financial services organisations; we suggest that there are up to 20 very large asset owners globally that are well-governed, with effective cultures, providing leadership for others as a considerable force for change,” she said. fs

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www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

01: Grant Hehir

ASIC consults on scaled advice

auditor general Australian National Audit Office

Continued from page 1 limited advice and whether their licensee supports the provision of scaled advice.

The regulator would also like to hear from licensees to understand the extent to which demand for advice has increased or decreased and the most common topics advisers are advising on.

Where limited advice is provided, ASIC wants to know what topics are typically covered, the kind of arrangement such advice is provided under, the barriers to doing so and the limited advice services the licensee would like to provide in future. ASIC also wants to know the support each licensee offers to advisers in providing limited advice.

For those licensees not allowing the provision of limited advice, ASIC wants to know what’s stopping them.

ASIC senior executive leader, financial advisers Kate Metz said at the Association of Financial Advisers Conference that ASIC has given guidance in the past that supports limited or scaled advice but are hearing from licensees that they don’t want their advisers in that space.

“We are open to suggestions but certainly we don’t want to continue with the status quo where people feel unable to provide limited advice or trapped into providing lengthy documents where, honestly, a consumer is never going to read,” she said.

The paper is part of ASIC’s Unmet Advice Needs project and acknowledges the changes the advice industry has undergone in recent years, highlighting the 14.9% decrease in financial adviser numbers on the Financial Adviser Register to 21,284. fs

Shipton’s tax bill scrutinised Elizabeth McArthur

T The quote

That’s where you get the issue - where the person doing the approvals is subordinate to the person requesting the approvals.

Culture creates better outcomes Continued from page 1 strategic advisory Jessica Melville defined culture as “supporting positivity of mindset and action, leveraging a strong sense of purpose to help colleagues and clients through difficult times.”

However, the three areas that require the most attention within culture are diversity and inclusion (92%), people and teamwork ethos (79%) and innovation (62%).

Co-founder of the Thinking Ahead Institute Roger Urwin said the results are “tremendous” validation of the group’s thesis that an emphasis on culture and purpose will result in organisational success.

“Notwithstanding, we believe that organisations that invest proportionately more time and attention in cultural progression will be more resilient as a result; particularly if they work to a dashboard checking in on progress,” he said.

“Beyond that, the biggest return on time invested in culture seems to be through engaging employees at all levels on how culture works for them, followed by increasing the weighting of culture in performance management reviews and in incentive compensation.”

Lastly, he said senior leaders have the ability to guide culture by personal example.

But the biggest cultural issue that the respondents believe the investment industry needs to pay attention to is silo issues (69%). fs

he Australian National Audit Office (ANAO) has answered questions in regards to the remuneration of ASIC chair James Shipton and former deputy chair Daniel Crennan.

At the parliamentary joint committee on corporations and financial services, chair of the committee Senator James Paterson asked auditor general Grant Hehir 01 about the relocation expenses ASIC paid Shipton and Crennan, and about Shipton’s tax bill.

Shipton had an agreement that ASIC would pay for his tax advice as part of his remuneration. There were three procurements of tax advice from KPMG made by ASIC. These appear to have each been for Shipton to receive personal tax advice.

Each procurement had a value of $25,000, bringing the total tax bill for Shipton to $75,000.

Hehir acknowledged issues of governance over the procurement of tax advice within ASIC. It was not clear why ASIC procured the tax advice rather than Shipton procuring it himself and then being reimbursed by ASIC. Paterson pointed out that following the ANAO raising the issue with ASIC, the regulator made more files available to the ANAO. This included documents in relation to the tax advice from KPMG. “They were making payments to the chair flowing from an initial agreement when the chair was appointed to provide taxation advice. Our

concerns around that were that the initial advice was for a much lower figure…” Hehir said.

“The original decision to undertake the procurement was for $9000.”

When KPMG was approached to provide the advice and quoted $9000, that amount was under the threshold at which ASIC would have to apply greater scrutiny to the issue or source quotes from other firms.

Subsequently though, costs went far above that - to $75,000. And, it wasn’t clear why KPMG received three separate procurements adding up to that $75,000 amount.

The ANAO also hasn’t seen any documented evidence that the services were provided for three procurements of $25,000 each.

“When invoices came in for [the tax advice] we didn’t see documentary evidence for the approval of the services provided. The approval was probably done by the head of HR,” Hehir said.

“That’s where you get the issue – where the person doing the approvals is subordinate to the person requesting the approvals.”

The ANAO’s scrutiny of remuneration within ASIC was not unusual but what was unusual, he admitted, was drawing the discrepancies to the attention of Treasury rather than to the accountable authority (that is because ASIC is the accountable authority).

In five years with the ANAO, this was the first time Hehir had written a letter to a minister on such a matter. fs

COVID-19 spurs proactive investing: Study Karren Vergara

Australians are the most anxious about the impact COVID-19 will have on their portfolios but are also among the most proactive investors, according to a global comparison.

Calastone’s survey of 1800 retail investors from Australia, UK, USA, Germany, Hong Kong, and New Zealand found the majority are not confident about their ability to manage their investments and constantly worry about future financial security.

Compared to global investors, Australians are more worried about their future financially due to COVID-19 (72% versus the 65% global average).

During this volatile period, over a third of Aussies tend to invest or make adjustments to their portfolios, compared to New Zealanders (24%), Germans (23%), and UK (26%) and Hong Kong investors (29%).

Less than half (44%) of Aussie investors who identified as proactive investors are satisfied with the amount of fees they pay, meaning most understand how fees are applied to investments. Only 17% feel the fees they pay are too high.

Some good news, only a minority (20%) view financial services negatively. Of the few that mistrust their financial institution, 68% cite a lack of trust, 62% think fees are too high

and 48% say the industry lacks transparency. More than half believe the bad news they hear about financial institutions in the press.

Many are also frustrated with the lack of understanding.

The country’s financial education gap remains significant, Calastone found, as little more than a third (36%) of Australians have a good understanding of investing.

“Education is not the only factor likely to boost investor engagement; product design and features also require a rethink, say respondents who already invest. Low risks are important to Baby Boomers, but notably less so for succeeding generations,” Calastone managing director and head of Australia and New Zealand Ross Fox said.

For the younger investors, cost, size, visibility of investments are important factors.

Calastone also found that retail investors are open to buying investments from supermarkets and big technology companies.

“Australian investors bucked the global trend in being more willing to buy financial products and services in the future from supermarkets (43%) than technology companies, should these become alternative providers of investment services,” the report read. fs

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www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

CountPlus adds MLC practice

01: Mark McVeigh

plaintiff

Karren Vergara

Ascent Private Wealth joined CountPlus as a member firm, leaving the MLC dealer group shortly after it was acquired by IOOF. Melbourne-based practice Ascent has been part of the Godfrey Pembroke network since 2001.

Ascent founder Mark O’Toole said the decision to move was made easier after discovering the cultural alignment between the respective businesses.

“As a small business, it’s important that our licensee partner operates as an extension of our practice, allowing us to tap into resources which ultimately help us to deliver advice more efficiently and effectively,” he said.

O’Toole said CountPlus has a clear separation between product and advice, which he believes is how the “best client outcomes can be achieved”.

“They also have a strong balance sheet and have invested in robust compliance and technology systems to enable us to better deliver quality advice to clients,” he said.

O’Toole is a former director of the Financial Planning Association of Australia and founding chair of Godfrey Pembroke’s advisory board.

On November 10, CountPlus announced it sold its 61.28% interest in Specialised Business Solutions to The MBA Partnership. CountPlus has a 62.03% stake in The MBA Partnership.

Small & Gunn and Arch Capital have recently transitioned to the network. fs

Macquarie profits slide 32% Macquarie Group reported $985 million in net profit for the six months ending September, 23% lower than the previous half and 32% lower than same period last year.

“Recent months have been overshadowed by the profound human impact of COVID-19 global health crisis and its economic consequences,” Macquarie chief executive Shemara Wikramanyake said.

“Those impacts are reflected in our results, notably in credit and other impairment charges in relation to the ongoing impact of COVID-19 on our clients and customers and in delays to realising assets from our balance sheet and our funds.”

Macquarie Asset Management, which contributed 47% of the net profit, was impacted by lower Macquarie AirFinance income and lower performance fees. This was partially offset by the sale of Macquarie Rail in the period.

The banking and financial services business, which includes platform and wealth brought in 14% of net profit, was hit by margin compression on deposits, increased credit impairment charges and costs to support clients during COVID-19.

Funds on its platforms (Wrap and Vision) grew to $89.3 billion at September end, which is an increase of 20% since March.

The expanded Macquarie Wrap managed accounts offering added $1 billion in the same period, to $4 billion.

Wealth management fee income was $136 million, down from $144 million in the same period last year.

Across the group, Macquarie had $556.3 billion a decrease of 7% from March end. fs

Rest climate case dismissed Elizabeth McArthur

T The quote

Today’s settlement gives me, and Rest’s almost two million members, the reassurance that we need to know that our retirement savings will be invested responsibly.

he Federal Court case brought by Mark McVeigh01 against the $57 billion industry super fund has been dismissed.

On the day it was due to be heard Justice Perram ordered that by consent the case was to be dismissed.

McVeigh and Rest have been ordered to each bear their own legal costs. McVeigh was never seeking financial compensation from his super fund, instead asking Rest to make certain commitments to tackling climate change and to recognise its role in mitigating climate change as an investor.

It seems Rest agreed with all of McVeigh’s requests, making a trial unnecessary.

In a statement, Rest acknowledged that climate change could lead to catastrophic economic and social consequences and is an important concern of its members.

The fund also acknowledged that climate change is a direct, material and current financial risk.

“Rest agrees with Mr McVeigh to continue to develop its management processes for dealing with the financial risks of climate change on behalf of its members,” the fund said.

It committed to achieving net zero carbon emissions by 2050 and to a series of other actions in relation to climate change, all of which the fund said McVeigh acknowledges and supports.

These including measuring and reporting climate related outcomes in-line with the Task Force on Climate-related Financial Disclosures and encouraging investee companies to do the same, publicly disclosing the fund’s portfolio holdings, enhancing consideration of climate

change risk when setting investment strategy positions, actively considering climate change related shareholder resolutions of investee companies, conducting due diligence and monitoring of investment managers’ approaches to climate risk and continuing to develop a climate change policy and internal risk framework.

“Today’s settlement gives me, and Rest’s almost two million members, the reassurance that we need to know that our retirement savings will be invested responsibly in the face of the climate crisis,” McVeigh said.

“This case is a ground-breaking recognition of the material financial risk that climate change poses to the economy and society, and the role that superfunds have in managing it. I hope it will go some way to catalysing the Australian super fund industry, which, with almost three trillion dollars under management, has the potential to make or break our climate response.”

The trial was adjourned twice on the day before being dismissed.

JANA, Rest’s asset consultant, had also been dragged into the matter. JANA filed an affidavit in relation to the case at the start of September and was listed as an interested party on the dismissal notice.

McVeigh’s case against Rest’s trustee alleged that he had a right to certain information pursuant to section 1017C of the Corporations Act. The information McVeigh was interested in related to the impacts climate change could have on his retirement savings with Rest.

After McVeigh’s initial claim was filed, Rest did correspond with him. However, McVeigh remained unsatisfied that his super fund was doing enough to manage climate change risk. fs

FASEA urged to clarify in-house product conflicts The Institute of Managed Accounts Professionals (IMAP) has written to FASEA again, arguing that its latest guidance on the Code of Ethics leaves much to be desired.

IMAP’s main issue is with Standard 3, which seeks to eliminate conflicts of interest from financial advice.

In the latest guidance, FASEA clarified that where advice is in the best interests of the client, safe harbour has been followed, fees are reasonable and disclosure has been made, standard three is likely to have been met.

IMAP said while some of that guidance was clear, some of the information in the guidance was “misleading and confusing”.

“Conflicts are generally assessed as ‘potential’, ‘perceived’ or ‘actual’. In this and previous guidance, FASEA has suggested that Standard 3 only applies when there is ‘actual’ conflict,” IMAP said.

“However, the disinterested person test sets out a ‘perceived’ conflict and defines it as ‘actual’. It states that if a ‘disinterested person’... ‘would reasonably conclude’… ‘that the arrangements could induce the adviser to act.’ This is a textbook definition of a ‘perceived’ conflict and it is not helpful in terms of achieving the

intention of Standard 3, which is to ensure that adviser avoid all ‘actual’ conflicts.”

The association argued that advice should be assessed as it applies to each individual client, not in a bulk fashion.

“An adviser cannot fail Standard 3 in bulk any more than they can comply with Standard 3 in bulk,” IMAP said.

“However, we fear that disinterested person test could be used as a broadsword to ‘knock out’ all 100 files in one hit, based on a perceived conflict by a disinterested person - without any reference to the specific recommendations made to each client.”

The Financial Planning Association of Australia (FPA), in its submission, agreed that standard three has some issues.

“The FPA remains concerned that the wording of standard three remains unchanged and that this guidance may or may not be considered or followed in decisions by a disciplinary body or an EDR scheme,” it said.

“The FPA strongly recommends that the text of standard three be amended to reflect the reasonable person test and the flexibility that it allows in looking at the materiality of a conflict of interest.” fs

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The Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) (“Zenith”) rating (assigned November 2019) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at http://www.zenithpartners.com.au/ RegulatoryGuidelines The rating issued 03/2020 is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Ratings are general advice only, and have been prepared without taking account of your objectives, financial situation or needs. Consider your personal circumstances, read the product disclosure statement and seek independent financial advice before investing. The rating is not a recommendation to purchase, sell or hold any product. Past performance information is not indicative of future performance. Ratings are subject to change without notice and Lonsec assumes no obligation to update. Lonsec uses objective criteria and receives a fee from the Fund Manager. Visit lonsec.com.au for ratings information and to access the full report. © 2020 Lonsec. All rights reserved.

8

News

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

US manager eyes Aussie market

01: Steven Kennedy

Treasury Secretary

Kanika Sood

A fund distribution business co-founded by Schroders’ former head of institutional sales has signed on a US-based global equities manager looking to tap into the Australian market.

Axius Partners will distribute Polen Capital’s high-conviction global growth and global emerging market strategies to Australian wholesale and institutional investors.

Polen started in 1979 and now manages about $70 billion, of which about $5.2 billion is in its global growth strategy.

Axius Partners is a nine-year old placement agent and advisory firm co-founded by George Giovas, who spent 23 years at ANZ including as its global head of real estate and John Maragiannis, who was head of institutional sales at Schroders and Credit Suisse Asset Management in Australia.

Giovas and Maragiannis are both board members at local equities boutique Selector Funds Management.

Polen’s global growth equities strategy has returned 16.49% p.a. in gross returns since its January 2015 inception, which is an outperformance of 8.97% p.a. to MSCI ASCWI’s 7.52% over the period.

“These strong returns coupled with unique investment methodology sets apart Polen from other managers in this space,” Axius said in a statement.

“Axius is delighted to be working with Polen given its successful approach to investing, high quality returns and strong focus on people and culture.” fs

RBA measures not solely due to COVID: Treasury Eliza Bavin

T The quote

It is likely due to some combination of population ageing, the productivity slowdown and lower preferences for risk among investors.

Super funds overlook digital Karren Vergara

The inaugural Superannuation Stealth Survey conducted by SS&C Technologies found that the younger cohort of the 18 to 70-year-olds canvassed held “neutral to negative feelings” about their super fund.

This suggests that funds need to better engage their members at an earlier age, the survey found, adding that members overall want their super funds to improve their digital communication.

The majority (90%) want to be contacted electronically, while one third (38%) want to engage with their super fund about planning for their retirement.

Of the 208 participants, many expressed their frustration about being kept in the dark about fees and charges and regulatory changes that affect them, underscoring the need for super funds to initiate conversations about these topics.

Additionally, more than 80% reported they have not accessed retirement planning tools on their fund’s website and nearly two thirds (59%) do not know how to use them. Members also expressed a strong preference for mobile apps.

A recent study of 2850 super fund members by Forrester found that only half were satisfied with their provider’s website and mobile app.

Sunsuper however, scored highly for its website and mobile phone app capabilities, leading to improved contact resolution and selfservice adoption. fs

he unconventional monetary policy measures launched by the Reserve Bank of Australia are not solely a result of the COVID-19 shock, Treasury Secretary Steven Kennedy 01 said.

Speaking to Australian Business Economists for a post-budget briefing, Kennedy said the neutral or natural interest has been steadily falling globally over the past 40 years.

“Lower neutral interest rates mean there is less space for monetary policy to operate before hitting the effective lower bound,” he said.

“The declining neutral rate is due to structural developments that drive up savings relative to the willingness of households and firms to borrow and invest.”

Kennedy said that while COVID-19 was certainly the factor that pushed the central bank to take the leap of quantitative easing measures, the country was already heading in that direction.

“While the academic research is not settled on the relative importance of different structural drivers, it is likely due to some combination of population ageing, the productivity slowdown and lower preferences for risk among investors,” Kennedy said.

“A number of central banks have suggested that interest rates will not rise for many years.”

Kennedy said even when the cash rate returns to neutral levels, monetary policy will have reduced capacity to respond to negative shocks.

“If the neutral rate of interest falls further there will be even less space,” he warned.

“This raises fundamental issues for the operation and coordination of macroeconomic policy including the appropriate role of fiscal policy as a cyclical stabilisation tool.”

Kennedy said there is now a question of whether the bar should be lowered for government intervention when fiscal policy is required.

“Monetary policy setting through central banks has traditionally been the preferred macroeconomic stabilisation tool with fiscal policy focused on structural and sustainability issues,” Kennedy said.

“This has been the accepted wisdom in advanced economies for the past 30 years.

“This delineation was preferred because central banks can make timely decisions using an appropriately nimble instrument which helped to manage demand but was considered to have a broadly neutral impact on resource allocation in the long-run.”

