Financial Standard volume 19 number 01

www.financialstandard.com.au

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Gender discrimination

MLC Life, Ignition Advice, Telstra Super

The future of underwriting

Feature:

Profile:

News:

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Opinion: Sean Cookson FRT

Investors turn their heads to inflation Kanika Sood

ith over $257 billion in stimulus at work W in Australia to aid economic recovery and much more abroad, the possibility of higher inflation and hedges against it are back on the todo lists for financial advisers and investors.

The Reserve Bank of Australia (RBA) currently has a target for average inflation of 2-3%, which it sees as not being materially impactful to economic decision-making. At September end, the Consumer Price Index sat at 0.7.

“What we are seeing is inflation volatility is certainly picking up…and it is being compounded by an environment with unusually low returns from traditional asset classes. So, for superannuation funds, reaching those return objectives of CPI plus 2 or 3% is still going to be very tough,” Frontier principal consultant Philip Naylor says.

He says the lower return expectations stand for even those superannuation portfolios that have a higher allocation to equities.

“The way we are talking to our clients about it is building inflation protection, rather than just bluntly cutting exposure to defensive assets, such as in an 80:20 asset allocation, where it would be very difficult to [further] reduce bonds,” Naylor says.

He adds that, within fixed income, superannuation funds have been looking at investing in inflation-linked bonds, which are primarily issued by the governments, including in Australia and whose income stream and/or principle adjusts depending on the level of inflation.

“The issue is the inflation-linked market is a lot smaller than the nominal bond market, it is less liquid and particularly in the COVID-19 sell-off, the level of breakeven dropped dramatically – this means inflation-linked bonds provided less defensiveness in portfolios during the 2020 COVID-19 sell-off compared to nominal bonds,” he says.

However, this has changed since then as people’s inflation expectations have returned, making inflation-linked bonds a better bet than nominal bonds as breakeven rates rise, he says.

He says given the smaller size of the ILB market, currently it may be more suitable for smaller superannuation funds to consider an increased investment. For larger funds, there are infrastructure assets to look at that can adjust their revenue streams with CPI, and other midrisk assets such as alternative debt and credit.

At the start of 2020, HESTA bought inflation-linked bonds and breakeven inflation swaps, which served it well as the CPI spiked to 2.2 in the March quarter, and returned from -0.3 in the June quarter to 0.7 in September.

“We have had very low, even negative inflation but in this environment, we are coming out the other side of that,” HESTA chief investment officer Sonya Sawtell-Rickson says.

“In the near term, we have seen the recent rally in oil prices and disruption in the financial markets but in medium to long term, we are still seeing structural changes continuing to dominate – such as technology, and high levels of debt.

“We are seeing a lot of political acceptance of deglobalisation which feeds into an increase in prices. In the US, the Fed has announced its move to average inflation targeting – a bias to higher inflation.”

Sawtell-Rickson does not think inflation will go out of the RBA’s target range of 2-3% in the medium term.

David Andrew’s firm Capital Partners advises on over $1 billion for affluent clients.

The firm does not expect inflation to return to RBA’s target range in 2021 despite the stimulus and low rates. However, it says that government policy is positioned to encourage inflation in the future.

Capital Partners has looked at gold, and inflation-linked bonds as inflation hedges but has stayed away from both.

“We’ve been actively looking at inflation linked bonds for about the last four years. We haven’t gone anywhere near them at this point in time for two reasons,” Andrew says.

“The first is that the return on the yield on them is negligible. So, if it were [that] there is little or no inflationary pressure, we feel you are paying a big premium to have that in reserve because the yield is just so low.

“And that’s always the tension point in when you move too early to an inflationary hedge – [for example] you move to gold, there’s no return. Yes, there’s capital preservation but there is no real return,” he says, citing the lack of depth in the ILB markets as the other reason.

The firm has maintained its equities tilt towards value stocks over growth, as it sees the latter being more susceptible to inflation given a larger share of their cashflows are expected to be generated further into the future. fs

25 January 2021 | Volume 19 Number 01 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Executive appts:

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2021 product preview

Featurette:

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Lucy Steed Melior IM

MySuper hits record high Karren Vergara

Sonya SawtellRickson

chief investment officer HESTA

Default superannuation funds have fully recovered from COVID-induced losses, yet underperformance within the asset classes remains rife, according to new Rainmaker data.

Rainmaker’s November 2020 MySuper index has reached a record high, bouncing back 15% since March 2020. November saw the local and international share markets rally. The ASX200 returned 10.2% while global stock markets gained 7.5%. Consequently, the MySuper Index registered 2.4% on a year-to-date basis.

In the year to November, Australian Ethical Super’s default fund (6.1%p.a.) was the best performer.

Vision Super (4.8% p.a.), BUSSQ (4.6% p.a.), UniSuper (4.4% p.a.) and Cbus (4.2% p.a.) made the top five list of the best performers.

Drilling down to the performance of the different investment options, only two asset classes outperformed: international equities and cash.

Continued on page 4

Remembering Martin Heffron Elizabeth McArthur

Martin Heffron, one of the most respected experts in Australia’s self-managed superannuation sector, passed away suddenly after a brief illness.

Heffron, the business that he co-founded with his wife Meg in 1998, sent a note to clients on 11 December 2020 informing them of the sad news.

“We are deeply saddened to announce the sudden passing of our executive director Martin Heffron,” Heffron said.

“Many of you may not be aware that Martin had been fighting cancer over the last few months and had been progressing well with his treatment. The news came as a shock to everyone close to Martin, including his family and the entire Heffron team.”

The Heffron management team will remain unchanged, with Meg Heffron continuing in her role as managing director.

“His light will continue to shine brightly within our organisation as Martin, our co-founder, will Continued on page 4

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News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

New heatmap shames super trustees

Editorial

Karren Vergara

Jamie Williamson

T

Editor

And just like that we’re in a New Year – what will go down in history as one of the worst years ever experienced as a population is over. Or is it?

Like a trashy reality show that should never have seen the light of day to begin with, one may well be justified in fearing 2020 has been renewed for a second season. A 2020 2.0, if you will.

Internationally, COVID-19 case numbers are showing little sign of slowing and the newly formed Biden administration has pulses running high in the United States, not least of all demonstrated by the frightening scenes on Capitol Hill on January 6.

Closer to home, a resurgence in COVID-19 infections ruined many Australians’ holiday plans, though we can rest relatively easy knowing the case numbers cannot compare to the daily figures recorded elsewhere, touch wood.

Sadly, the increased pressure and scrutiny the financial services industry felt last year appears to be sticking around too.

The number of financial advisers registered with ASIC has dipped below 20,000 for the first time in many years, according to Rainmaker analysis, while the second iteration of APRA’s heatmaps in late December put many a super fund trustee on notice.

Unfortunately, there are other trends that look set to continue in 2021.

Only a fortnight into the New Year accusations of sexual harassment and gender discrimination at IOOF hit the headlines, and within days a second claim of unfair dismissal from the wealth manager was publicised, this time from a female executive alleging that disclosing mental health concerns led to her almost immediate redundancy.

The lawsuits, both filed in the Federal Court, follow similar cases brought to light last year involving the likes of AMP Capital, IFM Investors and QBE. It led Financial Standard to question whether Australia’s financial services industry has a problem with women (pg.5).

The answer? According to Macquarie University professor Dr Catharine Lumby and Financial Executive Women founder Judith Beck, it’s not a problem with women that the industry has, but rather a problem with enabling cultures and environments that are hostile or uncomfortable for women to take root and grow.

As someone who has never been on the receiving end of workplace harassment of any kind, I can’t begin to imagine how difficult going to work each and every day is for those who are.

I also can’t imagine how tough the decision to speak out must be.

The sad reality is – and I daresay this is true of all male-dominated industries – the people that come forward are just the tip of the iceberg. For every employee that shares their story, there are countless others who don’t and likely never will.

But these instances do force us to look inward and reassess our own behaviours in the workplace, and that’s a good thing.

Here’s to hoping for plenty more good things to come this year. fs

The quote

APRA will keep the pressure on these trustees to rectify fee and performance issues and it is “certainly not waiting for [the regulation] to be passed.

he same underperforming and costly MySuper products APRA named and shamed in 2019 have failed members again in the latest iteration of the heatmaps.

APRA is taking action on 10 MySuper products overseen by eight trustees and will issue notices.

It is now looking into whether trustees have failed in their obligations to members and potentially breached the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Thirty-seven products assessed are performing at or above the heatmap investment benchmarks over six years; 27 of these underperformed by up to 75bps; and six products underperform by more than 75bps.

There are 900,000 members with $31 billion in savings stuck in severe underperforming funds.

As at June 2020, perennial MySuper underperformers over a six-year investment period included Maritime Super, AMP AFL Industry MySuper and the EISS MySuper option.

APRA deputy chair Helen Rowell told a recent Association of Superannuation Funds of Australia (ASFA) event that some trustees are attempting to “game” the system, scalding some for their “laziness” in submitting data.

Underperforming funds have been modifying their investment decisions to manage their performance to the heatmap benchmarks, she said, while others tried to “rewrite history” by resubmitting data to present their funds in “a more favourable light”.

“These kinds of games indicate poor leadership, are not indicative of a mindset that is genuinely seeking the best outcomes for members and certainly won’t get those trustees off APRA’s underperformer list.”

Since the inaugural heatmaps, 11 out of 47 MySuper underperformers have exited the industry.

Of the 11 MySuper products with significant-

ly high total fees, eight have reduced their total fees and costs by an average of $166 per annum and two have exited the industry.

Despite this achievement, APRA still has to nag a number of trustees about respecting reporting deadlines.

“This week we issued final warning letters to several trustees who are submitting their updated fees and costs data to APRA late, or not at all. Any further unauthorised delays in reporting will lead to sanctions,” she said.

Providers of lifecycle funds have urged APRA to consider the complexities behind assessing lifecycle funds, so the heatmap analysis should reflect metrics that are fair, accurate, diversification of investment strategies and innovation.

This fell on deaf ears as Rowell clarified that APRA did not budge on its methodology.

Rowell warned underperformers to get their act together and not wait for the Your Future, Your Super’s performance test to take hold to improve their products.

APRA will keep the pressure on these trustees to rectify fee and performance issues and it is “certainly not waiting for [the regulation] to be passed to take action on those particular funds,” she said.

“We will review the heatmap and consider what changes may be appropriate once the legislation supporting the Your Future, Your Super measures is finalised. In the meantime, we continue to work to refine the methodology and expand the heatmap’s coverage.”

In 2021, she flagged that several enhancements will include a wider range of asset class indices in benchmark portfolios, and that investment performance will be “stitched” to help track long-term performance.

“In late 2021, APRA will also look to publish the heatmap for a segment of the choice sector; we will publish a preview of our thinking on how we will do this early in the new year,” she said. fs

Super underperformance needs to be addressed: Research Eliza Bavin

Despite criticism from superannuation funds over the governments’ new super fund performance benchmarks, Rainmaker research shows there is an underperformance challenge that needs to be confronted.

The Rainmaker 2020 Superannuation Benchmarking Report found that across several major asset classes, super funds struggle to match asset class indexes.

Rainmaker executive director of research and compliance Alex Dunnin said that while super funds are not entirely lacking, there is room for improvement.

“Australian super funds as a group are good managers of Australian shares, property and cash. Their performance in managing international shares and bonds is less impressive,” Dunnin said.

“Trouble is, the asset classes where the superannuation sector is struggling to add value over the capital market indexes represents almost half of all superannuation assets.”

The report also revealed that one-third of default MySuper products are tracking below their investment objectives.

The report compared super fund asset class sector average returns, across over 900 investment option, to the respective

capital market index, and assessed how many investment options in each asset class matched or beat the index.

“A super fund’s active investment management strategy should be purpose-built to earn back the fees and tax margins.

If not, super funds should use indexed strategies,” Dunnin said.

The international shares asset class was found to be the worst performing asset class relative to capital market indexes.

It underperformed by 4.8%, 4.7% and 3.2% over one, three and five years respectively.

The research found the relative performance of the international shares asset class over one-year was the worst across the whole study of all asset classes and time periods relative to the benchmark.

“The irony is that while international shares was the worst asset class for super funds, it was also the best because it achieved the highest index return. If super funds could be more efficient in managing this complex asset class, their overall returns could be much higher,” Dunnin said.

Eight in 10 Australian shares investment options meanwhile outperformed the benchmark over one year, the highest strike rate in the review. This, however, fell to a three-in-10 strike rate over five years. fs

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News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

01: Jane Hume

MySuper hits record high

Senator

Continued from page 1 On a median basis, Australian equities investment options underperformed the ASX index by 0.8% in the 12 months to November.

Fixed interest options underperformed while property options also failed to deliver above the benchmark.

“Despite this systemic underperformance, some super funds deliver stellar returns. Vision Super has Australia’s top-performing investment option. It delivered 69%,” the report read.

Vision Super’s Innovation and Disruption option topped the international equities category, followed by UniSuper’s Global Environmental Opportunities (40.6% p.a.), AustralianSuper’s International Shares (14.6% p.a.), Equip MyFuture’s Overseas Shares (14% p.a.) and Hostplus’ International Shares (13% p.a.).