He said Treasury is already forecasting more frequently than ever as it has incorporated the use of real-time data during the COVID-19 crisis.

“Treasury is actively considering how our processes can be adjusted to make more up-todate assessments of the appropriate stance of fiscal policy,” Kennedy said.

“However, fiscal policy tools are more complex than the cash rate. There is effectively an infinite suite of different fiscal policy tools.”

He said that while fiscal measures can be launched very quickly in the face of a crisis, a complex policy development process could create lags. fs

AIST pokes holes in Your Super, Your Choice Jamie Williamson

The Australian Institute of Superannuation Trustees has criticised the government’s Your Super, Your Choice reforms, saying they fail to protect existing members in underperforming funds.

Outlining its view of the reforms, AIST pointed out the need for all members to be protected from underperformance, not just new members.

Under the reforms, underperforming funds would be barred from accepting new members until their performance is adequately turned around. AIST said such an approach risks making outcomes worse for members that remain in the product, which is out of step with the Productivity Commission’s recommendation that APRA take decisive action to oversee or direct a transfer of members to a better fund.

And if the proposed stapling of accounts were to occur prior to the underperformance issue being addressed, AIST said, existing members will be stapled to those underperforming funds.

“Sequencing the measures to address the worst examples of underperformance prior to introducing stapling would reduce member detriment from this,” the lobby group said.

AIST also said performance comparisons should include all fees to provide an overall net outcome measure.

“This will avoid confusing consumers and give them an accurate basis for comparison. This is in line with the Productivity Commission approach which included administration fees,” AIST said.

That performance assessment should also be applied to all super funds, the group said, citing the Productivity Commission’s finding that choice products underperform MySuper products on average.

“Without this, the members of products not included in the YourSuper comparison tool and performance assessment will be unable to compare the performance of their fund,” AIST said.

“It is important that the worst areas of underperformance in the system are addressed.”

Again, AIST said this is in line with the Productivity Commission’s view that all products should have simple and comparable dashboards and comparison requirements.

Finally, AIST said assessment benchmarks should accurately reflect the underlying investments of each fund.

“Inappropriate benchmarking risks driving behaviour to track the benchmark allocations which in turn would lead to poorer returns to members,” it said. fs

Product showcase

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

9

01: Christopher Davitt

fund manager – Wholesale Australian Property Fund AMP Capital

The case for investing in Australia’s commercial property market

In a lower for longer environment (that’s gone on longer than most anticipated), the commercial property sector is holding its own. ustralia’s interest rates are low and staying A low. Just when we thought it couldn’t possibly go any lower, at October end the Reserve Bank of Australia (RBA) cut the cash rate to a historic 0.10% and confirmed rates will not be raised for at least the next three years.

While interest rates have been low for some time – the cash rate was 0.75% this time last year – the speed at which rates have fallen has certainly fueled investors’ fears for their future income levels, particularly retirees.

Still, such an environment doesn’t necessarily mean fewer opportunities; opportunities are still there, just not in the usual places.

Australian investors’ – particularly retirees’ – love affair with residential property is well known but, as AMP Capital’s Christopher Davitt01 points out, it may not necessarily be to their benefit.

“Over the last 20 years or so residential and commercial property have given about the same sort of return at about 8%. But the lion’s share of the return from residential property comes in the form of price appreciation or capital growth,” he explains.

This makes a lot of sense for those that are still working and can negatively gear the property due to very little income, he says.

But it’s a different story for those who are approaching or already in retirement.

“A lot of people reach a point where they step back from work and they need their investments to work for them, providing a regular and reliable income, and this is where commercial property can play a role,” Davitt says.

Unfortunately, commercial property hasn’t always been the easiest sector to gain access to and some of the vehicles that are available aren’t quite as safe as an investor might like. For example, investing in a listed property trust opens investors up to daily pricing risk, while being a part of a syndicate means money being tied up for lengthy periods of time.

By investing in AMP Capital’s open-ended Wholesale Australian Property Fund investors can avoid concentration risk, instead accessing a diversified mix of properties, sectors, locations and a wide range of tenants.

The key, Davitt says, is securing well located buildings that will draw a lot of tenants: “We don’t want purpose-built, specialised facilities where, if the tenant leaves, we’re going to be a

price taker because there’s only a limited pool of tenants that will take those buildings.”

Some of the 26 assets in the portfolio include office buildings outside of city CBDs, industrial warehouses and smaller shopping centres, home to about 400 tenants across a variety of industries, none of which account for more than 5% of fund revenue.

The properties typically fall within the $20$250 million price range, which Davitt describes as somewhat niche, being that they are beyond the price point of private investors but not large enough to be on the radar of institutional and offshore investors.

Tenants within the retail portfolio include Woolworths, Coles and Aldi, while the likes of Visy Industries and Jaguar Land Rover can be found in the industrial portfolio. The office portfolio is home to both corporate and government tenants, at both the federal and state levels.

The fund also uses low debt; it can go up to 25% but typically targets 15%. Other funds of its calibre typically use 30-40% of debt, Davitt says.

Uniquely, investors can also redeem their investments monthly, offering access to liquidity when they find themselves in need. Another added bonus is zero performance fees and no sell spread.

Of course, the elephant in the room in all of this is the COVID-19 pandemic which has seen lockdowns and restrictions imposed, having a detrimental impact on many a commercial property and their tenants.

However, within the fund, occupancy has remained high, sitting at 96% as at October; valuations also rose in September for the portfolio and across all sectors.

And, as protective measures ease, Davitt says it looks as though the pandemic may have some positive outcomes for investors over the mid to long term.

For example, in the office space in the postCOVID era, tenants are looking to move away from the CBD to cut down on rental expenses.

“At the same time, there’s investor interest because they’re seeing tenants come into these markets,” Davitt says.

“Our investments in Mascot in Sydney, St Kilda in Melbourne, Southbank in Brisbane and Mawson Lakes in Adelaide have set us up well for the next phase of the cycle.”

When it comes to retail, the fund targets small, neighbourhood shopping centres that

The quote

Often after there’s been aggressive falls in interest rates, we see asset values and commercial property prices rise and I wouldn’t be surprised to see that happen early in 2021.

are anchored by major supermarkets and/or fresh food.

A recent report by Shopping Centre News found about half of Mini Guns – shopping centres with a gross lettable area of between 6000 and 20,000 square metres – saw improved performance in the 12 months to July this year, while those that reported falls were able to keep these below 5% for the most part.

This was largely because the majority are local and convenient for shoppers and, with many essential businesses operating within them, were able to avoid the closures or partial closures forced upon the likes of Westfield malls.

For AMP Capital’s fund, fashion retailers comprise just 2.8% of the portfolio, instead opting for retailers that provide services that are difficult or impossible to access online, such as hairdressers, beauty salons, optometrists, and gyms.

“These characteristics make the income rather robust and that gives us confidence of being able to generate that 5% yield,” Davitt says.

Available on all major platforms, the AMP Capital Wholesale Australian Property Fund is currently paying a distribution of 5.75%; this, at a time when 10-year bonds sit at 0.75%.

“For many investors, that’s reason enough [to invest], but it’s also worth thinking about the pricing side,” Davitt notes.

“Often after there’s been aggressive falls in interest rates, we see asset values and commercial property prices rise and I wouldn’t be surprised to see that happen early in 2021 with the charge led by international investors that see Australia as a great place to invest.” fs Investors should consider the Product Disclosure Statement (“PDS”) available from AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) (“AMP Capital”) for the Wholesale Australian Property Fund (“Fund”) before making any decision regarding the Fund. The PDS contains important information about investing in the Fund and it is important investors read the PDS before making a decision about whether to acquire, continue to hold or dispose of units in the Fund. National Mutual Funds Management Ltd (ABN 32 006 787 720, AFSL 234652) (“NMFM”) is the responsible entity of the Fund and the issuer of units in the Fund. Neither AMP Capital, NMFM nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this article. Past performance is not a reliable indicator of future performance. While every care has been taken in the preparation of this article, AMP Capital makes no representation or warranty as to the accuracy or completeness of any statement in it including without limitation, any forecasts. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs.

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10

News

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

Successor fund transfer finalised

01: Kris Kitto,

head of product – superannuation Stake

Elizabeth McArthur

A $65 billion industry fund is now home to the members of a corporate super plan after a successor fund transfer, which had been delayed, was completed.

The IAG & NRMA Superannuation Plan first announced it would merge with Sunsuper in February 2019.

Rainmaker data indicates the IAG & NRMA fund has approximately $2.2 billion in member funds.

The successor fund transfer had been delayed from the originally scheduled date in November 2019 to 14 November 2020, but has now been completed.

After a merger was announced, the IAG & NRMA Superannuation Plan trustees determined that members interests would be best served by a successor fund transfer to Sunsuper.

“After an exhaustive review, the plan’s trustee has concluded that member interests will be better served by transitioning to Sunsuper, a large multi-industry superannuation fund, rather than continuing the plan in its current form,” IAG & NRMA Superannuation Plan told members.

Current insurance for IAG & NRMA members has been transferred to Sunsuper, with a few changes to align the insurance with Sunsuper’s offering and the Putting Members’ Interests First legislation.

For example, the IAG & NRMA plan adjusted insurance when age or salaries changed, but Sunsuper adjusts insurance twice annually.

Sunsuper does not offer non-lapsing death benefit nominations, while the IAG & NRMA plan did. fs

ASIC sounds the alarm on BNPL Kanika Sood

One in five users of buy-now-pay-later services are missing payments, as the industry almost doubles its lending, according to ASIC’s latest review of the sector.

The sector tallied up $43 million in revenue from missed payments in FY19, rising 38% over the previous financial year.

“Buy now pay later arrangements are clearly popular as a payment method. While working for the majority of users, some consumers are suffering harm,” ASIC said in a statement.

“There are regulatory changes coming that will impact the industry, with the design and distribution obligations coming into effect in October 2021,” it said adding it expects the industry to develop a code that provides good consumer outcomes across the diverse range of business models operating in the industry.

The sector, which includes companies like AfterPay and ZipPay, has shown explosive growth since 2016.

Many of its users are young ASIC found 60% are 18 to 34 years old. Two in five users earn less than $40,000 a year and of these, 40% are students or work part-time.

ASIC says it had influenced spending habits of some cohorts, including over commitment to risk.

It found more than half the users are spending more, one in six had delayed other bills or borrowed additional money, and outstanding balances at end of FY18 stood at $1 billion. fs

Fintech to take on super sector with new hire Eliza Bavin

S The quote

Australia’s superannuation space is still slow, cumbersome and antiquated, so we’re looking forward to building something that will challenge and redefine the space.

take has announced its plans to take on the super industry to give younger investors a simple, low cost way to have their own selfmanaged super fund (SMSF), naming a head of product.

Stake announced the appointment of Kris Kitto 01 as head of product - superannuation, a superannuation expert with close to 20 years of industry experience.

Prior to taking the role at Stake, Kitto worked as an SMSF specialist at Intello, Solutions for Financial Advisers.

He has also worked as director at Superfund Partners and general manager of Superfund Wholesale.

Most recently, he had been building a new SMSF offering for the next generation of Australian investors.

He will now join Stake to build that offering under its master brand.

“Self-managed super doesn’t need to be a stuffy domain for the wealthy and mature cohort. As Aussies grab a hold of their financial health, it’s time they had some transparency and choice around the 9.5% they contribute to super each month. What we’re building at Stake will give them that,” Kitto said.

The hire comes as Stake takes the next step towards taking on the super industry.

It said the move will enable more Australians to have direct access to their super and the ability to invest it, on their own terms.

“Australia’s superannuation space is still slow, cumbersome and antiquated, so we’re looking forward to building something that will challenge and redefine the space,” Stake chief executive Matt Leibowitz said.

“We’re really excited to see Kris join the team, and have been driving the development of new financial products we’ve had our sights set on for some time.”

Leibowitz said it found its Australian customers wanted greater control over their super and have the ability to invest on their own terms.

He said Stake is seeking to help the younger generations gain access to the SMSF space.

“Soon, Australians will be able to set up a SMSF without the high barriers of entry, no more minimum investment, no more hassle or difficulty investing super in global companies and markets, and no more legacy technology that lacks transparency,” he said.

“We’re going to break down the barriers to allow every Australian investor to be their own super fund, and invest their super at a fraction of the cost. We have the opportunity to shakeup Australia’s superannuation industry for the first time in 40 years.” fs

Advice firms need technology to survive: Association Annabelle Dickson

The use of technology will be crucial to the sustainability of advice firms, new research shows.

The Financial Planning Association’s (FPA) recent survey undertaken by CoreData found that just over half of financial advisers surveyed (50.7%) believe advice businesses with outdated technology will not survive.

The FPA argues that the implementation of technology will allow advisers to provide better services in conjunction with giving more flexibility to Australians and how they consume advice.

FPA chief executive Dante De Gori said the FPA is encouraging the government to work with the industry to use digital options for disclosure, consent and transactions through standardised processes and forms.

“The volume of regulatory change that is coming through means that it is becoming virtually impossible to do business as a financial planner using old systems and old ways of operating,” he said.

“There are clear signs that digital advice is gaining

momentum due to the rising cost of providing advice and changing consumer behaviour.”

Further to this, the survey reveals that while 88% of advisers believe the pandemic has demonstrated the value of advisers, two thirds of respondents think it will widen the advice gap highlighting the value of employing technology to the advice process.

Despite FPA members having been flooded with enquiries since the pandemic, many have said the cost of providing advice remains a concern.

“Our members have told us that delivering financial advice profitably remains the single biggest risk facing the performance of their business this year. Their greatest concerns continue to be the growing burden of administration and compliance and the rising cost of doing business,” De Gori said.

“Streamlining regulation is essential, so too is effective use of technology, if we are to have a sustainable profession and give greater access to advice for more Australians.” fs

Opinion

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

11

01: John Harvey

special counsel Bennett & Philp Lawyers

Superannuation insurance policies They are no state secret. While things have improved post-Royal Commission, greater transparency and access is still needed when it comes to making a claim. the post-apocalyptic world following the Iin nrecent Royal Commission into Misconduct the Banking, Superannuation and Financial Services Industry, I have dealt with several superannuation companies and their insurers concerning insurance held by one of their members.

It has been revealing.

One of the recommendations that came out of the inquiry was for “stale” superannuation policies to cease having insurance premiums deducted from them.

Many people who work in industries such as the construction or hospitality industries can accumulate several superannuation policies as they move from employer to employer.

There might be a few thousand dollars sitting in a policy which over time gets eaten away by the insurance premiums normally associated with that policy.

There was certainly some logic to the recommendation to protect those smaller superannuation sums from being further eroded by insurance premiums.

But there are exceptions.

By way of example, I am acting for a client who had no less than seven separate policies at the point in time when he suffered what is most likely a career-ending injury.

So, in his case, it turned out to be advantageous for him to have multiple policies that he could claim upon in his time of need.

After his injury, he then closed all of those superannuation policies except one and consolidated them (i.e. rolled them over) into the one policy.

That was sensible. But then I needed to establish what insurance coverage he had with each superannuation company at the time of his injury.

The experience of accessing details of those policies for my client has been “enlightening” to say the least.

One would have thought that in the postinquiry era the financial services industry would be cleaning up its act and perhaps it has in some respects, but in other circumstances, there is a long way to go.

The superannuation funds and insurers I have been dealing with are those that everyone would have heard of or seen on television.

Time and again, barriers are thrown up by them - usually under the guise of privacy is-

sues. Of course, privacy is a serious issue, particularly in recent times when there has been fraudulent activity on superannuation accounts during the COVID-19 crisis.

But my client had closed all his accounts but one, so it was obvious I was not seeking to extract any superannuation funds - my enquiries were simply about his insurance coverage in existence at the relevant time when he became incapacitated for work.

After initially requesting details of his insurance coverage in January of this year, one company had still not provided me with details of my client’s policy by May, despite having been provided with certified copies of identification of my client and signed authorities to release information to me.

Despite writing to their nominated contact addresses in Sydney, Melbourne and Brisbane, three companies asserted they had not received or had lost my communications.

How can that be? In no case, was it an incorrect address.

The standard of reading and comprehension displayed by some of the company representatives has left a lot to be desired.

An extract from my diary note of one conversation is: She said she didn’t understand what I want in my letter dated 30 January 2020. I had a look at my letter. I read out my requests [verbatim] in that letter to her. Strangely, she then seemed to understand.

One company, I wrote to a second time after receiving no response for five months, did provide a perfectly good response but sent it to an incorrectly typed email address.

It was only after lodging a complaint with the Australian Financial Complaints Authority (AFCA) that I eventually received its email.

In another instance, my client could find no record of his member number.

I explained that to the company in correspondence and sent various identifying documents and authorities. Despite that, it kept sending emails saying that it required three matching points of identification.

But no attempt was made to explain what was missing.

After a sort of guessing game on my part, it turned out to be the member number which was missing but which I had already explained could not be recalled.

I was directed by the same company to lodge

The quote

One would have thought that in the post-inquiry era the financial services industry would be cleaning up its act and perhaps it has in some respects, but in other circumstances, there is a long way to go.

documents by way of its website. When I attempted that, it did not work.

It was hard not to feel that this company was being obstructive and unhelpful rather than seriously being concerned about my client’s privacy.

Another thing I found galling was receiving emails from companies with no identification of the author of the communication.

Usually combined with that is no direct telephone line (or email address) to contact the person involved but a generic 1300 style number - which might be fine if one has half a day to waste waiting to be answered, answering “privacy” questions and being redirected from person to person.

This is common but thankfully not the case across the board.

In fact, a few of the companies have been prompt with their responses and quite reasonable to deal with.

Others have been unhelpful to the point of being obstructive, despite having self-serving statements repeated in their written correspondence such as “we are here to help” which are meaningless and largely untrue.