UniSuper’s Global Environmental Opportunities topped the ESG equities options category, followed by Mercer’s Socially Responsible Global Shares Unhedged (7.7% p.a.).

The performance edge ESG investments are delivering is showing no signs of abating, Rainmaker said.

“The Rainmaker ESG Diversified Index returned 3.3% over the 12-month period, outperforming the MySuper index by 120 basis points.”

Further, Rainmaker’s latest RMetrics report found the 55 MySuper funds analysed delivered three-year median returns of 5.5% p.a. as at September 2020.

This compares with the 5.3% p.a. achieved by the balanced products and the 5.9% p.a. achieved by the growth assets. “[MySuper] achieved a median return 0.4 percentage points lower than that of the growth sector but 0.2 percentage points higher than the balanced sector. Its volatility was much closer to balanced (7.6% p.a. versus 7.4% p.a.) than it was to growth (9.5% p.a.),” the report read.

Rainmaker’s quarterly scorecard anlayses investment returns, volatility and other standard risk measures, aiming to paint a coherent story about investment products fs

FASEA to wind up, discipline body delayed Karren Vergara

T

The quote

While there is still much work to be done, we support moves that remove red tape for advisers and improve outcomes for consumers.

he Financial Adviser Standards and Ethics Authority will be made redundant as two government bodies take over its remit.

Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume 01 announced on December 9 that the standard-setting aspect of FASEA will be swallowed up by Treasury.

Its remaining functions, such as exam administration, will be taken over by the Financial Services and Credit Panel (FSCP).

The operations of the FSCP will be expanded within ASIC, she said, noting that such reforms will further streamline the number of bodies involved in the oversight of financial advisers, resulting in FASEA being wound up.

“The government would like to acknowledge the important contribution made by the board and staff of FASEA towards improving the education, training and ethical standards in the financial advice sector,” Hume said.

“Treasury and ASIC will work closely with FASEA to ensure an orderly transition to the new regulatory framework.”

The FSCP currently supports ASIC in conducting banning orders against individuals for misconduct.

Citing the Hayne Royal Commission’s recommendation 2.10, which calls for a single, central disciplinary body to be established for fi-

nancial advisers, Hume said expanding the role of the FSCP will leverage its extensive expertise and existing governance structures, avoiding the need to establish a new body to perform this role.

Legislation implementing these reforms will be introduced into Parliament by June 2021.

Further, the much-anticipated advice disciplinary body has effectively been scrapped, with Hume delaying its January 2021 launch to mid-year.

The Financial Planning Association of Australia said it has continuously advocated for the reduction of regulatory bodies that are “adding unnecessary duplication, complexity and costs and for the establishment of a single disciplinary body”.

“This body should have primary responsibility for government oversight of the conduct of financial planners, setting mandatory professional standards, investigating potential breaches of mandatory standards and law, and applying discipline,” FPA chief executive Dante De Gori said.

Association of Financial Advisers chief executive Philip Kewin echoed similar sentiments.

“Financial advisers and the advice industry as a whole have been hit with layers and layers of regulation that have increased the cost to provide advice without any clear consumer benefit. While there is still much work to be done, we support moves that remove red tape for advisers and improve outcomes for consumers,” Kewin said. fs

Advice firm launches dealer group Remembering Martin Heffron Continued from page 1 always be remembered as a warm and kindhearted leader. He was uniquely inquisitive and incredibly passionate about creating an organisation that strives to help people live independently and within their means in his adopted Australia,” Heffron said.

“We hope you will join us in our support of Meg, with whom he built a business and a family, and her loved ones at this very difficult time.”

Martin Heffron had spent more than three decades working in superannuation and SMSFs. He was the chair of the Chartered Accountants Australia and New Zealand’s SMSF committee and was on the board of Hunter Valley Grammar School.

The Heffron family asked that any memorial contributions be made to the Kaden Centre Newcastle, a treatment centre delivering custom exercise programs to people experiencing all stages of cancer. fs

Jamie Williamson

Insight Investment Partners has launched IIP Dealer Group, led by managing director Anthony Lyon and director Christopher Fellas.

The group’s offering is underpinned by Insight Investment Partners’ proprietary iComply2 software which has been available to external, self-licensed financial advisers for about 12 months.

“The priority was really building the technology and as I’ve continued to build it out, I’ve done it in a way that I can manage the advisers and have quite a bit of oversight… From that perspective, we thought a dealer group was a natural next step,” Lyon told Financial Standard.

So far, IIP Dealer Group has signed about five financial advisers and is conducting due diligence on several others.

Lyon said the advisers approaching IIP Dealer Group are typically compliance-conscious and technology savvy. “[We’ve been talking to] the ones that are actively looking for a better way to run their business,” he said.

Financial advisers can join IIP Dealer Group for a flat licensee fee of $25,000 plus PI insurance and an iComply2 fee to enable continued improvement of the technology. The pricing also tiers down depending on the number of advisers within a practice.

“We recognise it’s not the cheapest, but we don’t want it to be

the cheapest either… I don’t really see us trying to compete in the big dealer group space. I would rather have a niche offering and be attracting advisers that align with what we’re trying to do than to offer it to everybody,” Lyon said, adding that he will be satisfied if the group can grow to between 30 and 50 advisers in the next two years.

“I want to go for controlled growth and make sure the technology is constantly evolving to handle that,” he said.

Lyon believes having the iComply2 technology as a core component of the offering provides a competitive advantage in a space that, while experiencing significant change, is still dominated by large groups and legacy systems.

“You would have thought that [technology] would have caught on, but maybe we have to be the ones that prove it works before anyone at a larger scale considers it. In the industry, they do like to just follow what everybody else is doing,” he said.

“There’s a reluctance to try something new early on.”

However, recent insights from CoreData found about half of all advisers would consider switching licensee if it meant that had access to better technology.

“It’s not uncommon for advisers to have to use a stack of four or five different products and, even then, be left wondering if they’ve ticked all the necessary compliance boxes,” Lyon said. fs

News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

5

Does financial services have a problem with women?

Elizabeth McArthur

A

wrongful dismissal case brought by a former IOOF employee detailing sexual harassment and gender discrimination among colleagues has once again shone an unwanted spotlight on the financial services industry, calling into question the sector’s treatment of women.

Over the past 12 months, sexual harassment in financial services has come to the fore, with this just the latest in a slew of highprofile cases to go public.

Last year saw Boe Pahari step down as chief executive of AMP Capital after a former colleague claimed he sexually harassed her. The fact that AMP was aware of this harassment allegation but continued to promote Pahari all the way up to the top job prompted some to ask whether there was something wrong with the culture of the company.

Senator Deborah O’Neill used parliamentary privilege to share the story of another female AMP employee who claimed to have experienced harassment and discrimination.

Her experience led her to leave the financial services industry all together.

Also in 2020, QBE Insurance Group chief executive Pat Regan departed after three years in the role just 10 days after a complaint about his behaviour was made by a female employee.

Internationally, $8.7 trillion asset manager BlackRock clamped down on workplace romances – telling employees to disclose any intimate relationships with anyone associated with BlackRock in a bid to mitigate conflicts of interest. And late in 2019, IFM Investors paid $493,000 to settle sexual harassment claims made against an executive director by a former associate on his team.

Now, Juanita Escobar is suing IOOF for wrongful dismissal. Escobar was part of the fixed income team at IOOF and her former colleagues Stanley Yeo and Osvadlo Acosta are named in the statement of claim along with IOOF chief investment officer Dan Farmer.

As for whether the financial services industry is particularly prone to these issues, founder of Financial Executive Women and No Sex at Work author Judith Beck says it’s not – harassment and discrimination are issues that impact any large corporate.

“Financial services companies have very detailed policies on these matters that they have gone to a lot of trouble to make. I think the problem with all large corporates is policies get lost if they are not competently reinforced,” Beck says.

Catharine Lumby, Macquarie University professor and principal of Catharine Lumby Associates, agrees that curbing harassment and discrimination is not as simple as creating a policy.

“Leaders and managers who really want to ensure an inclusive and safe workplace for all their employees and want to retain good

talent when it comes to women need to have ongoing education,” she says.

Lumby says that education should be evidence based, not a tick the box exercise.

“There are lots of men who want to do the right thing, so good education is about bringing down people’s mutual defensiveness and getting people to have honest conversations about common scenarios that arise in the workplace. People need to talk in a setting where they don’t feel defensive and they can be honest,” she says.

“Companies have lots of good policies around sexual harassment and discrimination, but they tend to sit in a drawer and no one brings them out until the building is on fire.”

The only female in her team, Escobar’s statement of claim describes a series of events where small sexist remarks were made and her work was undermined.

It also alleges that Escobar was essentially demoted and not given the opportunity to apply for a more senior position which was handed to a male colleague.

She was a portfolio manager looking after fixed income and cash from 2013 to 2016 until Acosta was hired in the position of portfolio manager, fixed income. Escobar’s duties were then reduced and she received the new title of portfolio manager – internal management – credit and cash.

According to the claim, Acosta would go on to be promoted over Escobar to head of fixed interest assets, and Escobar would go from reporting to Farmer to reporting to Acosta.

Escobar alleges Acosta made interventions into one of her portfolios and corresponded with an external manager without her consent. She claims the move undermined her authority with the external manager.

Later, Acosta would “substantially redraft” a paper Escobar prepared for the ANZ P&I investment committee and when she questioned the redraft he allegedly said: “I expect opinions from you. You always give your opinion. Not only do I have a wife at home, I have you here in the office.”

In September 2020, Escobar advised IOOF she was pregnant and planned to take six months maternity leave. In October 2020, she was made redundant and told she could apply for a newly created position but that she would be competing with another colleague.

A spokesperson for IOOF said the company is defending the action; IOOF is confident it has acted appropriately at all times and continues to support the legal process.

“IOOF takes these matters very seriously.

IOOF is committed to providing a safe and secure environment that embraces diversity.

Once the complaint was raised, which was after the complainant’s departure, IOOF immediately commenced its formal grievance handling processes,” the spokesperson said.

One of the particulars of Escobar’s complaints is that all of these incidents, no matter

The quote

Companies have lots of good policies around sexual harassment and discrimination, but they tend to sit in a drawer and no one brings them out until the building is on fire.

how minor, contributed to creating a working environment that was hostile to women.

That hostility is something Lumby has seen in her work as a consultant, saying that while the problem is not exclusive to financial services, the financial services sector does have a problem with these cultures persisting.

“Women who are breaking into these industries, particularly young women, are going to be under a lot of pressure to not rock the boat and to fit in with that culture,” Lumby says.

“We hear stories where clients are taken to strip clubs. It’s not appropriate to ask female colleagues to come to a strip club – you’re putting women in the position of either pretending to be one of the guys or being excluded from networking events with clients.”

This is just one example of the kinds of workplace cultures that Lumby said can create a hostile working environment for women.

Part of the problem is that there can be a gradual slide towards hostility, making it difficult for women to know when to speak up and for organisations to know when to nip an issue in the bud.

This is something Beck feels passionately about, saying it is essential that bad behaviour is pointed out as soon as it happens.

Beck shares an example from her own career when, in her 20s, an older manager kept referring to all the women in the office as “love”. Beck says she told him he could only call her “love” if she could call him “sweetie” and that comment was enough to change his behaviour.

However, she acknowledges it’s not always so simple. For example, when comments are made in a meeting in front of other colleagues it may not be professionally prudent to derail the meeting to call out the behaviour.

In these instances, Beck says it is essential women tell human resources about the behaviour.

“You’ve got to have people in your corner, where you can go and get some help especially when you don’t know how to react,” she says.

“More people are insecure about calling out behaviour than those that are confident.

All you have to do is look at all the cases of sexual harassment and non-disclosure agreements over the years to see this issue. Had those people been in the issue to tell that person to get stuffed, these things might not have happened.”

Comments, like those mentioned in the IOOF case, that imply women who are assertive are nagging or aggressive are a huge part of the problem, Beck says.

“The moral of the story is that if you are having a conversation with a colleague at work and they say something you don’t feel is professional, the ideal situation is that you address it then and there,” she says.

“If you don’t feel comfortable or you are fearful then you should immediately get advice from an advocate or mentor.” fs

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News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

Super lifting retirees’ wellbeing The growth in superannuation assets means more retirees are coming out of poverty and experiencing less financial stress, but this is creating greater income inequality, the 2020 HILDA survey found.

Research from the Household, Income and Labour Dynamics in Australia Institute found that the mean wealth of retirees grew by 79% and median wealth grew by 85.2% between 2002 and 2018.

Non-retirees on the other hand lagged behind as their wealth grew just 55.7% and 46.4% respectively.

Retirees aged between 55 and 75 and over experienced substantial increases in mean income and wealth – this was particularly strong for the 65 to 74 age group – whereby mean income grew about 54% and mean wealth went up a whopping 95%.

HILDA found that 85% of households in 2018 had super, with the average rising to $240,060 in 2018 from $121,638 in 2002.