Despite having a signed authority advising that I act, one insurance company attempted to cut me out of the process by communicating directly with my client.

Some of the information it was seeking from him was irrelevant and inappropriate.

I am quite sure that the superannuation and insurance industries have improved some aspects of their operations since the inquiry, but there is clearly still a long way to go.

Communications with members, claimants and their representatives ought to be clear and concise, not obstructive and not filled with irrelevant and generic statements.

In my view, to avoid superannuation funds and insurers reverting back to their old pre-inquiry ways, there ought to be added to their latest Code of Practice a requirement to provide appropriate, readily assessable contact details for the person representing the superannuation fund or insurance company.

If I can do it, they can do it.

These are some of the wealthiest businesses in Australia earning profits from their members, so there is no excuse that they cannot afford the resources. fs

12

News

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

Executive appointments 01: Daniel Crennan

AMP Capital ESG lead jumps to Platypus The former portfolio manager for AMP Capital Ethical Leaders funds has found a new role, after departing the troubled investment giant in October.

Kristen Le Mesurier has been appointed head of ESG and engagement at Platypus Asset Management.

She was with AMP Capital for more than five years, most recently managing the Ethical Leaders range of funds, which have lost several mandates from super funds in recent months.

Platypus chief executive Gary Adamson welcomed Le Mesurier to the team, saying her appointment is a step towards the asset managers’ goal of being a leader in ESG integration and shareholder advocacy.

“As ESG and sustainable investment continues to gather momentum here and overseas we are delighted to welcome a professional of Kristen’s calibre to lead Platypus’s product development in this area and to support our investment team with ESG issues as they relate to portfolio construction and performance,” Adamson said.

“Kristen is passionate about engagement and driving change and has led ambitious engagement agendas on modern slavery, climate change, gender diversity, sugar and obesity and animal rights and we look forward to her contribution as part of the Platypus leadership team.”

Her prior experience includes a sell-side analyst covering financials, a corporate governance analyst at Ownership Matters, a commercial litigator at Piper Alderman, and a business journalist with Fairfax.

Crennan nabs new gig Former ASIC deputy chair Daniel Crennan 01 has a new role with an advisory firm and boutique investment bank, which was named in an ASIC report in 2019.

Crennan resigned from the corporate regulator on October 26, following revelations that he was paid relocation expenses and an ongoing rental allowance to the tune of $69,921. The payments brought his total remuneration to $681,549 last year – more than $70,000 over his salary cap.

At the time, Crennan said he had planned to retire in 2021, but will now step into the role of senior strategy adviser at EverBlu Capital.

“We are extremely honoured that Daniel has awarded us some of his time to assist us through our growth and diversification phase of our business,” EverBlu Capital chair Adam Blumenthal said.

“We are thrilled that he shares our long term vision of this business.”

According to its website, “EverBlu Capital’s culture is built around a dynamic and entrepreneurial environment to provide solutions for our clients and investors”.

In 2019, an ASIC report named Sydney-based EverBlu Capital as part of report 641, ‘An inside look at mining and exploration initial public offers’.

EverBlu served as lead manager on a couple of mining company IPOs the report looked at.

AMP welcomes board director AMP has added a former Telstra executive to its board, citing her experience in leading cultural change as a driving force.

Kate McKenzie is currently a non-executive director of NBN Co, Stockland and previously served on the boards of Allianz Australia, Foxtel, Telstra Ventures, Sydney Water and Workcover.

She was previously held executive positions at Telstra including chief operating officer and group managing director, Telstra innovation, products and marketing & chief marketing officer.

After her time at Telstra, McKenzie was named as chief executive of New Zealand telecommunication group Chorus.

AMP chair Debra Hazelton said McKenzie’s wide range of board and business leadership roles will bring strong expertise and insight to AMP’s board.

“She has a track record of leading change within the organisations she has worked, including cultural change, as well as managing diverse stakeholders across government, communities, investors and employees,” she said.

02: Connie McKeage

ASIC was concerned that the speculative nature of exploration mineral assets put the industry at risk of being targeted by professional advisory firms seeking to generate a pipeline of transactions and associated fees.

“It has been an incredible journey to this point, and the acquisition by Iress places us in a much stronger position than ever to realise the strategy we set out to achieve,” OneVue’s chief executive fund and platform services Richard Harris-Smith said.

State Super appoints acting CIO The $43 billion State Super has appointed an acting chief investment officer, after Gary Gabriel left for VFMC at October end.

State Super’s deputy chief investment officer Charles Wu is acting as the CIO, as State Super looks for a permanent replacement.

Wu joined State Super in 2015 after working at Media Super as an investment manager, and at Mercer as an analyst.

He is also the general manger of defined contribution investments, where he is responsible for investment strategy to achieve return objectives on a risk-adjusted basis.

State Super’s former chief investment officer Gary Gabriel on October joined the VFMC investment team on October 26 as its head of the portfolio management.

Gabriel reports to VFMC chief investment officer Russell Clarke. He led the group responsible for portfolio strategy and asset allocation, investment risk and implementing VFMC client portfolios.

His previous roles include head of private markets at Future Fund, head of investment strategy and private markets at UniSuper, general manager of portfolio strategy and risk at HESTA and Asia Pacific managing director for Wilshire Associates.

He has over 25 years of experience in institutional investment, including investment strategy, portfolio construction, risk management, and investment management across global listed and unlisted asset classes.

Dealer group chief departs The chief executive of an IOOF licensee will depart the group, as the impacts of the company’s wealth restructure continues to be felt.

Lonsdale Financial Group chief executive Mark Stephen will depart at the end of the month.

The move comes after Milennium3, Lonsdale and IOOF Alliances were brought together as an integrated advice group to be led by former Milennium3 chief executive Helen Blackford.

At the time the restructure was announced, IOOF could not confirm whether Stephen would remain with the licensee or IOOF. Stephen had spent more than 10 years with Lonsdale after a lengthy career in the Australian financial advice industry which included 12 years at AMP, two years at Australian Unity and six years as head of practice development and Bridges Financial Services.

“I have chosen to seek out new challenges and career pathway, so I bid Lonsdale a fond farewell,” Stephen said on LinkedIn. “I am immensely grateful to our team of talented and passionate staff members over this period and most importantly, to the advisers & business principals, with whom I have been humbled by their dedication, loyalty and drive in creating a high-performance culture.

“I bid everyone close to me an enormous & heart-felt thank you. I am proud to have achieved a stable and admired brand, a sought after and reputable culture, a community of like-minded professionals and strong status of advice ambassadors through my leadership and stewardship.”

Connie McKeage to step back at OneVue OneVue’s founder and managing director Connie McKeage 02 will leave the lead role but stay on as a consultant, alongside other executive departures as Iress’s $115 million purchase is implemented.

OneVue’s chief financial officer Ashley Fenton and its head of people and culture George Ribar have accepted redundancies, the firm said.

“The completion of this strategic acquisition of OneVue by Iress marks an historic moment and welcomes in a new era of further growth and the acceleration of the strategy. The strength of OneVue’s execution and service model paired with the distribution and technology leadership of Iress, dramatically hastens the execution of the strategy beyond what the two organisations could accomplish independently,” McKeage said.

“Most importantly we are very pleased that the OneVue vision will continue to unfold under Iress’ stewardship and that they are looking forward to working alongside our staff and clients.”

The sale price was challenged by OVH’s largest shareholder Thorney companies but eventually got the shareholder nod of approval at the vote by a wide margin.

Investment governance lead named A $6.4 billion industry superannuation fund has added a corporate and commercial lawyer to oversee investment governance and legal.

LUCRF Super appointed Paul Faure to the newly created role of manager, investment governance and legal, effective this month.

He will report directly to LUCRF’s chief investment officer Leigh Gavin.

Responsibility for the investment governance and legal functions were previously shared across the team.

Faure is a former partner at K&L Gates, before which he held the same position at Holding Redlich.

He also previously sat on the board of Industry Fund Services and AUSfund for close to nine years.

“Paul brings almost 20 years of industry experience and expertise in superannuation investments and investment management,” a spokesperson for LUCRF said.

“We are very pleased to welcome him to our team.” fs

14

Feature | 2021 Outlook

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

WITHOUT A CRYSTAL BALL Goodbye to the global annus horribilis that was 2020. As we see out this difficult year, asset owners – especially those charged with protecting the retirement savings of so many – must build an informed view of the future.

Elizabeth McArthur writes.

2021 Outlook | Feature

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

I

15

01: Daniele Goldberg

02: Damien Graham

03: Nick Paparo

client consultant bfinance

chief investment officer Aware Super

head of platform sales, security services, Australia and New Zealand J.P. Morgan

n 2004 then UN Secretary General Kofi Anan said he was happy to farewell an annus horribilis. His indictment of 2004 came after the UN was accused of corruption in relation to its oil-for-food program.

In 1992 Queen Elizabeth II said in a speech that the year had turned out to be an annus horribilis; Prince Charles and Princess Diana divorced that year and Windsor Castle almost burned down.

These were individual horrible years. For most of us, 2004 and 1992 turned out just fine.

Two world wars brought with them several horrible years felt globally. But in the years of relative peace that followed, perhaps 2020 is the first annus horribilis we’ve again experienced as a collective.

For a decade following the Global Financial Crisis (GFC) the S&P 500 enjoyed the longest bull market in history.

For the latter part of that decade of good fortune, the minds of many investment professionals were occupied by asking when and how the historic bull run might come to an end.

Before the run even started, in 2007, Nassim Taleb published The Black Swan: The Impact of the Highly Improbable. The book looked at the consequences of extremely rare events, and asked why people could so easily dismiss these risks and oversimplify these events.

Taleb would be one of COVID-19’s winners, in a sense. His fund, Universa Investments, returned 4144% year-to-date at the end of March 2020 thanks to a tail-risk hedging strategy designed to protect it from black swan events.

He told Bloomberg Television that a pandemic event like COVID-19 was entirely predictable (though almost impossible to time).

And several people did predict it. Nostradamus, for example, prophesised in 1555 that what is now Europe, the US and Asia Pacific could one day expect to experience plague and captivity which would bring great calamity.

A psychic named Sylvia Browne wrote in a book published in 2008 that a respiratory illness would sweep the world in 2020.

Browne though, predicted the illness would suddenly vanish as quickly as it arrived. How-

ever, no economists seem to be basing their outlooks on that assumption at the moment.

Without a crystal ball, economists, investors and institutions must navigate a complex set of factors to determine how 2021 might look.

In June, bfinance conducted a survey of 368 institutional investors globally. The survey represents the thoughts of those controlling US$11 trillion in assets, demonstrating some interesting discrepancies between Australia and the rest of the world.

“One of the more noticeable differences between Australian super funds and their global peers was the satisfaction levels of their respective direct property portfolios,” bfinance client consultant Daniele Goldberg01 says.

In Australia, 41% of super fund respondents were dissatisfied with their direct property portfolios, compared to 23% of global respondents being quite/very dissatisfied.

Considering the fact that Australia has so far weathered the pandemic significantly better than the US and Europe, it’s a curious result.

“One of the things that we've been doing over the last few months, and really since the market events of March and April, is we’ve stepped back and asked what we think are the most important questions or issues to have a view around into the next few years,” Aware Super chief investment officer Damien Graham02 says.

As Australia’s second largest superannuation fund at over $130 billion in assets, Graham understands how important it is for the fund to have a considered view of the long term impact COVID-19 may have – for its investments and its members.

“We’ve defined opportunities that may not have been consensus view, that we’ve looked into and through time we’ve implemented some of those opportunities,” he says.

Aware Super is underweight retail property due to one of these non-consensus views. That’s a view that has served the fund well as COVID-19 hammered bricks and mortar retail but Graham cautions that it took time to implement that view.

The fund has instead focused on building an exposure to industrial and logistics property, based on the view that online retail only stands to become more important.

The virus and its cures

COVID-19 has amplified the need for asset owners to deal with disruption which will have an everlasting impact.

Nick Paparo

For asset owners, it’s never been more important to go into the New Year strong. After tackling work-from-home protocols, the government’s early release of super (ERS) program and a year heavy on legislative change there are no promises that 2021 will be any simpler.

In fact, things may get a lot harder. The federal government’s latest budget included a package of reforms that could make it harder for super funds to survive in the market at all.

The Your Super, Your Future reforms if passed will see MySuper options ranked based on performance. Funds with two consecutive years of poor performance will not be able to add new members.

J.P. Morgan Australia and New Zealand head of platform sales, security services Nick Paparo 03 has seen just how much COVID-19 and 2020 has challenged clients.

“COVID-19 has amplified the need for asset owners to deal with disruption which will have an everlasting impact, particularly for the workforce of the future – whether that’s remote working or how best to deal with the next set of requests or requirements that you need to facilitate,” he says.

He explains that with everything funds have had thrown at them in 2020, to truly optimise member outcomes in 2021 they’ll have to look inwards – at how they can enhance efficiency and capitalise on opportunities.

For example, $53 billion industry fund HESTA already had a business continuity plan in place when COVID-19 forced many to workfrom-home. But nevertheless, the fund had a challenging year.

“Many HESTA members are frontline health, aged care or early childhood education and care workers. The health and community sector has had to deal not only with the broader economic impacts of the shdown, but also the uncertainty around the demands on the health system,” HESTA chief executive Debby Blakey04 says.

“The market volatility that’s occurred has been concerning to members, which makes the need for support, information and expertise from us of even greater importance.”

Breaking new ground in responsible investments As you focus on investing responsibly, J.P. Morgan delivers everything you need to make it easier to manage your assets.

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16

Feature | 2021 Outlook

And, Blakey says it was difficult for the fund to predict exactly how many members were likely to take up ERS. “We’ve worked very hard to respond to applications from our members in need and process these quickly and safely,” she says.

“We will be focused on helping those members who have needed to access their super, some of them twice, to rebuild their super balances. We have seen the account balances of younger members, between 18 to 34, drop significantly, impacting their retirement outcomes in the long run.”

IFM Investors chief economist Alex Joiner05 pulls no punches when it comes to his opinion on the ERS. “The government allowing people to access their superannuation, particularly if they didn’t really need to, has done a big disservice because a lot of people did access their superannuation at a time when markets were weak,” Joiner says.

“Obviously they’ve forgone that recovery. It’s my argument that the government should have supported these people on its balance sheet and not forced them to access their super.”

To Joiner, this policy was dangerous because while equities markets have been somewhat boosted by government stimulus, quantitative easing and monetary policy there is still a lot of uncertainty.

Ultimately, for markets to keep progress they must be supported by company earnings, Joiner says. And company earnings only improve from the economy doing better.

“So that has implications because everyone’s superannuation fund is exposed to not only domestic equities but international equities,” he says.

“We know that interest rates are going to be much lower than they were in the past. Central banks have either low or negative interest rates or zero interest rates in many countries. What that means for savers is, outside of super, you basically get zero.”

He says the outlook for savers isn’t good, and pensioners that rely on savings income have already been negatively affected.

“If you’ve got your money in cash you’re getting zero and if you’ve got your money in fixed income you’re getting a very, very low yield.

Fixed income used to be that risk free asset, but now there’s quite a bit of risk,” he says.

“If interest rates were to rise those investments could do quite poorly. Investors in fixed income could find themselves in a bit of trouble in an upside scenario.”

It’s these problems that have seen super funds diversify further than ever. As the traditional asset classes of cash, equities and fixed income offer low returns and high uncertainty, funds are moving into alternative assets.

Joiner says the move has happened fairly quickly in Australia, but it’s happening all over the world.

It’s a change that Goldberg has seen too. As global interest rates have bottomed out, there

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

04: Debby Blakey

05: Alex Joiner

06: Katarina Cohrs

chief executive HESTA

chief economist IFM Investors

multi-asset and macro strategist Aviva Investors

has been a long term trend towards infrastructure and private equity, she says. “bfinance's survey found 33% of investors have already invested in distressed or opportunistic strategies that explicitly seek to benefit from the COVID-19 fallout, while a further 22% who have not yet done so are interested in pursuing such opportunities,” Goldberg says.

“Locally, 37% of Australian pension funds indicated they had either already changed their strategic/long-term asset allocation since the onset of COVID-19 or are expecting to do so before the end of 2020. This compares to just 25% of global pension funds.”

She’s very comfortable making one prediction – the hunt for yield will continue to drive investor appetite.

Pitcher Partners partner Charlie Viola has seen the impact of this amongst his clients too.

He is very cautious about equities but is keeping reasonable cash levels in portfolios to pounce on opportunities.

“We believe there is a fair bit of capital sitting on the sidelines in most asset classes waiting for the dissonance to evolve,” he says.

“We are still looking to buy quality assets into moments of weakness. Given the level of volatility about at the moment, those moments will present themselves.”

Goldberg points out that over the last three years, trends have continued that first emerged post-GFC. That is: a shift towards illiquid strategies, broader geographical diversification (including emerging markets), a shift towards private market strategies and a shift away from equities.

If bfinance’s survey results are anything to go by, these trends will continue to be seen in asset allocation. For instance, the survey shows 23% of investors plan to reduce their exposure to fixed income.

However, Aviva Investors multi-asset and macro strategist Katarina Cohrs 06 takes a different perspective; she thinks some of the investment paradigms that emerged post-GFC could prove invalid post-COVID-19.

“Having the flexibility of adjusting portfolios as the investment landscape evolves, is a major advantage compared to those who don’t have that flexibility or aren’t ready to employ it,” Cohrs says.

“Another key investment theme is the extent to which some of the COVID-19’s winners can retain their advantage throughout the ensuing recovery.”

This will depend on how the recovery plays out – but also on the extent to which society at large retains behavioural patterns adopted during the crisis.

Many investors are of the view that travel and leisure sectors might rebound once a vaccine or therapeutic treatment is developed. But equally, many are betting that the gains in information technology and online retail will be retained post-pandemic.