“It is therefore clear that, based on average income and wealth levels, the economic wellbeing of retirees has increased in both absolute terms and relative to the broader community,” HILDA found.

Participants are also increasingly putting off retirement. In 2002, almost half of men (60 to 64 year olds) were retired. Fast forward to 2012, only 29% of this cohort were retired. For women, over the same period, the number of retirees fell from 70% to 47%.

The mean age of retirees, HILDA found, increased from 68.2 years in 2001 to 70.8 years in 2018. Despite increased life expectancy, the proportion of the population that is retired did not increase between this period.

In 2018, only 7.4% of retirees reported experiencing financial stress, compared with 11.9% of the non-retirees. fs

Insurer transforms underwriting Annabelle Dickson

Mutual life insurer PPS Mutual has removed several assessments to its medical and financial underwriting requirements to speed up the application process and benefit members.

The mutual insurer has removed the “quick check medical requirement” for prospective members under 35 who are seeking income protection of $15,000 per month.

Members of all ages are no longer required to test for Hepatitis B, Hepatitis C and HIV when applying for life insurance of up to $20 million, total and permanent disability of up to $5 million, trauma insurance of up to $2 million and income protection of up to $30,000 per month.

In addition, PPS Mutual have removed the need for members to complete a financial questionnaire. Instead, it will request information that is only relevant to the risk assessment.

PPS Mutual head of underwriting and claims management Marcello Bertasso said the rising costs of assessments impacted the amount of profit returned to members and the changes will reduce the application process by weeks. fs

01: Danielle Press

commissioner ASIC

ASIC to improve default life insurance Karren Vergara

A

The quote

While a high-risk occupational default may be appropriate in some circumstances, trustees need to be able to justify their default settings based on their membership base.

n ASIC investigation found group insurance cover is poorly designed and disclosed to members who are being defaulted into occupational categories with limited data.

After looking at the practices of super funds, ASIC found a high proportion of members are generally defaulted in the highest-risk occupation category and end up paying high premiums.

On average, members categorised in the highest-risk occupation pay almost double than those in the lowest-risk category. In five out of 20 cases, the price difference was between three and four times.

In terms of disclosure practices, many used opaque labels like ‘standard’ or ‘general’ and failed to include the relative cost of premiums in different categories.

ASIC assessed what assumptions trustees made about members and how they determined that the default was appropriate for their membership.

There was “significant variation in the sophistication of trustees’ assumptions” and factors into consideration when designing default

categories, ASIC said, adding that there are vast areas of improvements.

ASIC commissioner Danielle Press 01 warned that trustees “may be contravening their legal obligations if they fail to ensure that insurance premiums charged to members are based on appropriate statistical assumptions.”

“While a high-risk occupational default may be appropriate in some circumstances, trustees need to be able to justify their default settings based on their membership base.”

In 2018, ASIC raised many of these concerns in Report 591 Insurance in superannuation.

Using Australian Bureau of Statistics data, ASIC highlighted the fact that more than half of the workforce is employed in primarily administrative or office-based work (i.e. lower risk, white-collar work).

“In those funds not targeted to high-risk occupations, it is plausible that many members may be paying too much for their insurance if substantially more than 50% of the membership is in the high-risk occupational category by default,” ASIC said at the time. fs

US wealth manager acquires three Aussie firms Elizabeth McArthur

NASDAQ listed Focus Financial Partners has created a new network of boutique financial advice firms and acquired three Australian businesses.

Focus launched Connectus on December 1 in the US, and now the first Australian advice firms to join the boutique network have been announced.

Brady & Associates Group, Link Financial Services Group and the Westwood Group will join the Connectus Wealth Advisers network, having been acquired by Focus.

In Australia, Focus already owns Escala Partners and MEDIQ Financial Services but these are operated under a different model and will remain separate from the new Connectus Wealth Advisers network.

Brady & Associates is a private client wealth management and accounting advisory practice headquartered in Sydney.

“We are very pleased to have joined Connectus,” Brady & Associates founder and managing director Paul Brady said.

“Connectus will enable us to maintain our highly personalised, client-centric approach while gaining access to best practices, additional client services and enhanced technology and processes. Longer-term, Connectus will help

us solve for succession, and create a seamless transition for our team and our clients, while preserving the legacy of the firm we have built.”

Link Financial Services Group is a wealth management firm headquartered in Caulfield North in Victoria. It caters to ultra-high and high net worth individuals and offers family office services.

“Taking advantage of Connectus’ strategic resources, while leveraging the shared infrastructure they offer, will enable the Link team to focus exclusively on what we do best and enjoy the most – servicing our clients,” Link founder and managing director Ben Kohn said.

Westwood is a boutique wealth management firm headquartered in Brisbane which was previously owned by an entity in which Focus has a minority investment.

“Connectus allows us to devote our energies to expanding the highly personalised services we offer our clients,” Westwood founding director Dominic Cronk said.

“Having Connectus as a strategic partner at our table, and also being able to access to their shared services, are highly differentiating features of their model and will enable us to grow our client base in a way we could not have done on our own.” fs

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8

News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

ASI exits Aussie fixed income

01: Shaune Egan

director of wrap products AMP Australia

Kanika Sood

Aberdeen Standard Investments will stop offering Australian fixed income strategies, after a strategic reconfiguration of the business.

The team is currently led by Garreth Innes as head of Australian fixed income, including a $180 million income fund that trimmed its fees just last month.

“Aberdeen Standard Investments (ASI) has decided to cease the management of Australian fixed income products for Australian clients, as part of a strategic reconfiguring of the business,” the firm said in a statement.

“We are repositioning our Australian business to focus on key areas of growth to meet client needs. As a result, ASI Australia intends to close the…[three]… locally-domiciled Australian fixed income funds in an orderly manner that treats all clients fairly.”

The three strategies that will close are: Aberdeen Standard Diversified Fixed Income Fund; Aberdeen Standard Inflation Linked Bond Fund and Aberdeen Standard Australian Fixed Income Fund.

The fund manager declined to comment on total funds under management of the Aussie fixed income team, the timeline for return of funds to investors, and the future employment of the team’s investors.

The team was highly respected (especially go its sector rotation expertise as one observer noted) but has had a revolving door in terms of leadership. fs

CBA eyes European instos Armed with a new licence, the Commonwealth Bank is making a play for European institutional investors by establishing a new office in the Netherlands.

The newly licensed Dutch subsidiary, Commonwealth Bank of Australia (Europe) N.V., is scheduled to operate from June 2021 in newly fitted offices in the capital, Amsterdam.

CBA has some 180 staff in Europe and the UK. It has an office in London and CommBank Europe, which is registered in Malta.

Reuters reported that the bank is shifting its presence from London to Amsterdam as the UK’s exit from the European Union draws near.

CBA will employ around 50 people in Amsterdam but keep the London office open, Reuters reported.

CBA executive institutional banking and markets Andrew Hinchliff said: “CBA Europe N.V. will also act as a gateway to Australia and New Zealand for the Bank’s wholesale European clients, who are major contributors to Australia’s foreign direct investment, and provide a large investor base for the domestic bond market.”

Amsterdam is ideal for serving institutional clients based in Europe as it offers a multi-lingual workforce and thriving fintech ecosystem, he said.

“We’re currently working closely with our clients domiciled in Europe to make the transition as seamless and smooth as possible,” he said. fs

AMP launches new retirement product Karren Vergara

A

The quote

The offers reflect AMP’s commitment to helping our clients achieve their retirement goals.

MP has launched a new retirement product that guarantees the return of capital regardless of market volatility.

Available on its MyNorth platform, MyNorth Guarantees aim to help investors nearing retirement protect their nest egg against sequencing risk.

Notwithstanding the fees, investors who keep investments for a full period of either five or 10 years “will get their initial investment sum back, irrespective of how the market performs”, the PDS shows.

The five-year option invests mainly in Australian and international shares (up to 85%) and charges investment fees of 0.60% p.a. and guarantee fees of 1.25% p.a. deducted from the balance.

Investors that opt to “lock in” can keep investment gains at a designated time if asset growth

is greater than the protected balance. Lock ins charge an additional 0.70% per year.

At the end of five years, investors receive the value of the investment or the protected balance, whichever is higher.

The 10-year option invests in 100% growth assets and charges investment fees of 0.63% p.a. and guarantee fees of 1.45% p.a. deducted from the balance. Minimum initial investment amount is $20,000.

AMP Australia director of wrap products Shaune Egan01 said the product is designed to provide flexibility to safeguard against market downturns, while allowing investors to take advantage of market upside and incrementally lock in positive returns.

“The offers reflect AMP’s commitment to helping our clients achieve their retirement goals, as we continue to invest in MyNorth as AMP’s flagship wrap investment platform,” he said. fs

Key advice reforms tabled New regulation that requires financial advisers to disclose conflicts of interest and stamp out feesfor-no service were tabled in parliament.

The Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 aims to strengthen many weaknesses in the financial advice industry, targeting three key areas: annual renewals and payments; and restrictions on deducting advice fees from superannuation; and independent disclosure requirements.

Putting Commissioner Kenneth Hayne’s recommendation 2.1 into practice, the new law is aiming to curb the fee-for-no service problem.

Advisers must provide clients a fee disclosure statement outlining what is being charged and the services they are entitled to over the next 12 months. This also seeks permission to renew all annual ongoing fee arrangements. Written consent must also be obtained before fees are deducted on an ongoing basis.

Secondly, advisers have to disclosure any lack of independence in writing, as foreshadowed by recommendation 2.2. The new law cites Corporations Act section 923A(2) of what an “impartial” or “independent” adviser is: does not receive a commission, remuneration based on the volume of business placed by the product issuer or a gift.

Thirdly, superannuation funds cannot charge fees on an ongoing basis for personal advice provided to MySuper products (for a 12-month

period). More generally, super funds cannot charge a member fees for advice provided unless the fee is charged in accordance with an arrangement that the member has agreed to (with the exception of intra-fund advice).

The Association of Financial Advisers (AFA) chief executive Philip Kewin said while all three elements are important, the most significant issue for the AFA and its members is the new annual renewal obligation.

“Whilst the legislation does not entirely reflect our recommendation, it does incorporate some key elements, including one rather than three documents and greater flexibility and more time for clients to renew,” he said.

Although ongoing fees for MySuper accounts will be banned, he said, other advice fees will still be permitted. “This is an important outcome.”

Financial Planning Association of Australia (FPA) chief executive Dante De Gori welcomed the reforms.

“It’s great to see the government has made significant changes to the annual renewal arrangements in response to concerns raised by the FPA in relation to the annual renewal notice and anniversary date operation,” he said.

“These changes demonstrate positive outcomes achieved for financial planners by the FPA so they can concentrate on assisting clients rather than managing administrative paperwork.” fs

Opinion

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

9

01: Sean Cookson

vice president and managing director APAC Financial Recovery Technologies

Class action settlements may be available to advisers’ clients

For financial advisers, participating in shareholder class actions on behalf of clients may seem an impossibly complex task. However, through technology integrations with platforms, they may already be able to do exactly that.

The quote

Helping a client to participate in an ongoing shareholder class action does more than just open up the possibility of them receiving a fi­nancial reimbursement. he Australian equities market is more than T just a mechanism to invest – it makes compelling reading for most Australians who are interested in their investments, or their retirements. With the Australian Financial Review leading its daily email with “ASX to rise/fall/ surge/plummet” most days, it’s hard to argue against the fact that monitoring listed entities in Australia is a spectator sport.

For many Australians, they have more than a passing interest in the success of the Big Four banks. Most Australians are shareholders in the big banks in addition to other stalwarts like Telstra and BHP, either through an investment portfolio managed by an adviser, or through their superannuation. Investment in the big banks is so popular that all the Big Four banks sit amongst the top six domestic equity allocations inside Australian self-managed superannuation funds for the last financial year.

Today, there are shareholder class actions underway against two of those banks – Westpac and Commonwealth Bank of Australia (CBA).

Enabling shareholders to participate in class ac-

tions is critical for the successful and transparent functioning of our financial system. HESTA is participating in no fewer than 21 class actions, which it explains are both a means to recover losses, but also a mechanism to ensure improving and ongoing good governance of the institutions it invests in.

Consider for example the potential for damage to Australian investors through corporate wrongdoing at one of the banks.

For consumers, nearly all retail banking is conducted through our major banks. CBA claims to have 15.9 million customers while in 2018 Westpac said it had 14 million. As those figures add up to more than the population of that time it would seem clear that a significant number of Australians are customers in some form – through credit cards, loans, mortgages, or savings – of either Westpac or CBA. If one of those banks engages in illegal conduct that compromises its ability to deliver services – a high percentage of the Australian public is impacted. Ensuring the banks operate in a clear and transparent manner

is important for the ongoing stability of our financial system.

Given the well published failings in the financial system, whether it be through the financial facilitation of exploitation of children or the charging of fees for services that never occurred in financial advice – or the wilful destruction of Juukan Gorge in the case of Rio Tinto – holding companies to account through shareholder action is critical to a well-functioning and transparent economy. Class actions are one of the only legitimate mechanisms available to shareholders to hold companies accountable. It is also the only way for shareholders impacted by commercial negligence or deception to be compensated for any material loss.