Can a return to normal and a retention of new ways of doing business really coexist?

For Ninety One senior institutional sales manager Nadene Moore07, it’s important to keep perspective. She thinks this annus horribilis is not so different from all those that have come before it.

“We’ll look back at 2020 and it will be a blip on the chart just as other crises, like [we look back on] the GFC,” Moore says.

Although, she acknowledges one significant downside that could throw off many investors and economists view of the future - a failure to find an effective vaccine.

The mainstream consensus view is that a vaccine will be developed and distributed in time.

This view has gained credibility recently as Pfizer revealed the positive results of a vaccine trial. It’s a view that Graham at Aware Super cautiously acknowledges.

Joiner too, says the Pfizer news is positive.

However, he is wary about the realistic timeframe for rolling out such a vaccine. He says Australia’s economy may suffer as a result of a lack of international students and tourists, especially those from China, well into 2021 and even 2022 if a vaccine cannot be rolled out efficiently.

The government allowing people to access their superannuation, particularly if they didn’t really need to, has done a big disservice because a lot of people did access their superannuation at a time when Bigger, faster, stronger markets were Many of 2019’s predictions for what 2020 might weak. hold now look like the wild fantasies of an exAlex Joiner

treme optimist.

But, in the super industry, there’s one prediction for the future that everyone is comfortable to make - that in 2021 and beyond there will be fewer super funds than there are now.

Aware Super already sits at over $130 billion in assets under management and will grow beyond that when it brings on WA Super’s assets at the end of November 2020.

The goal, Graham says, is to get to $200 billion.

“That’s our stated objective in the next few years. If we get to that level, it’s unlikely we’ll stop growing,” he says.

And, as funds merge, the way they work is going to change.

“There are definitely economies of scale, but there are diseconomies of scale too. It’s always about managing both,” Graham explains.

“For us to go and find a small cap mandate in Australia, that’s more difficult. That’s why we think that mid and small cap space is something we should consider more from an internal perspective.

“Finding a meaningful small company mandate with an external manager is not likely to be at the size where it would make a difference to returns.”

Graham says for a $200 billion super fund to be focused on the Australian market would present serious challenges. As funds grow to this size, we’re likely to see more Australian funds buying up significant offshore assets.

“There have been a number of activities in the Australian marketplace around mergers. This extends to not only super funds but also across the fund’s provider ecosystem,” Paparo says.

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18

Feature | 2021 Outlook

“With our asset owner clients, we've been focused on how to implement the merger most effectively – whether that’s a successor fund transfer (SFT) or a joint-venture (JV). This helps our clients as they look at the best approach to a merger and also helps us understand the roles all providers play in the client’s ecosystem.”

That consolidation is being driven by several forces at once. Not least of all, Mercer super and insurance leader Richard Boyfield08 points out, is the government’s latest round of super reform.

Boyfield has deep reservations about how performance will be measured under the government’s new plan. He already felt the heatmaps from the Australian Prudential Regulation Authority (APRA) that first came out in December 2019 are “well intended” but harbour unforeseen negative consequences. “[Whether a fund] shows up well or badly on a heatmap will then influence the behaviour and decision making process, potentially, of the trustees. Not intentionally, but you can’t ignore it,” Boyfield says.

“Our concern was what you could end up getting is a trend towards more passive, index hugging performance, because there was no incentive to really try to outperform – but there was an incentive to make sure that you don’t underperform the index.”

Under the reforms proposed in the budget, underperforming MySuper options will not be able to take on new members.

If the reforms do push members towards funds with a larger focus on passive equities strategies to avoid underperformance, that could have a negative consequence - especially due to timing.

“If you look post-GFC, we’ve been in a period where, by and large, we’ve had fairly high returns in a low volatility environment. That’s why passive, indexed funds have performed reasonably well,” Boyfield says.

It’s for this reason that Mercer anticipates active management will see a return to favour.

With greater volatility we will see greater disparity in the post-COVID-19 world,” he says.

“If you’re buying an unlisted business, what is your benchmark? The unintended consequence there could be that trustees need to be prepared to take that risk of underperforming the benchmark.

That is why we would like to see the test adjusted.”

As the industry consolidates, funds will have to fight for members. Boyfield says they’ll have to differentiate themselves. And with limited marketing budgets, they’ll have to tap into something members believe in.

Paparo has been seeing the importance of this alignment at J.P. Morgan too – he says the focus on ESG is only going to become more apparent.

At HESTA, Blakey says the fund will continue to have a focus on impact investing, gender equality and the issues that matter to workers in the healthcare sector.

“There’s strong evidence to show that women have been disproportionately impacted by the

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

07: Nadene Moore

08: Richard Boyfield

09: Paul Dunn

senior institutional sales manager Ninety One

super and insurance leader Mercer

client relations and sales director APAC Bravura

economic challenges. We have an opportunity now to invest in a more inclusive and sustainable recovery through investment in social infrastructure,” Blakey says, “We need to be applying a gender lens to recovery efforts as we know that will have the biggest impact on boosting jobs and growth and put our economy on a more secure footing for the future.”

She wants to see the government partner with super funds as capital providers to fill gaps in social infrastructure that can drive economic resilience and employment.

Recently, Aware Super made a bid to buy out ASX-listed broadband provider OptiComm.

Graham says the interface between public and private markets is something the fund will think about more as it gets larger and looks for opportunities to fit its size.

But, Graham says the OptiComm deal is far from one of the biggest for the fund. Aware (then First State Super) purchased Victoria’s land title registry in 2018.

“That’s a much bigger asset than OptiComm.

We own and operate that 100% ourselves. We’ve established the board and management,” he says.

“We don’t see that as being too different, the process is the same. It’s around owning and operating an asset to drive a good return in the long term.”

Boyfield was interested to see Aware bid for OptiComm. He’s sure that as the super sector consolidates and funds build out bigger and better in-house investment teams we’ll see more direct ownership of those kinds of assets.

“I think the interesting thing with the OptiComm deal was that it was done in Aware Super’s name. Often, these deals will be done with a manager intermediating. I think we’ll see that trend continue but the interesting thing will be to what extent we see the super fund being the direct, named investor as opposed to doing it through an investment manager,” Boyfield says.

Control what you can One of the big focuses for 2020 for Paparo has been insourcing at super funds.

“This year, we've been supporting clients through insourcing asset management and providing information to help our clients as they manage their investment process,” Paparo says.

And he’s sure that trend will continue into 2021 because, despite not being able to predict a black swan event (or when a global pandemic might take hold), there are some things asset owners can control.

They can control their own operations. And, particularly as the super sector in Australia, maximising operational efficiency could be seen to be a significant competitive edge - even a source of alpha.

“It’s about ensuring that we've provided sufficient support to enable the fund to be in the best position to make the most of investment

There are definitely economies of scale, but there are diseconomies of scale too.

Damien Graham

opportunities. And, this includes what we call optimising efficiency or generating operational alpha,” Paparo says.

“Super funds are looking at ways to automate and integrate, and to remove manual, bespoke processes. And that's not just with the asset owners themselves but also with their providers.”

COVID-19, he says, has amplified the need for businesses - whether its super funds or service providers - to focus on how they are sustainable and the governance they put in place to ensure sustainability.

And that focus on business sustainability goes back to operational alpha.

“Efficiency that generates operational alpha will become more important. In doing that, funds will look at ways they can leverage their service provider ecosystem more,” Paparo says.

That is exactly what is playing out at Aware as the fund has gone through mergers and grown so significant.

“We will change. Our structure and our approach will change. We think that we will continue to increase our level of internalised assets but I tend to think that we’ll continue to have a really strong group of external managers that we’ll leverage as well,” Graham says.

Bravura client relations and sales director for APAC Paul Dunn09 says “operational alpha” is an emerging term, but one that’s especially relevant right now.

“It really is around qualifying and quantifying administration costs to get as much value as you can. It’s about delivering value to members and better outcomes for members,” he says.

“We’ve got the pressure from regulators, there’s a survival concern and one of the key things is that with all these mergers you have to elegantly bring together multiple funds to simplify that and get a consistent experience.”

Aware Super recently brought its administration in-house with Bravura, signing a seven year contract.

“What Aware has done is articulate a very clear vision as to the various operating models that are available to the market,” Dunn says.

Aware wants to be able to control the member experience and maximise value, Dunn says. To do that, they are consolidating models.

Dunn and Paparo agree that there is one way asset owners can ensure a future where returns for members are maximised – that is, by taking their destiny into their own hands.

Through focussing on operational alpha, and letting market volatility and predictions of the post-pandemic future fade into the background a bit, funds are able to focus on what they really can control.

Taking control means minimising administration costs, streamlining operations and building more powerful investment teams. All those tools deliver real results for the end beneficiaries.

No one knows what the future holds, so why not control what you can. fs

– SPONSORED POST –

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

19

01: Jason Steed

Australian equity strategist and head of australian equity research, Australia and New Zealand J.P. Morgan

2021: Why investors should be optimistic As European and US second waves intensify and geopolitical risks mount, the picture down under is, in contrast, looking up.

The Australian landscape

300

loomed large in the wake of the actions taken to stem the spread of COVID-19. Numerous development banks have issued social bonds focused on funding healthcare systems.

Global social bond issuance has totalled US$109.1 billion so far this year. This represents a 627% increase on 2019 issuance. October has seen the greatest monthly increase this year by US$36.5 billion. On the other hand, the issuance of green bonds is currently 9.4% below 2019 levels at US$253.8 billion.

In October, J.P. Morgan announced a US$30 billion commitment to advance racial equity.

The firm has boosted efforts to break down the racial wealth divide, especially for Black and Latinx people. Several other large banks have made similar announcements since June, such as Citi and Bank of America. We expect the focus on social issues and human rights to gather momentum next year.

Despite the increased focus on the ‘Social’ pillar, climate change and global warming are still at the forefront of the investor mindset. The majority of shareholder resolutions put forward during the 2019 AGM season were focused on climate change risk and sustainability. According to the Australasian Centre for Corporate Responsibility, over 35% of resolutions in the 2020 AGM season so far have been related to climate change.

A global pandemic, market turmoil and an acrimonious and contested US election – 2020 will go down in history as one of the most tumultuous in living memory. At the time of writing, however, the clouds look to be parting, with positive vaccine news buoying hopes across the globe and the US election edging towards a conclusion. In Australia, COVID-19 cases remain low across the country and the reopening of state and territory borders is underway. Consumer and business sentiment have climbed strongly in recent months, with October’s budget and a further loosening in monetary policy lifting spirits. The combination of these factors bodes well for 2021. fs

200

©2020 JPMorgan Chase & Co. All rights reserved.

100

This content is for institutional and professional investors only and subject to the important disclosures and disclaimers at www.jpmorgan.com/pages/disclosures.

Confidence is rising amongst consumers and corporates, which is manifesting in improved earnings and dividend expectations. We expect these positive trends to gather momentum over the coming months, as borders re-open, stimulus kicks in, monetary policy remains supportive and consumers lean on a record high personal savings rate.

A headwind to Australia’s recovery is an increasingly strained relationship with China. The impact has been felt particularly in barley, wine and coal with concerns growing that other industries will be drawn in. Wheat, barley, timber, lobsters and sugar are all at risk. The largest and most important export to China is iron ore. On our estimates, Australia accounts for around 60% of total Chinese iron ore imports. At this level of dependence, it is difficult to envisage a largescale disruption of Australian ore supplies.

The US election An extraordinary election by any measure.

Conducted amidst surging COVID-19 cases, voter turnout was, remarkably, the highest in history at 65%, with a record level of postal votes (40%) playing an important part. Adding to the sense of tumult in the run-up to the election was the hospitalisation of the President and the confirmation of a Trump-nominee to the Supreme Court.

At the time of writing, votes are still being counted in several states and a recount is underway in Georgia. President-elect Joe Biden is expected to preside over a divided government, with Republicans projected to retain the Senate, albeit the outcome is still uncertain given

the two senate run-off races in Georgia. The much-anticipated Blue Wave, in which the Democrats control both the White House and Congress, while still technically possible, is an unlikely prospect.

Stalled talks to enact the next phase of stimulus will resume in the weeks and months ahead.

Further support for the US economy is vital as the COVID case count mounts, mobility drops and economic activity stalls. The new administration’s immediate focus will be on virus containment, with a new COVID-19 taskforce already announced.

The climate debate will gather momentum in 2021. President-elect Biden has enumerated a range of initiatives, with a push towards renewables, the development of energy transition technology and re-joining the Paris climate agreement key among these. Further momentum on confronting climate change requires deeper involvement of the US. Another crucial area of focus for the Biden administration is China. While the headline relationship should become less fractious, there is still strong bipartisan agreement that China poses a threat to the US on a number of fronts.

As a result, trade tensions will persist. Tariffs could, however, be partially wound back and a new administration might focus more on working with allies, such as Australia, India and Europe on specific China-related concerns. This cooperation would concentrate on security, technology and trade.

ESG The global pandemic has increased the focus on the ‘S’ pillar within ESG. Social issues have

Figure 1. Sustainable debt issuance (USD bn) 600 500 400

0

2012

2013

2014

2015

2016

2017

2018

2019

Further support for the US economy is vital as the COVID case count mounts, mobility drops and economic activity stalls. The new administration’s immediate focus will be on virus containment, with a new COVID-19 taskforce already announced.

2020

Green bond

Sustainability linked loan

Sustainbility bond

Social bond

Green loan

Sustainability linked bond

Source: Bloomberg New Energy Finance

The quote

Brought to you by

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www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

Former advisers face huge fines

01: Jane Hume

minister for superannuation, financial services and financial technology

Elizabeth McArthur

Former Macquarie adviser Warren Acworth has been charged with dishonesty offences in Brisbane. He’s facing 16 counts of making false or misleading statements, which could carry 10 years’ imprisonment or a maximum fine of $945,000.

He’s also facing six counts of making a statement that was false, which could see him fined $21,000 or face two year in prison for each offence. Additionally, Acworth has been charged with five counts of fraud which has a maximum penalty of 20 years in prison.

Acworth was a Macquarie Equities adviser between 2015 and 2018. Prior to that, he was licensed by Crestone Wealth from 2008 to 2015.

Acworth is currently on bail, with the matter scheduled to be heard again on 29 January 2021.

Meanwhile, former financial adviser Mark Kawecki has been convicted and fined $30,000 for dishonest conduct in Melbourne.

ASIC alleged that Kawecki cooked the books on a number of IPOs, making applications for shares which contained false information about who the beneficial holders of those shares.

It was alleged that Kawecki was trying to artificially satisfy the minimum spread requirements according to ASX listing rules.

The purpose of the minimum spread requirement is to demonstrate that there is sufficient investor interest, from unrelated parties, in the company to justify its listing.

Kawecki was banned for seven years in 2018.

His name came up in court in December 2019 as former Bell Potter managing director and former Wallabies captain Simon Poidevin appealed ASIC’s decision to ban him from financial services.

It emerged during the hearing that Kawecki was a client of Bell Potter. During the IPO of DirectMoney, Kawecki or entities associated with him invested $100,000 across 50 accounts in a move designed to facilitate compliance with ASX listing rules. fs

Hume scrutinises super fund spending habits Karren Vergara

S

The quote

We want trustees to be think­ing long and hard about whether there’s a tan­gible financial return to members before they spend other peoples’ money.

enator Jane Hume 01 is cracking down on how superannuation funds spend members’ money and subjecting them to the same stringent reporting and disclosure requirements as publicly-listed companies.

The Minister for Superannuation, Financials Services and Financial Technology told the recent Australian Shareholders Association Investor Conference that the federal government’s package of new reforms will stamp out widespread underperformance, complex arrangements and lack of transparency that have gone on for far too long.

Similar to an ASX-listed company, super funds are now required to disclose the remuneration of key executives and “highly paid investment managers, in the same way that we expect ASX-listed companies to disclose this information to shareholders”, she said.

Providing detailed information about super funds’ expenditure, donations to political parties, peak bodies and affiliates like unions, marketing expenditures, sporting sponsorships and entertainment, are the many areas super funds must be upfront about. “[This is] where we want trustees to be thinking long and hard about whether there’s a tangible financial return to members before they spend other peoples’ money,” she said.

These disclosures will work in conjunction with APRA’s Member Outcomes legislation that was introduced in 2017.

Hume went on to highlight the benefits of the upcoming Your Future, Your Super reforms, which is estimated to save members $17.9 billion over 10 years.

“It is a package that will encourage competition between funds, remove unnecessary waste built into the system, and improve standards so funds can focus on delivering better performance and minimise unnecessary expenditure,” she said.

From 1 July 2021, employers cannot default new staff to their chosen super if employees do not nominate a fund or provide any details. Instead, employers will obtain such information directly from the ATO so superannuation will continue to be paid into employees’ existing fund.

“While many Australians have benefitted greatly from the system and been provided a higher standard of living in retirement, widespread underperformance, complex arrangements, and a lack of transparency have undermined outcomes for too many,” Hume said.

About 1.6 million people change jobs every year and 470,000 enter the workforce for the first time. Consequently, some 850,000 new duplicate accounts are created every year.

“For too long, superannuation fund members have not been able to get clear answers to a couple of simple question: What are they doing with my money? Where is invested, and where is it spent?” she said.

“They are questions that deserve answers.” fs

Majority of Aussies Insurers must shape up on mental health: TAL want SG rise: ASFA Elizabeth McArthur

Eliza Bavin

Around 75% of Australians want the superannuation guarantee to rise to 12%, according to a survey commissioned by the Association of Superannuation Funds of Australia (ASFA).

ASFA said 1375 Australians were surveyed in October by Utting Research about their views on superannuation, the Age Pension and standard of living expectations for retirement.

The results were that 75% support the scheduled increase in the SG rate to 12%, another 12% said the rate should remain unchanged at 9.5% and 13% said they were unsure.

“Without question, Australians value their superannuation and they clearly support measures aimed at helping them to build the nest egg necessary to fund a dignified retirement in this country,” said ASFA chief executive Martin Fahy. fs

TAL, which is the group insurer for some of Australia’s biggest super funds, produced a comprehensive white paper on mental health and life insurance in an effort to improve the industry’s support for those with mental health conditions.

One of the key findings of the research was that the prevalence of mental health disorders is not actually rising in Australia – what is rising is the number of people accessing services and support and openly discussing mental health.

Predicative factors for mental health conditions are not well understood, the report said. While high cholesterol is a known risk for heart attack, for example, medical professionals do not have similar metrics to predict mental health conditions.

This could have consequences for the life insurance industry.

For example, financial hardship is a predictive factor for mental health conditions – so during economic slumps insurers could theoretically see an increase in claims.

However, there are comorbidities between mental health conditions and other illnesses – many of which are poorly understood.

Most alarmingly, circulatory conditions in men jump from

17.9% in all males to 27.3% in males with a mental health condition, and in women they jump from 18.6% to 26.3%.

Mental health conditions are also associated with each other, and there often isn’t much understanding or education around these relationships either. For example 85% of patients with depression have anxiety and 90% of patients with generalised anxiety have depression. Both anxiety and depression are significantly associated with substance abuse disorder.

When it comes to insurers, workplace stress is having an impact on mental health claims – with bullying the main cause of making of making a mental health claim.

Mental health claims are also much larger than other claim types. For TPD the average amount paid for mental health claims is almost 65% higher than the other claim. In income protection, mental health claims are 70% larger than other claim types. The higher claims cost could be due to differences in occupation, age profile and (for IP) duration of the claim.

The paper recommended changes to product definitions, product design, underwriting guidelines, the regulatory structure and early treatment focused on recovery. fs

News

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

21

Products 01: Tim Steele

Pengana launches new Israel equities fund Pengana Capital is partnering with an Israeli fund manager to launch a new tech-focused fund that invests in 30 stocks for local wholesale investors.

The Pengana Alpha Israel Fund is managed by Alpha LTI, an equities boutique founded in 2005 that currently manages about $350 million.

It is a long-only fund with typical holdings in mature small or mid cap companies, including pre-IPO raises.

Companies can be listed on either the Tel Aviv Stock Exchange or ex-Israel exchanges such as NASDAQ-listed companies.

Israel has over 450 listed companies, about 64 of which are cross-listed abroad. More than 27 multinational companies have established research and development facilities via Israel, including Google, Alibaba and Siemens, according to Pengana.

Minimum investment size is $250,000. The fees are 1.5% per year in management fees, and 20% above hurdle of 4% with a high watermark.

Pengana is offering two share classes: one hedged to AUD and the other hedged to USD. “I think people have been aware for a number of years now that Israel is good for venture capital investments, but not on the opportunity to invest in listed equities,” Pengana Capital chief executive Russel Pillemer told Financial Standard.

He said Israel has the second highest R&D to GDP spend.

The fund’s capacity is $500 million. Early interest has been from family offices and high-end advisory groups.

The joint venture means Alpha and Pengana will share the fees.

Loftus Peak lists active ETF The Loftus Peak Global Disruption Fund was the top performer in large-cap global equities funds with 24.2% annualised returns for the three years ending September, according to Rainmaker's wholesale managed funds performance report.

This is about 13% higher than the MSCI All Countries World in AUD. The fund has been running since November 2016 and is managed by Loftus’s founder Alex Pollak and portfolio manager Anshu Sharma.

The strategy had $135 million in total assets at September ends.

So far the fund has been available to retail investors via an unlisted fund with a minimum investment size of $5000.

It is now available as a quoted managed fund with the ticker code of LPGD. Loftus Peak also delisted the fund from the mFund marketplace.

Equity Trustees said the quoted fund is a first for it. Mainstream will handle the registry Baker McKenzie provided legal advice.

“Loftus Peak has been our client since 2016 when they launched the Loftus Peak Global Disruption Fund. Their success is underpinned by their willingness to explore new ways to attract investors. Structuring the fund [ASX: LPGD] as

Climate transition tool launched Mercer has launched an analytics tool that helps institutional investors assess which companies are committed to combating climate change and want to adapt to a net-zero economy.

Analytics for Climate Transition (ACT) assesses companies’ commitment and ability to transition to a net-zero emission by 2050, as well as achieve a 45% emissions reduction by 2030.

The advice and analytics tool ranks portfolios from low-transition capacity (gray investments), low-carbon risk to climate solutions (green investments). This is done by assessing emissions intensity, transition capacity and green revenues in the portfolio.

Mercer global business leader for responsible investment Helga Birgden 02 said many investors are not yet equipped to invest in a decarbonising economy, and some don’t know where to start.

“Our analytics and advice will help investors transition their portfolios to take on the challenges of managing climate risk, in their endeavor to meet return objectives while staying on target for a net-zero outcome,” Birgden said.

a quoted fund provides distribution access to broker-directed clients – which in turn can mean access to the $730 billion SMSF market,” Equity Trustees global head of business development, fund services Harvey Kalman said.

“We’re excited to be a part of this leading edge development because the new dual registry structure opens up a much larger retail market for our fund managers and offers a solution to overcoming the perennial issue in the listed investment vehicle market of units trading at discounts to the NTA.” MLC Super overhauls fees MLC Super has introduced a number of management and administration fee changes for a broad range of products that took effect this month.

On November 1, management fees were reduced and commissions removed in the Access Pre Select Fund.

Also on this date, commissions ceased in group insurance arrangements in MLC Wrap Super, MLC Wrap Investments, MLC Wrap Super Series 2 and MLC Wrap Investments Series 2.

On November 2, MLC MasterKey Investment Service administration fees reduced for the MLC Cash Fund by 0.26% p.a. All other investment options’ admin fees reduced by 0.41% pa. The same reductions applied to the MLC MasterKey Unit Trust.

For example, administration fees for MLC MasterKey Investment Service for the MLC Vanguard Australian Share Index Fund also dropped from 1.13% p.a. to 0.72% p.a. All other investment options' admin fees reduced from 1.35% to 0.94% p.a.

Across the two MasterKey products, investors can expect monthly rebates paid into their account except for the cash fund. “We’ll provide investors with a monthly fee rebate on balances excluding the MLC Cash Fund, for combined account balances of $50,000 or more,” MLC told investors.

“Any contribution fees investors pay will be removed. Any asset-based or contribution-based commission (if applicable) will stop.”

Among the many changes in the MLC MasterKey Unit Trust, the management fee for MLC Cash Fund went from 1.06% p.a. to 0.80% p.a.

On 23 November 2020, the number of family members that clients can link to their account will increase from four to six.

Retirement and investment solutions group executive Tim Steele 01 said MLC has conducted a comprehensive review of the pricing structure across the MLC Super Fund after consulting members, employers and advisers in advance of these changes.

“As a result of this review we will be implementing a number of pricing changes which will result in a simple and competitive pricing framework for the benefit of members,” he said.

BT reduces wholesale fees BT has reduced the management fees of the BT Multi-manager Funds to keep up with new legislation taking effect in the New Year.

02: Helga Birgden

Effective 1 November 2020, BT said changes to the adviser fee function in the BT Wholesale Multimanager Funds have been made.

“New legislative changes will shortly take effect from 1 January 2021 which includes changes to the current exemption from the ban on conflicted remuneration and to the requirements imposed on product issuers in relation to ongoing advice fee arrangements,” BT said.

It said in conjunction with those changes, as well as its own review, BT will reduce management fees to ensure it remains competitive for customers.

BT Wholesale Multi-manager Australian shares fund as well as BT Wholesale Multi-manager International Shares Funds will have fees reduced by 0.15% to 0.75%.

The BT Wholesale Multi-manager Fixed Interest, Conservative, Moderate and High Growth funds all had fees reduced 0.10%.

The BT Wholesale Multi-manager Moderate Fund saw management fees reduce 0.12%. The BT Wholesale Multi-manager Growth Fund reduced management fees 0.13% and the BT Wholesale Multimanager Balanced Fund saw fees reduced 0.08%.

Financial Standard previously reported that BT currently facilitates the payment of Ongoing Investor Advice Fees (OAF) by deducting the agreed amount from an investor’s account balance to pay their adviser in accordance with the investor’s instruction.

However, from 1 December 2020, it will no longer facilitate the payment of the OAF due to changes in law which result in increased compliance.

Ares readies second credit fund Ares’s joint venture with Fidante Partners will launch a second credit fund later this year.

The Ares Diversified Credit Fund will use an open-ended structure, similar to Revolution Asset Management’s last private debt fund.

It will invest in private and public credit assets, and mainly directly originated loans, syndicated loans, corporate bonds, asset-backed securities, commercial real estate loans and other types of credit instruments.

It has daily applications and quarterly redemptions.

And will pass all income components, including origination fees on directly-originated loans.

An initial offer will open on November 16, with these seed investors getting an extra 1% of their initial investment into the fund as loyalty units providing they don’t redeem for a year.

“At its core, the fund provides access to Ares’ scaled credit platform, including its differentiated self-origination capabilities,” head of Ares Australia Management Teiki Benveniste said.

“We believe that Ares’ sourcing advantages and deep credit capabilities, alongside the Fund’s structure which allows for inbound and outbound liquidity at NAV, provides Australian investors with a distinct product to meet their income and liquidity needs. Importantly, the fund’s investors will be able to benefit from the full economics of its investments, including any income and origination fees. fs

22

Roundtable Events | Retirement Income Forum

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

Financial Standard Retirement Income Forum 2020 At the Financial Standard Best Practice Forum fund managers discuss the best strategies for giving clients a secure retirement income.

Annabelle Dickson reports.

01: Jason Teh

02: Henry Elgood

03: Jenneke Mills

04: Aaron Binsted

05: Anthony Doyle

06: Andrew Lowe

07: Chad Padowitz

Hope is not a strategy

Fixed income affair

Leaving retirement income to luck and hoping for the best is not a strategy. But unfortunately, this is how many Australians are treating their retirement.

According to Vertium Asset Management chief investment officer Jason Teh 01, a strategy must be put in place to manage retirement objectives with the overarching goal being that nest eggs last the full duration of retirement.

“One has to aim for a reasonable return outcome so inflation risk can be minimised through the retirement phase,” Teh explained.

“Secondly, capital preservation is about minimising sequencing risk during the risk zone, a retiree does not want to experience a large correction and finally, high levels of income are required to minimise drawing on savings.”

But it is the “retirement risk zone” where the retiree transitions from wealth accumulation to retirement where a strategy is needed most.

“Researchers say this period in life is important in regards to how retirement should be managed.

It roughly spans about 10 years prior to retirement and around 15 years in early retirement,” he said.

With more retirees investing in equities for income, coupled with nine global slowdowns over the last 30 years, Teh highlighted that dividends are not risk free, with about 70% of the ASX 100 dropping their dividends throughout COVID-19.

But whenever the market corrects, Teh said, volatility shoots up and the volatility index sky rockets.

“Whenever volatility goes up, option prices go up. One can take advantage of options to generate further income for a retirement strategy by selling option prices whenever volatility is high,” he said.

“When done successfully, the combination of dividends, franking and option income can deliver a healthy grossed up income of 6% to 8% over the long term.”

Trilogy Funds Management head of investments – fixed income Henry Elgood 02 highlighted Australia’s structural advantage with its compulsory superannuation and explains why he believes funds’ allocations to the asset class are “rather interesting”.

“There is still a large exposure to both equities and property with an underweight exposure to bonds with the average balanced portfolio holds less than 10% in bonds,” he said.

Countries such as Mexico, Japan and France all have much higher exposure to government bonds at around 30%.

Elgood explained the reason Australia has an under allocation to fixed income compared to our global peers is due to the policy thinking at the time.

“What we have seen with equities is an incentive such as franking credits which has increased exposure by investor and also within property, the negative gearing advantage for investors and people looking to buy, it is certainly an attractive policy feature,” he said.

In 2013 Australia’s balanced portfolios were 9.6% bonds and five years on the allocation increased to a 14.6% weighting and Elgood thinks this will continue to grow.

“Given the coordination recently with monetary and fiscal policy we expect a flood of issuance of public debt that will be required to finance the expenditure seen in order to support and push forward the domestic economy,” he said.

“What we expect moving forward is that a lot of these large blue chip companies will be able to take advantage of the lower for longer environment.”

Elgood said part of the new policy objective by the Reserve Bank of Australia (RBA) was introducing the term funding facility to support the lower cash rate and incentivise the banks to lend.

“They are able to offer cheaper loans while maintaining their own profit margins,” he said.

As an industry we often speak about yield and income in percentages and not real dollars.

The second problem is that we often don’t give enough consideration to sequencing risk.

Aaron Binsted

Retirement Income Forum | Events

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

Closing the gender gap COVID-19 has impacted the already wide gap between the retirement balances of men and women, according to MLC technical services manager Jenneke Mills03.

Prior to the pandemic, one third of women were retiring with no super and the average balance at retirement is $157,050 compared to men at $270,710.

She explained women typically take more time out of the workforce which results in lost contributions and opportunities and now it’s women who have withdrawn more as a proportion of their fund balance under the early release of super (ERS) scheme.

“Predominantly it has been women who have been taking more time off work, potentially compromising their employer contributions and obviously there is a reduced capacity to make voluntary contributions,” Mills said.

However, she highlighted that this is a great opportunity to engage clients on superannuation and position advice to reassure clients who are withdrawing money from super that they can do so with the peace of mind of knowing that there are things that can be done in the future to get their retirement savings back on track.

But, she said, for those clients who are too close to retirement to make a significant contribution to their super savings will need a different approach, such as working longer or selling assets they had intended on holding.

“Retirement plans aren’t just in terms of getting yourself to retirement but it could be that the goal posts have shifted often at the last moment,” Mills said.

The income drought Investing in equities is integral to creating retirement income but the industry has a hard time getting it right, Lazard Asset Management portfolio manager Aaron Binsted04 said.

Binsted believes that we are in an “income drought” and equities have the potential to provide an adequate level of income.

But he says there are two common mistakes for evaluating equities for the pension phase being the measurement problem and the management problem.

Binsted explained the measurement problem as the industry measuring pension and accumulation investments the same way.

“As an industry we often speak about yield and income in percentages and not real dollars.

The second problem is that we often don’t give enough consideration to sequencing risk which is a unique risk that is faced by decumulation investors,” he said.

To mitigate this, Binsted said, the industry needs to look at dollar incomes and the path of returns.

The management problem refers to the three distinct risks for pension investors that need to be managed: drawdown risk, volatility and dividend cuts.

To get this right, he said, capital drawdown can be reduced by being capital sensitive, not chasing yield at any price and investing in companies that have capital upside and a margin of safety.

In addition, Binsted believes there are four strategies you can implement to lower portfolio volatility.

“Firstly, by utilising an equally weighted portfolio you can minimise the outsized impact of individual stocks. Secondly you can ensure you have underlying economic diversification meaning you are likely to have a smoother ride through different economic cycles.”

The third way, he explained, is by investing in companies that have a higher certainty of return and dividends and lastly by lowering exposure to markets where valuations are elevated.

And to manage dividend cuts, Binsted said that while they are a fact of life they absolutely can be reduced.

“We believe there are three ways – don’t simply buy the highest yield, secondly different income profiles can blend together for a better portfolio outcome and thirdly fundamental analysis,” he said.

The golden rule Fidelity International cross asset investment specialist Anthony Doyle 05 believes a crucial way to generate superior returns over the long term is to minimise drawdowns and there is a golden rule to managing it.

He explained that a drawdown of 10% requires an 11% return to get back to the normal level and a 30% decline in an investment portfolio would require a 43% gain to return to the level.

“The key is trying to limit the downside episode that an investment in a risk asset may experience in the course of time because essentially when markets do begin to rise again, they rise from an elevated level rather than an index or beta exposure,” Doyle said.

Drawdowns are happening more frequently, he said, and in each calendar year are more significant than the previous, which is a risk investors need to be aware of.

Doyle shared a tool that he said is particularly useful when selecting funds within an asset class and looking at the characteristics of funds - the upside and downside capture ratio.

“The upside capture ratio is how much of a fund participates in the upside of the market and the downside capture ratio is how much a fund participates in the downside,” he said.

“The funds that have a good downside capture ratio, meaning they don’t participate in the downside whether that is 60 or 70% while keep up on the upside, tend to outperform.”

But the golden spread measure, he said, is the capture spread which is the upside capture minus the downside capture and it is the funds that have a superior capture spread that are more likely generate the highest excess returns.

He explained the MSCI World Index has a 0% capture spread because it fully participates in the upside and downside.

The case for annuities Challenger head of technical services Andrew Lowe 06 said a year ago no one had any idea what

70%

The proportion of the ASX 100 that dropped dividends during the COVID-19 crisis.

2020 would bring, and least prepared were those heading towards or already in retirement.

Unfortunately, the financial fate of this demographic is often tied to equity markets.

Of course, when markets crashed as a result of COVID-19 and governments around the world attempting to curb the spread of the virus through economy-crippling lockdowns, this group was unfortunately left exposed.

The average Australian does not expect this degree of volatility to impact their retirement savings nor are they prepared for it.

“Accompanying that volatility in investment markets has been a reduction in interest rates over recent times both at the short term and the long term causing further difficulties for clients looking for retirement income,” he said.

Lowe believes annuity products are the perfect protection against volatility.

“The layering approach to constructing retirement income is essentially prioritising an amount of capital to be able to provide a level of income sufficient to meet essential spending requirements in combination with the maximum rate of age pension,” he said.

He explained if a client invested 20% of their defensive portion of their retirement portfolio in a lifetime annuity it would increase their chances of being able to meet their essential spending requirements throughout retirement.