Financial advisers may be able to ensure that all their clients participate in any class action they are eligible for, because that service may be available through their platform or service providers. A number of Australia’s major platforms currently offer the ability to actively participate in class action cases and recover losses.

Helping a client to participate in an ongoing shareholder class action does more than just open up the possibility of them receiving a financial reimbursement – it allows the adviser to provide an additional value-add service in a time when advisers are most keen to differentiate their brand and deliver maximum services to their clients.

It also allows clients to be a part of an action that has the potential to materially change the nature or corporate behaviour of a company, and so will improve corporate governance in Australia.

Shareholder class action participation is available only through certain platforms in Australia and advisers should check if their service providers can offer this service. The platform will facilitate everything – all the adviser needs to do is plug their clients in. Particularly during times like these, it is important to democratise access to settlement pools so that retail investors have equal access to their institutional counterparts. When times are tough, everyone should have access to recompense if the businesses they invest in cause them damage. fs

10

News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

01: Allison Dummett

02: Nicole Alexander

chief executive ClearView Financial Advice and Matrix Planning Solutions

head of licensee standards Centrepoint Alliance

The barriers to limited advice: Ask the licensee heads Annabelle Dickson

T

he increasing cost of delivering financial advice coupled with lack of guidance and strategy documents are the major barriers to limited advice, according to licensees.

The Australian Securities and Investments Commission’s (ASIC) latest consultation paper, Promoting access to affordable advice for consumers, is giving not only advisers but also licensees the chance to voice their opinions on the issues relating to the supply of good quality affordable advice and what steps can be taken for consumers to access it.

This latest consultation is part of ASIC’s Unmet Advice Needs project and acknowledges the changes the advice industry has undergone in recent years, highlighting the significant decrease in financial adviser numbers on the Financial Adviser Register.

There is now less than 20,000 financial advisers registered on the ASIC FAR, according to Rainmaker Information analysis.

ASIC commissioner Danielle Press says that good-quality affordable personal advice may help consumers make better financial decisions, especially during times of heightened vulnerability.

Commenting on the feedback requested, Press said: “It will help us determine what meaningful steps we can take to help industry better provide good-quality affordable advice that meets consumers’ needs.”

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.

The regulator also wants to know how the demand for scaled advice has changed over time, the barriers they experienced in building a scaled advice offering (if they have one) and the support they provide to advisers providing limited advice.

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.

ClearView Financial Advice and Matrix Planning Solutions chief executive Allison Dummett 01 has embraced ASIC’s consultation paper saying it is “hugely positive” that the regulator is asking for feedback, not only for the 20,000 clients under the licence but also the industry.

However, she said the regulator should provide more guidance for advisers and licensees.

“The guidance could be updated to be more current more practical and particularly incorporating things such as FASEA obligations,” she said.

What makes advisers and licensees cautious, she said, is that scaled advice is open to interpretation under FASEA and ASIC’s own regulation and can be reinterpreted by the Australian Financial Complaints Authority.

“But any guidance that would give an adviser and the licensee more confidence that they can speak freely in a statement of advice, record of advice or a document, that’s actually a separate issue,” Dummett added.

Lifespan chief executive Eugene Ardino agreed: “If you want to increase accessibility you need a way to give advisers confidence that they can meet their legal obligation and still be able to arrive at the limited scope advice in a much simpler manner.”

It is not just the legal obligations that are complex for advisers, he said, but the ongoing costs involved with being an adviser and the amount of time that goes into delivering limited advice.

“It is not a short space of time for an adviser to collect all the data, analyse it, investigate a range of other strategies, formulate the advice and compile the statement of advice,” he said.

Centrepoint Alliance head of licensee standards Nicole Alexander 02 , along with Dummett and Ardino, noted the most advised topics are retirement planning, superannuation and personal insurance.

However, Alexander agrees with Ardino believing scaled or limited advice, particularly in these topics, is not a different “type” of advice but rather it is simply that the level of complexity and time to deliver that advice that is different.

She acknowledged the increasing cost of advice but said ASIC needs to take a step back and recognise the factors that are going into that cost.

The quote

It is not a short space of time for an adviser to collect all the data, analyse it, investigate a range of other strategies, formulate the advice and compile the statement of advice.

She asked: “What is it that advisers are needing to do or spending their time on?

How are clients able to engage with those advisers and what is limiting them from getting advice, what is slowing down the advice process?”

The industry, she said, is built on personal advice and the process of giving a Statement of Advice and building a relationship with the client but the demand is in scaled or limited advice.

“The demand is from consumers who need it to be more accessible and affordable whereas high net worth clients perhaps already have access to comprehensive advice,” she said.

Alexander believes a way for ASIC to support advisers in mitigating these issues echo those of the Financial Services Council (FSC): introducing an entry level type of advice and strategic advice.

The FSC launched a report by Rice Warner, Future of Advice, that proposes all advice should fall under one of two categories - strategic advice and financial product advice.

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

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

Alexander said strategic advice, is one area that ASIC could give more support to advisers and how to deliver it.

“Even things like factual information and general advice has a greater role to play in improving the financial literacy of consumers and their access to advice, even if it is entry level and answering a simple question with simple advice and moving then more into that personal space,” she said.

While ASIC is asking licensees that do not allow their advisers to provide limited advice the reasons why, Dummett, Alexander and Ardino are all in support of advisers under their respective licences providing it.

The consultation period wrapped up on January 18. ASIC now intends to host a series of industry roundtables to discuss the issues raised in submissions. fs

News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

11

Executive appointments 01: Rob Coulter

Ignition Advice expands team Digital advice technology provider Ignition Advice has appointed a business development director for APAC, as it grows its global team.

Rob Coulter 01 will step into the role, joining from the Association of Financial Advisers where he was general manager, partnerships.

Coulter was head of corporate development at AMP Advice (and ipac Securities prior) for eight years.

He has also worked in business development at BT and ING. “I have for a considerable period of time believed that digital advice is a key ingredient to helping more Australians access safe, compliant and affordable advice,” Coulter said.

“I believe that there is a real convergence of purpose with industry, government and regulators all demonstrating a desire to deliver safe, compliant and affordable advice.”

Ignition co-founder and director Mark Fordee added: “We are pleased to welcome Robert Coulter to Ignition’s growing global team. Ignition continues to attract world class digital advice experts. We look forward to maintaining this momentum with strong staff recruitment throughout 2021.”

Ignition chief executive Manish Prasad left his position after a little over two years in the role recently.

Financial Standard understands a new chief executive has been appointed but is yet to be announced.