“There is an extra layer added to retirement income with the annuity income. What we see irrespective of markets and how long the clients live we’ve always got in real terms money coming in,” he said.

The product problem

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Financial advisers are faced with structural challenges when assisting clients with retirement income products.

Talaria Asset Management chief investment officer Chad Padowitz07 said one of the issues the industry has with investment solutions is the vast majority of products deal with capital returns and growth.

As investors transition to retirement, he said, capital protection becomes more important.

“However, you do need to earn an income and absolute returns which are more important as clients get older and closer to retirement as actual income is more important than how the product does relative to other things,” he said.

The challenge of the income component, Padowitz said, is that the Age Pension even by conservative assessment is not going to be enough whether it is for an individual or a couple.

“Retirees require an investment that captures inflation, growth and keeps most of the gains that are available but a lot less of downside so lower volatility and consistent income that they can live off,” he said.

Selling put options, or as Padowitz referred to as equity insurance, is an addressable solution as it generates income, diversifies sources of return and creates a buffer against loss. fs

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International

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

New chief for global manager

01: Angélique Laskewitz

executive director Association of Investors for Sustainable Development

Karren Vergara

Mike Freno took over from Tom Finke at Barings, who has served in this role since 2016 and led the institution through its integration.

Freno was appointed president in February 2020.

He joined the firm in September 2005 as a managing director and worked as the head of global fixed income and multi-asset and head of global markets.

Since becoming president in early 2020, Freno has successfully integrated all of the firm’s investments businesses – public and private credit, real estate and specialty equity markets – in addition to operations, technology, product management, distribution and marketing, Barings said.

Finke retires at the end of November to pursue another opportunity. He spent over 12 years at the helm and remains as a strategic adviser with the firm.

He said: “I have been honored to lead the firm through its first four years as Barings, as we built a truly outstanding global investment management firm. It is satisfying to see Barings operating from a position of strength as Mike now takes the reins to drive Barings’ ambitious growth and transformation strategy.”

Freno commented: “I am incredibly excited and humbled to be entrusted with leading such a renowned name in financial services. I look forward to collaborating closely with our global team of 1,800 professionals and continuing to partner with our clients to help them achieve their long-term financial objectives.” fs

Dutch pension funds told to practice what they preach Jamie Williamson

he Association of Investors for Sustainable T Development, also known as Vereniging van Beleggers voor Duurzame Ontwikkeling

The quote

Increase the diversity of the management board and the investment committee and thus increase the knowledge about responsible in­vestment.

Digital asset manager launches A newly launched UK asset management firm is catering to institutional investors’ increasing interest in digital assets, piquing the curiosity of Australian high-net-worths.

London-based ByteTree Asset Management launched this week with a mission to provide sophisticated investors with institutional grade, regulated access to digital assets.

ByteTree AM is a subsidiary of data analysis firm Crypto Composite, which was founded by former HSBC Global Asset Management head of absolute return Charlie Morris in 2014. It is also home to terminal business ByteTree, which collects, collates and indexes more than 80 metrics for multiple blockchain networks.

ByteTree AM plans to launch its first fund later this year to professional investors, investing solely in Bitcoin and leveraging proprietary intelligence gleaned by ByteTree.

ByteTree AM chief executive Charlie Erith told Financial Standard the company has seen a small but growing interest in its data terminal from Australian and New Zealand investors.

In the UK, he said, apprehension remains relatively high, but curiosity has grown over the last three to six months. This is likely spurred in part by cryptocurrencies’ low correlation to other asset classes, making it an attractive option with which to offset losses from other allocations.

Cryptocurrencies currently sit among some of the best-performing assets of 2020 and Bitcoin has just climbed above US$16,000 – its highest level since January 2018. fs

or VBDO, looked at the 50 largest pension funds in the Netherlands and found that while significant steps have been taken to incorporate sustainable policies, it hasn’t necessarily translated into practice.

The research found that 44% of Dutch pension fund portfolios do not align with the funds’ responsible investment policies. This is because only a small number of funds require their asset managers to operate in line with the fund’s objectives.

Further, less than 2% of funds set measurable goals for the composition of investment portfolios and take into account the impact those investments would have on people and the environment.

When it comes to leadership, the research found 55% of pension fund boards have not demonstrated available knowledge on responsible investments, and only 16% have completed some form of ESG education or training.

However, about one-third of the funds have an employee dedicated to the subject of ESG. VBDO executive director Angélique Laske-

witz01 said there’s room for attention concerning responsible investment knowledge.

“In the meantime, funds can make sure there is sufficient counterweight offered by management. Increase the diversity of the management board and the investment committee and thus increase the knowledge about responsible investment,” she advised.

“Finally, formally establish relevant responsibilities in the board.”

In undertaking the research, VBDO asked each fund to answer 50 questions on governance, policy, implementation and accountability.

VBDO said there has been a slow but certain increase in the average total score of the benchmark in recent years, however this year saw a significant drop. Last year the average score came in at 2.7, this year it is just 2.1.

However, this isn’t necessarily a bad thing, according to Laskewitz.

“Benchmarks create a race to the top by providing comparative insight and identifying front runners, stimulating sector-wide learning and the sharing of good practices,” she said.

“Fortunately, we see an upward trend in the performance of the pension funds and that top is getting closer and closer.” fs

Three advisers banned for non-financial crimes Elizabeth McArthur

The UK’s Financial Conduct Authority (FCA) has banned three people from working in financial services due to sex offences they had committed.

The FCA’s decision to ban the three individuals comes after Megan Butler, executive director of supervision (investment and wholesale) wrote to the House of Commons outlining that the FCA views sexual harassment as misconduct which can drive poor culture in the financial services industry.

First of the three, Mark Horsey was the sole director of a financial advice firm during which time he secretly filmed a female tenant in a property he owned while she was showering.

Horsey was convicted of one count of voyeurism in 2018 and sentenced to nine months imprisonment. He was also required to sign the sex offenders register.

The judge sentencing Horsey said that his act of voyeurism had involved substantial planning, including carefully positioned mirrors and a ladder. This elaborate set up allowed Horsey to film the tenant from within another room.

A second adviser, Frank Cochran was convicted of sexual assault in 2018 as well as engaging in controlling and coercive behaviour contrary to the UK’s protection from harassment laws.

A director of a financial service firm, Cochran’s offences were committed while he was in the industry. He was sentenced to seven years in prison and made the subject of a restraining order for an indefinite period, and will be on the sex offenders register for life.

Cochran’s firm was called Celebrity Financial Planning and he claimed to have celebrity clients, including ex-Atomic Kitten star Kerry Katona.

UK publication Express & Star reported that Cochran’s victim suffered post-traumatic stress from the assault and that the judge told Cochran: “You were superior and arrogant to those you came into contact with.”

Finally, former financial adviser Russell David Jameson was also banned from working in financial services by the FCA. He was convicted of making, possessing and distributing indecent images of children in 2018.

The offences occurred while Jameson was an approved financial adviser. He was found to have made thousands of indecent photographs of children and to have had thousands of those images in his possession.

He was sentenced to five years in prison and will be on the sex offenders register indefinitely.

While the crimes committed by Jameson, Horsey and Cochran were not financial in nature, the FCA considers that it is not possible for them to be fit and proper people to carry out financial services in light of their convictions.

“The FCA expects high standards of character, probity and fitness and properness from those who operate in the financial services industry and will take action to ensure these standards are maintained,” FCA executive director of enforcement and market oversight Mark Steward said. fs

Between the lines

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

HUB24 partners with platform

25

01: Karl Morris

chief executive Ord Minnett

Annabelle Dickson

Managed accounts platform HUB24 and wealth management software myprosperity have partnered to allow financial advisers who use both platforms to access digital signature functionality.

Advisers will now be able to use myprosperity’s integrated digital signature capability to sign HUB24 client documents for more efficient client onboarding and streamline other processes which require a client signature.

HUB24 director of strategic development Jason Entwistle said the partnership comes from adviser demand for digital solutions to support the advice process.

“Demand for digital solutions that enable the efficient delivery of advice has been growing for some time and accelerated as a result of the pandemic,” he said.

HUB24’s open architecture approach will integrate with myprosperity beyond investment data feeds to allow advisers to digitally sign HUB24 documents.

HUB24 and myprosperity said this is the first of several announcements between the two platforms which are all digital integration tools. myprosperity managing director Peter McCarthy said he has seen an “explosion” of advisers and clients using the platform.

“Digital document signing, online custom fact finds, and app downloads are at record numbers highlighting the rapid change in how we are all doing business,” he said. fs

Ord Minnett acquires E.L. & C. Baillieu Eliza Bavin

O The quote

The transaction will bring together two of Australia’s longest standing stockbroking firms.

rd Minnett has acquired E.L. & C. Baillieu for an undisclosed amount in what it describes as “a highly welcomed strategic move”.

“We felt this acquisition was a strong strategic and cultural fit with Ord Minnett,” Ord Minnett chief executive Karl Morris 01 said.

“The combination of E.L. & C. Baillieu’s brand heritage and history, private stockbroking business, its adviser network, its client-base and operational synergies will cement Ords as a respected Australian wealth brand.

“The scale benefits and self-clearing of the two businesses will allow us to be leaders in financial advice. This new amalgamation can only serve to benefit Australian investors and our clients for many more generations to come. We look forward to working with the E.L. & C. Baillieu team.”

Chair of E.L. & C. Baillieu Jo Dawson said, after running an independent and successful

Rainmaker Mandate Top 20

process since June this year, she is delighted to announce the shareholders of E.L. & C. Baillieu voted in favour of the transaction.

“The transaction will bring together two of Australia’s longest standing stockbroking firms, and provide many exciting opportunities for our clients and staff,” Dawson said.

“Having received strong interest from the stockbroking community, Ord Minnett were determined to be the perfect fit for our business and I believe that the combination of the two firms will position E.L. & C. Baillieu well for the structural changes transforming our industry. Our advisers and staff are looking forward to what will be an exciting time ahead.”

The integration of both firms is set to take place over the next 12 months and E.L. & C. Baillieu will continue to operate under its name, however will be a wholly owned subsidiary of Ord Minnett. fs

Note: Select bond & cash investment mandate appointments

Appointed by

Asset consultant

Investment manager

Mandate type

ANZ Australian Staff Superannuation Scheme

Willis Towers Watson

First Sentier Investors

Australian Fixed Interest

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Coolabah Capital Institional Investments Pty Limited

Fixed Interest

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

PGIM, Inc.

International Fixed Interest Emerging Markets

35

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

IFM Investors Pty Ltd

Alternative Fixed Interest

10

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Ashmore Investment Management Limited

Emerging Markets Fixed Interest

12

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

PGIM, Inc.

Emerging Markets Fixed Interest

47

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Other

Alternative Fixed Interest

Construction & Building Unions Superannuation

Frontier Advisors

Mesirow Financial

Cash

Construction & Building Unions Superannuation

Frontier Advisors

Self

Alternative Debt

Construction & Building Unions Superannuation

Frontier Advisors

Self

Australian Fixed Interest

First State Superannuation Scheme

Willis Towers Watson

Oaktree Capital Management, LLC

International Fixed Interest

Health Employees Superannuation Trust Australia

Frontier Advisors

Other

Cash

Hostplus Superannuation Fund

JANA Investment Advisers

Macquarie Investment Management Australia Limited

Global Fixed Interest Diversified

8

Hostplus Superannuation Fund

JANA Investment Advisers

JANA Implemented Consulting

Global Fixed Interest Diversified

38

Hostplus Superannuation Fund

JANA Investment Advisers

Bentham Asset Management Pty Limited

Global Fixed Interest

36

legalsuper

Willis Towers Watson

IFM Investors Pty Ltd

Cash

153

Maritime Super

JANA Investment Advisers; Quentin Ayers

IFM Investors Pty Ltd

Cash

48

Maritime Super

JANA Investment Advisers; Quentin Ayers

IFM Investors Pty Ltd

Australian Fixed Interest

69

MyLifeMyMoney Superannuation Fund

JANA Investment Advisers

PIMCO Australia Pty Ltd

International Fixed Interest

70

WA Local Government Superannuation Plan

Willis Towers Watson

Putnam Investments Australia Pty Limited

Fixed Interest

26

Amount ($m) 79 169

154 23 202 39 313 29

Source: Rainmaker Information

26

Super funds

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23 PERIOD ENDING – 30 SEPTEMBER 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

UniSuper - Balanced

1.8

3

7.2

1

7.9

2

AAA

Prime Super (Prime Division) - Property

-3.9

10

7.2

1

13.9

1

AAA

Australian Ethical Super Employer - Balanced (accumulation)

1.3

7

7.2

2

6.9

17

AAA

Telstra Super Corporate Plus - Property

0.0

3

7.0

2

9.0

2

AAA

AustralianSuper - Balanced

1.1

9

6.8

3

8.2

1

AAA

CareSuper - Direct Property

0.2

2

6.2

3

8.6

3

AAA

FES Super - Smoothed Option (Hybrid)

2.0

2

6.7

4

6.3

33

AAA

Rest Super - Property

-1.1

5

5.9

4

8.0

4

AAA

TASPLAN - OnTrack Build

-1.6

40

6.5

5

AAA

TASPLAN - Property

0.2

1

5.7

5

AAA

Virgin Money SED - LifeStage Tracker 1974-1978

-1.8

46

6.5

6

AAA

AMG Corporate Super - AMG Listed Property

-8.5

17

5.6

6

6.1

9

AAA

Aware Super Employer - Growth

1.7

5

6.2

7

7.3

7

AAA

HOSTPLUS - Property

0.0

4

5.6

7

7.2

6

AAA

Cbus Industry Super - Growth (Cbus MySuper)

1.1

10

6.2

8

7.8

3

AAA

Acumen - Property

-1.6

6

5.3

8

7.4

5

AAA

Vision Super Saver - Balanced Growth

1.8

4

6.2

9

7.2

8

AAA

Catholic Super - Property

-2.6

7

5.2

9

7.1

7

AAA

Lutheran Super - Balanced Growth - MySuper

1.2

8

6.2

10

7.1

10

AAA

Sunsuper Super Savings - Property

-3.2

8

4.4

10

6.0

10

AAA

Rainmaker MySuper/Default Option Index

-1.2

5.1

6.4

Rainmaker Property Index

AUSTRALIAN EQUITIES INVESTMENT OPTIONS UniSuper - Australian Shares

-11.2

2.4

4.7

FIXED INTEREST INVESTMENT OPTIONS -4.4

5

8.1

1

8.6

2

AAA

Australian Catholic Super Employer - Bonds

4.7

1

6.2

1

4.6

1

AAA

Vision Super Saver - Just Shares

3.2

1

7.7

2

9.5

1

AAA

AMG Corporate Super - AMG Australian Fixed Interest

4.4

2

5.3

2

3.9

7

AAA

ESSSuper Beneficiary Account - Shares Only

1.0

2

7.3

3

8.2

5

AAA

UniSuper - Australian Bond

2.8

19

5.2

3

3.8

12

AAA

Prime Super (Prime Division) - Australian Shares

-3.9

4

6.1

4

8.4

3

AAA

Mine Super - Bonds

2.5

25

5.1

4

4.1

4

AAA

CBA Group Super Accumulate Plus - Australian Shares

-4.7

6

5.8

5

7.6

15

AAA

Aware Super Employer - Australian Fixed Interest

2.7

21

4.9

5

3.7

13

AAA

AustralianSuper - Australian Shares

-8.6

33

5.6

6

7.7

11

AAA

Vision Super Saver - Diversified Bonds

3.6

4

4.7

6

4.3

3

AAA

Virgin Money SED - Indexed Australian Shares

-8.4

28

5.5

7

AAA

Intrust Core Super - Bonds (Fixed Interest)

2.9

13

4.6

7

4.0

6

AAA

Vision Super Saver - Australian Equities

-7.5

17

5.4

8

7.1

27

AAA

GESB Super - Mix Your Plan Fixed Interest

2.6

24

4.5

8

3.4

19

AAA

Sunsuper Super Savings - Australian Shares Index

-8.5

29

5.3

9

7.6

14

AAA

Sunsuper Super Savings - Diversified Bonds Index

2.7

20

4.3

9

3.8

10

AAA

Aware Super Employer - Australian Equities

-8.2

24

5.3

10

7.5

17

AAA

FirstChoice Employer - Diversified Fixed Interest Select

2.9

14

4.3

10

3.1

27

AAA

Rainmaker Australian Equities Index

-8.2

Rainmaker Australian Fixed Interest Index

2.6

4.5

6.9

INTERNATIONAL EQUITIES INVESTMENT OPTIONS

4.2

3.2

AUSTRALIAN CASH INVESTMENT OPTIONS

UniSuper - Global Environmental Opportunities

31.9

1

16.2

1

15.2

1

AAA

AMG Corporate Super - Vanguard Cash Plus Fund

0.9

4

1.6

1

1.8

1

AAA

UniSuper - Global Companies in Asia

10.1

8

13.9

2

12.9

2

AAA

Intrust Core Super - Cash

0.9

6

1.5

2

1.7

3

AAA

AustralianSuper - International Shares

14.1

2

12.9

3

11.5

4

AAA

AMG Corporate Super - AMG Cash

1.0

2

1.5

3

1.7

2

AAA

WA Super - Global Shares

10.0

9

11.9

4

10.9

7

AAA

NGS Super - Cash & Term Deposits

0.9

3

1.5

4

1.7

4

AAA

Equip MyFuture - Overseas Shares

10.8

6

11.0

5

10.5

9

AAA

Virgin Money SED - Cash Option

0.6

23

1.4

5

AAA

UniSuper - International Shares

12.9

3

10.9

6

11.1

5

AAA

Rest Super - Cash

0.9

5

1.4

6

1.5

10

AAA

LUCRF Super - International Shares (Active)

10.9

5

10.8

7

9.6

16

AAA

Energy Super - Cash Enhanced

0.7

15

1.4

7

1.6

7

AAA

FES Super - International Share Option

4.7

26

10.8

8

AAA

Media Super - Cash

0.8

9

1.4

8

1.5

14

AAA

Media Super - Passive International Shares

4.1

31

10.7

9

18

AAA

Aware Super Employer - Cash

0.7

13

1.4

9

1.5

12

AAA

Virgin Money SED - Indexed Overseas Shares

4.1

30

10.6

10

AAA

ANZ Staff Super Employee Section - Cash

1.1

1

1.4

10

1.5

13

AAA

Rainmaker International Equities Index

3.0

Rainmaker Cash Index

0.5

7.3

9.3

8.3

Notes: A ll figures reflect net investment performance, i.e. net of investment tax, investment management fees and the maximum applicable ongoing management and membership 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

1.1

1.3

Source: Rainmaker Information www.rainmakerlive.com.au

Managed funds

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

27

PERIOD ENDING – 30 SEPTEMBER 2020

Managed Funds

Size 1 year 3 years 5 years

Size 1 year 3 years 5 years

Fund name

Fund name

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

AUSTRALIAN EQUITIES

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

COMBINED PROPERTY

Hyperion Australian Growth Companies Fund

1,475

22.0

1

16.8

1

14.6

5

Australian Unity Diversified Property Fund

283

14.6

1

14.5

1

17.0

1

Australian Unity Platypus Aust Equities

158

16.6

2

16.6

2

14.9

4

Lend Lease Aust Prime Property Industrial

1,098

9.9

2

12.3

2

11.2

4

Bennelong Australian Equities Fund

643

14.3

3

15.3

3

14.9

3

Investa Commercial Property Fund

5,963

5.9

3

12.3

3

13.1

2

BlackRock Australian Share Fund

105

-3.4

19

15.1

4

19.5

1

Lend Lease Aust Prime Property Commercial

5,046

4.2

4

10.3

4

12.4

3

1,078

13.4

4

13.3

5

16.9

2

Pendal Property Securities Fund

418

-9.2

10

8.2

5

8.6

9

190

-2.7

17

10.7

6

10.6

10

UBS Property Securities Fund

192

-11.0

13

8.0

6

9.1

6

14

0.1

13

10.0

7

9.1

24

DEXUS Property Fund

10,387

-0.7

7

7.3

7

10.3

5

Greencape Broadcap Fund

830

2.5

10

9.9

8

12.2

8

Ironbark Paladin Property Securities Fund

291

-10.3

11

6.2

8

7.4

12

Australian Ethical Australian Shares Fund

326

2.4

11

9.5

9

11.1

9

Resolution Cap. Global Prop. Sec. Series II

423

-13.6

16

6.1

9

4.7

29

-4.9

25

8.5

15

-0.5

6

6.1

7

Bennelong Concentrated Aust Equities Alphinity Sustainable Share Fund AMP Sustainable Share Fund

AB Managed Volatility Equities Fund

1,116

10

10.2

ISPT Core Fund

15,959

10

8.9

443

-8.0

4.6

7.7

Sector average

1,242

-14.5

2.9

5.2

S&P ASX 200 Accum Index

-10.2

4.8

7.3

S&P ASX200 A-REIT Index

-16.6

3.7

5.6

4.8

23

Sector average

INTERNATIONAL EQUITIES

FIXED INTEREST

Loftus Peak Global Disruption Fund

120

BetaShares Global Sustainability Leaders ETF

849

27.1

5

22.5

2

40

17.8

10

22.3

3

Zurich Concentrated Global Growth T. Rowe Price Global Equity Fund

40.4

1

23.3

1

Macquarie True Index Sovereign Bond Fund Pendal Government Bond Fund

15.0

3

Schroder Fixed Income Fund

613

2.7

61

6.7

1

894

4.1

25

6.7

2

4.9

18

2,369

4.3

16

6.7

3

5.0

12

4,145

26.4

6

21.0

4

17.6

1

Macquarie Australian Fixed Interest Fund

219

4.1

26

6.6

4

5.2

6

Franklin Global Growth Fund

358

30.1

2

19.8

5

17.2

2

AMP Capital Wholesale Australian Bond Fund

988

4.1

24

6.6

5

5.1

8

Nikko AM Global Share Fund

106

15.3

16

18.0

6

14.3

5

Principal Global Credit Opportunities Fund

222

10.6

1

6.5

6

6.5

1

14.4

4

Nikko AM Australian Bond Fund

Evans and Partners International Fund

52

2.9

54

17.9

7

Legg Mason Martin Currie Global LT Fund

10

17.3

11

17.7

8

Apostle Dundas Global Equity Fund

1,042

13.3

18

17.7

Capital Group New Perspective Fund

739

18.9

8

17.6

9

13.9

Sector average

707

3.8

9.9

9.7

MSCI World ex AU - Index

4.9

11.8

10.7

10

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

QIC Australian Fixed Interest Fund 7

Perpetual Wholesale Active Fixed Interest Fund Pendal Fixed Interest Fund Sector average

205

3.8

33

6.5

7

5.0

9

1,548

4.2

19

6.4

8

5.0

14

194

3.3

43

6.4

1,085

4.7

10

6.4

9 10

4.4

882

3.2

4.5

4.2

Bloomberg Barclays Australia Breakeven

2.7

6.9

5.0

43

Source: Rainmaker Information

There’s something in the air that’s not a virus here’s something in the air tonight and for TThere’s once it’s not COVID-19. a saying in investments that “the

Dial tones

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

trend is your friend”. If true, fund managers are certainly making nice to all things ESG if the growth of products is anything to go by.

One of my regular tasks is to compile the Wholesale Managed Performance Report – part of which is published in these pages of the Financial Standard. I recently added a new performance table exclusively for managed products that claim an affinity with ESG-style investing.

For those just waking from a shutdown-induced coma ESG stands for environmental, social and governance. In other words, anything that takes an ethical stance when deciding what securities to include in their portfolios. You can recognise these products because they include words like “sustainable” and “ethical” in their names.

Obviously you won’t find shares of any companies that manufacture weapons, or want to drill in the Arctic for oil, or produce a lot of greenhouse gases, in these portfolios.

There are also investment managers who state that they include ESG-type metrics in all of their portfolios. This won’t be in the name of the fund but the thoughts and processes are there behind the scenes nevertheless.

First of all I want to state that I am all in favour of the rise of ESG investing. It is, fundamentally, a good thing.

It is also getting complicated. Apparently, there are degrees of ESG. Take humble water, for example. Clean drinking water is a good thing. Everyone on the planet should have access to it. Is plastic bottled water a good thing?

Compared with tap water, no, it is not a good thing. Compared with plastic bottled fizzy sugary soda? Yes, it is a good thing. Now that didn’t take long to get complicated.

In the world of ESG you have negative screens, where the so-called “sin stocks” are excluded and everything else is fair game. Recently there was an Australian equities fund (closed now) that called itself sustainable, so it was an ESG product. But it only excluded companies that were not even listed on the ASX (land mine companies, for example), so it was pretty much the same as any Australian index fund, except that it had a higher management fee.

Other funds utilise positive screens, where they actively look for companies that make a positive contribution to the world through its positive ESG credentials. These are mostly active managers, so they charge active fees. This doesn’t suit all investors because they need to keep their costs down.

Our ESG performance table currently has 45 products with at least three years of performance history and 28 products with at least five years of performance history. That size of that table will grow when products with less than three years of history are included.

The reason is there are a further 18 products with less than three years of history. This will bring the total number to 63, and this represents a 125% increase over five years.

There are a wide variety of products on offer, both in terms of asset classes, investment objectives, fees and how the manager incorporates ESG principles into their portfolios.

The most popular funds are equities, with 47 unit trusts and exchange traded products. Fixed income has 11 funds and there are six diversified options.

This does not capture all the options available to investors, as super funds also have ESG options, and some funds are so committed to ESG principles that they don’t need to label them ESG, they all are.

Is there a lesson in all this? I am afraid so.

And it’s that we all have to educate ourselves on this topic. It’s here to stay, it’s important, and it’s your money. So make sure it’s being used in the best possible way. fs

28

Economics

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

Biden cooks Donald’s duck Ben Ong

“A whole new world A new fantastic point of view…”

- Zayn Malik, Zhavia Ward

F

ormer vice-president Joe Biden is now POTUS-elect, breaking the record for the most votes (70 million plus votes … and counting) received by a presidential candidate in US history. Madam vice president-elect Kamala Harris is now also firmly etched in history as the first female second most powerful person in the world (many publications add “… and the first woman of colour” to describe Ms. Harris but I don’t want to add racism to sexism).

A new era has dawned that soon (by January next year) would replace the unpredictable, unconventional, unstable Donald Trump who the Washington Post labelled “Commander in Tweets”.

“He has used it to announce policy, move markets, attack the press, dispute reports, insult enemies and energize his base — all unvarnished by a journalist’s interpretation.”

There’s now hope. President-elect Joe Biden’s victory speech offers a reboot for America – a cleansing of the division, misinformation and rogue leadership that has characterised the White House over the past four years.

Joe Biden’s victory speech offers hope.

“I pledge to be a president who seeks not to divide, but to unify. Who doesn’t see red and blue states, but a United States…Democrats, Republicans and independents. Progressives, moderates and conservatives. Young and old. Urban, suburban and rural. Gay, straight, transgender.

White. Latino. Asian. Native American.”

“And to those who voted for President Trump, I understand your disappointment tonight. I’ve lost a couple of elections myself. But

now, let’s give each other a chance. It’s time to put away the harsh rhetoric. To lower the temperature. To see each other again. To listen to each other again. To make progress, we must stop treating our opponents as our enemy. We are not enemies. We are Americans.”

Jogging Joe is also cognisant of the challenges before him.

“The battle to control the virus. The battle to build prosperity. The battle to secure your family’s health care. The battle to achieve racial justice and root out systemic racism in this country. The battle to save the climate. The battle to restore decency, defend democracy and give everybody in this country a fair shot,” he said.

“Our work begins with getting COVID under control. We cannot repair the economy, restore our vitality, or relish life’s most precious moments – hugging a grandchild, birthdays, weddings, graduations, all the moments that matter most to us – until we get this virus under control.

“I will name a group of leading scientists and experts as transition advisers to help take the Biden-Harris COVID plan and convert it into an action blueprint that starts on January 20th, 2021.

That plan will be built on a bedrock of science. It will be constructed out of compassion, empathy and concern. I will spare no effort – or commitment – to turn this pandemic around.”

Trumpeteers may not like it but Donald could quack like a duck for all he wants but his goose got cooked.

“And now, together – on eagle’s wings – we embark on the work that God and history have called upon us to do. With full hearts and steady hands, with faith in America and in each other, with a love of country – and a thirst for justice – let us be the nation that we know we can be,” Biden said. fs

Monthly Indicators

Oct-20

Sep-20

Aug-20

Jul-20

Jun-20

Consumption Retail Sales (%m/m)

-

-1.10

-3.99

3.18

2.72

Retail Sales (%y/y)

-

5.63

7.08

12.04

8.52

-1.50

-21.77

-28.78

-12.84

-6.44

Sales of New Motor Vehicles (%y/y)

Employment Employed, Persons (Chg, 000’s, sa) Job Advertisements (%m/m, sa) Unemployment Rate (sa)

-

-29.54

129.06

119.15

227.82

9.35

8.30

2.77

17.38

41.13

-

6.94

6.85

7.48

7.44

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

9.70

4.38

9.16

-5.00

Dwellings approved, Private Sector, (%m/m, sa)

-

15.44

-2.26

11.74

-3.74

Housing Finance Commitments, Number (%m/m, sa) - Housing Finance Commitments, Value (%m/m, sa)

-

Survey Data Consumer Sentiment Index

105.02

93.85

79.53

87.92

93.65

AiG Manufacturing PMI Index

56.30

46.70

49.30

53.50

51.50

NAB Business Conditions Index

-

0.36

-6.19

-0.21

-7.68

NAB Business Confidence Index

-

-3.82

-8.24

-14.28

0.50

Trade Trade Balance (Mil. AUD)

-

5630.00

2618.00

4362.00

Exports (%y/y)

-

-19.73

-22.49

-21.72

-16.75

Imports (%y/y)

-

-22.27

-14.98

-16.76

-20.30

Sep-20

Jun-20

Mar-20

Quarterly Indicators

7826.00

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

0.69

-0.35

2.19

1.84

1.67

CPI (%y/y) trimmed mean

1.20

1.20

1.70

1.60

1.50

CPI (%y/y) weighted median

1.30

1.30

1.60

1.20

1.20

Output

News bites

ECB steady The European Central Bank (ECB) also kept monetary policy settings unchanged at its late October Governing Council meeting, opting to wait until the new round of macroeconomic projections are unveiled in December. This “will allow a thorough reassessment of the economic outlook and the balance of risks. On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favourable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path”.

BOJ stays Like the Fed and the ECB, the Bank of Japan (BOJ) also kept policy unchanged – target rate at -0.1% and

target for the 10-year Japanese government bond yield at around 0% -- at its October meeting but stated that:“For the time being, the Bank will closely monitor the impact of the novel coronavirus (COVID19) and will not hesitate to take additional easing measures if necessary, and also it expects short- and long-term policy interest rates to remain at their present or lower levels. The BOJ downgraded its fiscal year 2020/21 GDP forecast to a contraction of 5.5% from (July’s prediction for a 4.7% decline) but adjusted the following year’s economic projection to growth of 3.6% from +3.3% forecast three months earlier.

US Fed on hold The US Federal Reserve kept its fed funds rate target unchanged at 0-0.25% at its November meeting and “expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time”. The Fed added that it will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace over coming months “to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses”. It reiterated that the economic outlook will depend significantly on the course of the pandemic. 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

06-Nov Mth ago 3 mths ago 1yr ago 3yrs ago

Interest rates RBA Cash Rate

0.25

0.25

0.25

0.75

1.50

Australian 10Y Government Bond Yield

0.76

0.84

0.86

1.25

2.57

Australian 10Y Corporate Bond Yield

1.42

1.58

1.63

2.07

3.06

Stockmarket All Ordinaries Index

6395.0

3.74%

3.47%

-5.58%

6.10%

S&P/ASX 300 Index

6170.8

3.77%

2.71%

-6.79%

4.45%

S&P/ASX 200 Index

6190.2

3.83%

2.45%

-7.06%

3.97%

S&P/ASX 100 Index

5100.1

3.94%

2.19%

-7.54%

3.89%

Small Ordinaries

2878.2

2.59%

6.82%

-0.75%

8.99%

Exchange rates A$ trade weighted index

59.50

A$/US$

0.7271 0.7163 0.7220 0.6892 0.7662

60.70

61.90

60.00

64.90

A$/Euro

0.6123 0.6074 0.6096 0.6223 0.6613

A$/Yen

75.11 75.65 76.18 75.13 87.44

Commodity Prices S&P GSCI - commodity index

349.62

353.74

349.28

416.93

429.44

Iron ore

117.63

121.84

118.89

82.98

62.70

Gold WTI oil

1940.80 1913.40 2067.15 1486.05 1270.90 37.48

40.52

41.93

56.15

Source: Rainmaker /

57.34

Sector reviews

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

Figure 1: R BA cash rate target

Australian equities

7.0

Prepared by: Rainmaker Information Source:

Figure 2: Australia 10Y bond yield 7.0

RATE %

6.0

6.0

5.0

5.0

4.0

4.0

3.0

3.0

2.0

2.0

1.0

1.0

0.0

0.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

YIELD %

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

RBA does the limbo rock Ben Ong

“All around the limbo world Gonna do the limbo rock…”

- Chubby Checker, Limbo Rock ustralian equities and bond markets apA plauded after the Reserve Bank of Australia (RBA) showed how low it could go.

The All Ordinaries index jumped by 1.9% following the RBA’s Melbourne Cup Day Board meeting on November 3, with big capitalisation stocks – top 100 up by 1.9% – and little ones – small caps up by 2.1% – equally performing well.

Fixed income markets – them who are most sensitive to interest rate movements – were happy too.

This is because of the RBA’s announced package of measures lowering immediate, intermediate and long-term interest rates and I quote: “The elements of today’s package are as follows: a reduction in the cash rate target to 0.1 per cent a reduction in the target for the yield on

the three-year Australian government bond to around 0.1% a reduction in the interest rate on new drawings under the Term Funding Facility to 0.1%; a reduction in the interest rate on Exchange Settlement balances to zero; the purchase of $100 billion of government bonds of maturities of around five to 10 years over the next six months.” [Can you spell QE?] The RBA’s bond purchases are intended to push down long-term government bond yields.

And they have. Yields on five-year government bonds declined to 0.27% from 0.28% before the RBA’s announcement; 10-year bond yields dropped to 0.77% from 0.82%.

This would lower the national and state government’s cost of borrowing to fill budget deficits that have grown in efforts to mitigate the negative impact of the coronavirus pandemic and support the domestic economy.

Presumably, the RBA has factored in these latest reductions in upgrading its forecasts.

Figure 1: FTSE-100 Index

International equities

Figure 2: IHS/CIPS UK PMI

8100 7800

60

INDEX

INDEX

55

7500 7200

50

6900

45

6600

40

6300

35

he US Federal Reserve met and decided to T keep the status quo – the complete opposite of the happenings at the opposite side of the Atlantic where both fiscal and monetary policies came into play.

Renewed lockdown measures in England prompted the government and the Bank of England (BOE) into action.

UK Chancellor of the Exchequer Rishi Sunak announced the extension of the government’s furlough scheme until 31 March 2021 and raised the upfront guarantee funding for devolved administrations by £2 billion to £16 billion and up to £500million of funding for councils to support local public health.

The Exchequer’s largesse came on the same

CPD Questions 1–3

1. Which interest rate did the RBA lower to 0.1%? a) Official cash rate target b) Target for the yield on the 3-year Australian Government bond c) Interest rate on new drawings under the Term Funding Facility d) All of the above 2. What is the forecast GDP growth to June 2021 under its central scenario? a) -6.0% b) -4.0% c) +4.0% d) +6.0% 3. The RBA expects inflation to reach the bottom range of its 2%3.0% target by June next year. a) True b) False

Composite

International equities

5100

20

Services

CPD Questions 4–6

4800

15

4500

10 2018

2019

2020

JAN18 APR18 JUL18 OCT18 JAN19 APR19 JUL19 OCT19 JAN20 APR20 JUL20 OCT20

UK spends more for renewed lockdown - ABBA

Australian equities

Manufacturing

5400

2017

“Money, money, money Always sunny…”

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].

25

5700

Ben Ong

CPD Program Instructions

30

6000

Prepared by: FSIU Sources: Factset Prepared by: Rainmaker Information Source:

“In Australia, the economic recovery is under way and positive GDP growth is now expected in the September quarter, despite the restrictions in Victoria. It will, however, take some time to reach the pre-pandemic level of output. In the central scenario, GDP growth is expected to be around 6% over the year to June 2021 and 4% in 2022.

The unemployment rate is expected to remain high, but to peak at a little below 8%, rather than the 10% expected previously. At the end of 2022, the unemployment rate is forecast to be around 6%.

This extended period of high unemployment and excess capacity is expected to result in subdued increases in wages and prices over coming years. In underlying terms, inflation is forecast to be 1% in 2021 and 1.5% in 2022. In the most recent quarter, year-ended CPI inflation was 0.7 per cent and, in underlying terms, inflation was 1.25%.”

But if the kitchen sink isn’t enough: “The Board is prepared to do more if necessary.” fs

day the UK central bank expanded QE -- increasing its asset purchase target by a largerthan-expected £150 billion (expectations were for £100 billion addition) – but kept the Bank Rate steady at 0.10%.

Money and more money sent the FTSE-100 index to a near three-week high to 5,910.02 points.

The BOE’s decision factored in renewed restrictions that are expected to in place for a month from November 5 to 2 December 2020.

Because of this – and including the impact of Brexit -- the central bank now expects UK GDP to contract by 2.0% in the fourth quarter from its previous estimate of a 3.5% recovery.

The BOE downgraded its 2020 GDP forecast to -11% from prior -9.5% and its 2021 forecast to +7.25% from +9%. UK GDP dropped by 21.5% in the year to the second quarter.

The latest IHS/CIPS UK PMI surveys give credence to the Treasury and the central bank’s move. Although still in expansion the composite

PMI retreated to a reading of 52.1 in October from 56.5 in the previous month. The manufacturing PMI fell to 53.7 from 54.1 in September and the PMI for the services sector dropped from 56.1 to 51.4. These figures were all before the renewed lockdown.

Just as the case everywhere else in the world, economic activity – and the imperative for additional fiscal and monetary stimulus – depends largely on the success or otherwise of the government’s measures to control/contain the spread of coronavirus infections in the country.

But rest assured that the BOE wouldn’t be dropping the ball. In its policy statement, it pledged that: “…the Committee stands ready to take whatever additional action is necessary to achieve its remit. The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.” fs

29

4. What spurred the FTSE-100 index rally in early November? a) BOE QE expansion b) Treasury’s announcement of furlough scheme extension c) Treasury’s announcement increasing guarantee funding d) All of the above 5. Which indicator show/s slowing private sector activity in the UK? a) IHS/CIPS UK composite PMI b) IHS/CIPS UK manufacturing PMI c) IHS/CIPS UK services PMI d) All of the above 6. The BOE expects 2020 UK GDP to contract by double digits. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. Which Eurozone country recently re-imposed lockdown restrictions? a) Germany b) France c) Spain d) All of the above 8. Which Eurozone member/s is/are in the midst of a second wave? a) Germany b) France c) Spain d) All of the above

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

Figure 1: Total Covid-19 confirmed cases

Fixed interest

Alternatives CPD Questions 10–12

10. What China’s GDP growth in the year to the September 2020 quarter? a) +4.9% b) +3.2% c) -6.8% d) -8.6% 11. Which China PMI remained in contraction in October? a) Composite b) Manufacturing c) Services d) None of the above 12. Joe Biden’s victory at the US presidential polls should ease US-China trade tensions. a) True b) False

All answers can be submitted to our website.

55 50

Spain

45

1200 UK

40

800

Italy

35

600

Germany

1000

Manufacturing

30

400 200

25

Composite

20

Services

15

0

10

MAR20

APR20

MAY20

JUN20

JUL20

AUG20

SEP20

OCT20

NOV20

JAN18

MAY18

SEP18

JAN19

MAY19

SEP19

JAN20

MAY20

SEP20

European Central Bank waits to see Ben Ong

“I got chills, they’re multiplying And I’m losing control…” he European Central Bank (ECB) kept monT etary policy unchanged at its October meeting, opting to wait until the new round of macroeconomic projections are unveiled in December.

This “will allow a thorough reassessment of the economic outlook and the balance of risks.

On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favourable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path”.

But as the ECB admitted in its policy statement: “In the current environment of risks clearly tilted to the downside…”

Alternatives

One after another, governments across Europe have already or are on the verge of implementing tougher restrictions – in one form or another -to control and contain the exponential growth in coronavirus infections in the continent.

Europe’s biggest economies and smaller ones have reimposed lockdowns including curfews and border closures.

Total cases of infections have been multiplying in the region since restrictions were lifted towards the end of June – just in time for summer and bitching (about the restrictions) turned into beaching (in celebration).

Eased social and lockdown restrictions were just what the virus needed to re-spread.

Based on World Health Organisation (WHO) tally, the total cases of infections to date have risen by 1017% in France since the end of June; by 433% in Spain; 289% in Italy; and, 246% in Germany. Coronavirus infections in the UK grew by 320% over the same period.

60

90

80 ANNUAL CHANGE %

ANNUAL CHANGE %

INDEX

75

60

60

40

50

45

45

30

20

15

0

40

Prepared by: Rainmaker Information Prepared by: FSIU Source: IEA / Sources: Factset

No prizes for guessing but the consequent tightening of restrictions would -- just as they have in the first wave – freeze economic activity that would almost certainly lead to a double-dip recession in Europe that, in turn, would make imperative increased government spending and monetary policy accommodation.

More worrying is that the Eurozone economy had already been slowing down even before the re-imposition of tighter restrictions.

The latest IHS Markit Eurozone PMI survey indicates that private sector activity in the single currency region has stalled with the composite index falling to a reading of 50.0 in October – the lowest level in four months and the third consecutive month of decline.

Manufacturing activity continued to expand “with output and order books growing at rates rarely exceeded over the past two decades”.

Expect further weakness as tightened restrictions bite. fs

Figure 2: China exports & imports

Figure 1: Caixin China PMI

55

Manufacturing

35

Composite

30

Services

0

-20

-15

-40

-30

Exports

Imports - RHS

-60

-45

25 2018

2019

2020

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Biden win to calm trade tensions T

Submit

France

1400

Prepared by: Rainmaker Information Prepared by: FSIU Source: Sources: Factset

INDEX

60

1600

Ben Ong

Go to our website to

65

THOUSAND PERSONS

1800

- Grease 9. The Eurozone economy had already been slowing even before the recent re-imposition of restrictions. a) True b) False

Figure 2: IHS/Markit Economics Eurozone PMI

2000

he world breathed a sigh of relief at the conclusion of the 2020 US Presidential election – where Joe Biden trumped Trump – but none more so than China.

A returned Trump would embolden Donald to double down on his trade war with China that, in turn, would be met by counter-measures from the Politburo, continuing the decline in global trade that we’ve witnessed over the past four years of the Trump administration.

This could put a brake on positive developments in the Middle Kingdom.

Central command’s swift, decisive and draconian measures to control the coronavirus outbreak has prevented the economy from suffering a recession that most other economies did or are still under. After contracting by 6.8% in the year to the March 2020 quarter, China’s GDP expanded by 3.2% in the June quarter and strengthened even more to 4.9% in the September quarter.

Latest PMI surveys indicate that the fourth quarter would be equally strong or stronger.

The Caixin China general Composite PMI rose to 55.7 in October 2020 from 54.5 in September. This is the fastest rate of growth in four months (June 2020) that signals increased private sector activity across the country.

The Caixin China general manufacturing PMI accelerated to 53.6 in October 2020 from September’s reading of 53.0 – the sixth straight month of growth in factory activity, and the strongest since January 2011 – as total new orders expanded at their sharpest rate in a decade and business confidence surged to their highest levels since August 2014.

The Caixin China general services PMI increased from 54.8 in September to 56.8 in October 2020 - the second highest reading in more than a decade (August 2010) – on the back of increased new orders and the improvement in business confidence to its highest level since April 2012.

Biden’s win should calm US-China trade tensions. That is, if Joe proves true to his campaign words that he would remove Trump’s existing tariffs. It would earn him cookies with China which would be more willing to work with him - and all other nations in the rest of the world because of the dividends that the re-starting of global trade engenders.

Easing trade tensions would be good for the good ol’ US of A too.

A paper published by Moody’s Analytics last September claimed: “Since it began in earnest just over a year ago, the trade war with China has cost an estimated 0.3 percentage point in US real GDP and almost 300,000 jobs.”

In December 2019 Forbes reported losses incurred as a result of the trade war amounted to US$84 billion.

Broken down, it said the total toll was just short of US$30 billion for exports and $54 billion for imports. fs

Sector reviews

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: CUA, CommSec & Australian Bureau of Statistics

bout one-fifth of Australians are in a betA ter position to purchase a home thanks to COVID-19, with about half planning to buy within the next 12 months.

That’s according to new research from CUA which also found 32% of people believe they’re in a worse position now, and 10% said they’d put off their pre-pandemic plans to buy.

Of those feeling good about purchasing, those aged between 25 and 34 are particularly confident. However, what they’re looking for in a home is changing.

With COVID-19 spurring a shift to work from home arrangements, about half of all prospective home buyers are increasingly looking at homes with dedicated office space or rooms large enough to accommodate work desks.

Traditional considerations such as access to public transport or living near work are now less important, with home buyers placing greater impetus on a large kitchen and fast internet speeds.

About 64% of Australians are looking to lower their cost of living, while 10% are con-

COVID-19 creates seller’s market as houses grow Jamie Williamson

sidering moving further away from the city for a quieter lifestyle and 17% want to move closer to family.

About 53% of those looking to buy will be first home buyers.

“The government initiatives in place are clearly helping many people overcome some of the roadblocks to achieving this dream, so it was very pleasing to see the recent extension of the First Home Loan Deposit scheme to help an additional 10,000 first home buyers secure newly constructed homes,” CUA chief customer officer Megan Keleher said.

Further insights from CommSec show those building a new house are likely to build quite a sizeable home, with the average house in Australia now 235.8 square metres.

This is up 2.9% year on year and sees Australia take the title for building the biggest houses in the world. To compare, the average house size in the United States is 233.1 square metres.

Apartment sizes have also gone up in the last year, lifting 6% over the past year to hit a decade high of 136.8 square metres.

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“Before last year, Aussie home buyers had been building progressively smaller houses on average. Aussies had embraced apartments as well as smaller houses on smaller lot sizes.

In fact, the size of the average house built last year (2018/19) was the smallest in 17 years,” CommSec chief economist Craig James said.

Finally, those looking to renovate or make additions to their existing homes will be happy to know the value of alterations have risen to the highest level in more than four years, according to the Australian Bureau of Statistics.

The ABS Building Approvals for August found that the value of alterations and additions to residential buildings was strong in August, up 7% to $784 million, to be the highest level recorded since April 2016.

The rise is likely a result of the HomeBuilder scheme and an increase in the number of people undertaking renovations during the COVID-19 lockdowns.

Many have refinanced in order to complete renovations too, with a total of $53 billion worth of loans refinanced in the last six months. fs

Download

13. Which statement reflects CUA’s findings? a) Access to public transport remains a major consideration for home buyers b) COVID-19 hasn’t changed home buyers’ traditional considerations c) Access to public transport is not the major consideration it used to be d) Being able to live near work remains a key consideration for home buyers 14. What statement reflects CommSec’s insights? a) Apartment sizes in Australia have increased in the past year b) Before 2019, home buyers, on average, built smaller homes c) Those building a new home now are likely to build a sizeable home d) All of the above 15. The value of home alterations has risen to its highest level in over four years. a) True b) False

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32

Profile

www.financialstandard.com.au 23 November 2020 | Volume 18 Number 23

OFF THE BEATEN TRACK Australian Ethical’s chief executive John McMurdo’s adventure into the world of mountain biking kicked into gear more than a decade ago.

He speaks to Ally Selby about the discipline’s surprising similarities to business.

Ethical Investment chief executive ATheustralian John McMurdo isn’t afraid of a challenge. seasoned financial services leader pushes his mind – and body – to the limit, riding his bike across Australia’s diverse terrain in 100km ‘enduro’ races. He takes this love of challenge, this drive for success, to all that he does – including the world of wealth management.

“You have got to be on your game the whole time, because there are so many twists and turns and bumps along the way,” McMurdo says.

“You have to be prepared to work around the challenges to come out the other side and succeed.”

In mountain biking, as in business, the road is rarely without complication, he says.

“There are good periods and then there are those during which you feel like you are riding for hours into headwinds or uphill without an end in sight,” McMurdo says.

“The learning is, if you persevere, eventually the energy starts coming back and you kick on; things will get better.”

McMurdo’s path to his current role, like the roads on which he rides, is complete with its own twists and turns.

Having worked for more than three decades leading the likes of Fitzpatricks Financial Group, Hillross Financial Services, and AMP’s life insurance business in New Zealand, McMurdo was ready for a well-deserved retirement.

He stepped out of financial services in early 2019 with high hopes of using his professional skills to benefit others, following in the footsteps of his parents and peers who dedicated much of their lives to humanitarian aid and social work.

But a particularly devastating bushfire season convinced him to reconsider his retirement.

“I distinctly remember watching the bushfires play out late last year and breathing in the smoke like everyone else was and I decided that instead of complaining about it to my wife I should actually try and do something to help,” McMurdo says.

“The Australian Ethical role was everything that I was trying to construct in my life; a commercial challenge, undoubtedly for purpose and with a substantial foundation with a deep philanthropic desire.”

Joining in February this year, McMurdo’s colleagues joke he had 10 “good days” before the pandemic hit.

Yet, Australian Ethical has gone from strength to strength.

Over the last five years, Australian Ethical has emerged as the fastest growing super fund in Australia by members and assets under management, with its funds under management increasing by 19% to $4.05 billion in the last financial year alone.

The investment manager also saw record net inflows of $660 million during FY20, a 100% increase from the previous year, despite the im-

pacts of COVID-19 on global markets and the government’s early release scheme.

“Australians are witnessing the vulnerability of the planet and its people; they are working out that their money can do good and do well; they have opened their minds up to what is possible from an ethical investing approach,” McMurdo says.

Members of Australian Ethical’s super offering now exceed 50,000, with over 300 new members signing up each week.

Its Australian Shares option was the top performing product over a five-year, seven-year and 10-year period, while its Balanced option was among the top three performing MySuper products over the FY20.

“Our investments last year produced 75% less carbon than the benchmark, we had five times more investments in renewable power generation than the global share market, and three and a half times more impact towards achieving the United Nation’s Sustainable Development Goals,” he says.

McMurdo is now undoubtedly a champion of change; a passionate proponent of ethical investing, but this wasn’t always the case.

“I think Australians have generally been either unaware or skeptical about the power of ethical investing and I’ll confess, for a long time, I was personally indicative of exactly that skepticism,” he says.

McMurdo, like many of his peers in the financial services sector, was of the belief that investing ethically or sustainably was an altruistic decision at the expense of returns, and even “pictured ethical managers as hippy activists”.

“It’s only been in the last five years and in the face of mounting evidence that my curiosity was peaked, and even more recently have I become absolutely convinced that ethical investing is just smart investing,” he says.

Now – having seen the light – McMurdo warns that Australians are quickly falling behind.

“We’re becoming laggards on climate issues, on social issues and certainly on ethical investing,” he says.

Despite this, he believes that one day sustainability could become the status quo of investment management in Australia.

“That is my personal vision of what success looks like,” he says.

“That ethical investment becomes how core investment management is done; not the previous model of using finite resources to maximize profit and investment returns but instead investing in positive, world-changing ideas and businesses to achieve great outcomes for investors and the world.”

And despite the controversy that has circled the sector of late, McMurdo maintains that investment management and financial advice is a noble purpose.

“Millions of people need advice and great investment management and more prosperous futures,” he says.

Perhaps it is this passion which has encouraged two of McMurdo’s three sons to study business.

I think Australians have generally been ei­ther unaware or skeptical about the power of ethical investing and I’ll confess, for a long time, I was personally indicative of exactly that skepti­cism.

John McMurdo

The third, however, has “no interest in business whatsoever”.

“My wife and I are really keen for them to follow their own passions and dreams; we don’t want them to become clones of us,” he says.

“I think it’s really important for individuals to express themselves and be the best versions of themselves and not to be artificially steered or constrained by parents; let them evolve into something more interesting and better than we ever were.”

He also encourages his sons to take on challenges and push themselves in both their professional and personal lives, as he does with mountain biking.

“I love the adrenaline rush, but mainly I love riding through some amazing nature and countryside,” he says.

From mountains and lakes in New Zealand to redwood forests in California, it’s a passion that has taken McMurdo across raw, rugged landscapes all over the world.

And while it’s a love that he hopes will last a lifetime, he acknowledges that this too will at some point face its own obstacles.

“I know at some stage my body will no longer allow me, so I will have to give mountain biking away and become a swimmer,” McMurdo says.

“And I’m a terrible swimmer.” fs

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