Capgemini names new APAC lead The managing director for Capgemini’s Australia and New Zealand business has been promoted to the global executive leadership, taking over as Asia Pacific lead.

Olaf Pietschner is now chief executive of the Asia Pacific Strategic Business Unit and, as such, has joined the group executive committee. He replaces Luc-Francois Salvador.

It is an expanded role for Pietschner, who retains his existing responsibilities as local lead. He has led the Australia and New Zealand business since 2017.

“Olaf is a passionate advocate for diversity and inclusion. In 2020, Capgemini in Australia and New Zealand was recognized as one of the best employers for LGBTQ (Lesbian, Gay, Bisexual, Transgender, and Queer) inclusion and a Gold Employer for its efforts at the Australian LGBTQ Inclusion Awards,” Capgemini said.

“Olaf has over 25 years of experience in consulting and digital transformation, including executive roles at Origin Energy, News Limited, and Deloitte in Australia.”

His appointment comes alongside two others: Michael Schulte as chief executive of the Northern Europe Strategic Business Unit and Jerome Simeon as chief executive of the Southern Europe Strategic Business Unit.

Former industry fund exec in new role The former deputy chief investment of Christian Super has joined the Cook Islands National Superannuation Fund, as it starts an internal investment team.

Asset allocator appoints director Janus Henderson has announced the appointment of Greg Clarke02 in the newly created role of director, institutional solutions.

Clarke will be based in Janus Henderson’s Sydney office and report to head of Australia Matt Gaden.

Most recently Clarke worked with TAL as consultant - asset specialist, investments, retirement and new propositions.

He also played an important role in the transition of the newly acquired Suncorp life insurance business into the TAL business.

Janus Henderson said Clarke will act as a link between the Australian institutional business, marketing and investments divisions, and support the team in delivering valuable investment research and solutions.

Gaden said he is pleased to welcome him to the Janus Henderson team.

“We believe his extensive investment and research experience will complement our ability to provide clients with insights that are focused on capitalising the opportunities and solving the challenges they face,” Gaden said.

David Brown commenced as the chief investment officer of the fund at the start of the year.

The Cook Islands National Superannuation Fund has about NZ$200 million in total assets, which are managed externally by Russell Investments New Zealand. The fund’s chief executive previously had the responsibility for all operations and investments.

The inaugural chief investment officer role reports to the chief executive. “... [Brown will] lead the development of a new investment team in Cook Islands with a focus on training and development of local resource, leading the fund’s diversification into direct investments in Cook Islands infrastructure, and supporting the development of the CINSF board who are all based in the Cook Islands,” the fund’s chief executive Damien Beddoes told Financial Standard.

Beddoes said the appointment is expected to improve the fund’s ability to meets its objectives, with a dedicated focus on the management of its investments.

“The National Fund [sought] an experienced CIO with Pacific exposure, to help the fund establish and develop a strong internal investment resource of local Cook Islanders over the next five years,” he said.

“David has commenced with the CINSF and is working through the immigration restrictions as he migrates from Australia to the Cook Islands over the coming month.”

Brown has previously worked as the chief investment officer of PNG’s National Superannuation Fund (NASFUND), a senior portfolio manager at QIC and the head of private equity at Victoria Funds Management Corporation.

MLC Life appoints executive MLC Life has appointed a new chief life insurance officer, as Sean McCormack gets ready for a February 26 departure.

The role is going to Michael Rogers, who has worked as QSuper’s general manager for insurance while it set up its own insurer QInsure.

Rogers has also worked for AXA in Australia and UK, and for AMP. As MLC Life Insurance’s chief life insurance officer, Rogers will oversee insurance operations and delivery to customers, advisers, and superannuation funds.

He reports to MLC Life Insurance chief executive Rodney Cook, who joined in June last year.

“Michael’s appointment, in addition to the recent capital injection from Nippon Life and NAB, demonstrates that we are on the right path, despite the fast-changing operating environment we face,” Cook said.

“While we acknowledge that we have work to do to rebuild positive relationships with our advice partners after our service deteriorated following the recent technology upgrade, we are confident that, once overcome, we will deliver a superior service over time.”

02: Greg Clarke

McCormack was promoted to the role last year, but months later decided to take the role of chief executive at startup insurer Integrity Life, as its founder (former local chief financial officer of Zurich Chris Powell) retired.

AMP Capital APAC managing director exits AMP Capital’s managing director for the Asia Pacific region has departed as the investment giant realigns its focus.

A spokesperson for AMP Capital has confirmed the exit of Craig Keary, saying the role of Asia Pacific managing director is no longer required.

It follows AMP Capital’s decision to implement a new strategy, strengthening its private markets business and scaling and aligning public markets. The spokesperson said the recent repurchase of Mitsubishi UFJ Trust and Banking Corporation’s (MUTB) 15% stake in AMP Capital is also a factor.

“In his time with the business, including in his three years based in Japan, Craig has been instrumental in establishing cross-cultural relationships in the Asia Pacific region and has made a significant contribution to AMP Capital,” the spokesperson said.

“We wish him well for his future endeavours.”

Keary has been with AMP Capital for close to nine years, having held a number of senior roles including director, Australia and New Zealand and head of retail business.

Prior to joining AMP Capital, Keary was executive director, head of distribution and sales, equities and retail markets at Westpac.

He plans to take time out to focus on the PhD he is studying, focused on how the financial planning industry must adapt to changing customer needs and circumstances.

Telstra Super appoints head of equities The $22 billion corporate superannuation fund has hired from HESTA to appoint a new head of equities, including both domestic and international stocks.

Dominique D’Avrincourt joined Telstra Super this month, Financial Standard’s sister publication Industry Moves first reported.

In her most recent role, she was an investment manager in equities and currency at HESTA. At Telstra Super, she will report to the fund’s chief investment officer Graeme Miller, who has held the role since May 2016 when he joined from Willis Towers Watson.

“With effect from January, Australian equities and international equities will be managed by a single team and Dominique has been appointed to lead the team,” the fund said in a statement.

Telstra Super Corporate Plus (MySuper Growth) returned -1.8% in the year ending October, lower than the median funds’ -1.1% for the period, according to Rainmaker workplace super tables.

Over a 10-year period, it is the fifth-best performing superannuation fund with 7.9% in annualised returns to median fund’s 7.2% p.a. fs

12

News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

Rest develops ethical option In the wake of its settlement with member Mark McVeigh, Rest is seeking feedback from members as to what they feel a socially responsible investment option should look like at the fund.

According to the fund, the product will have a ‘growth’ investment profile, be low cost and be transparent about the industries and companies it invests in. As it stands, Rest does not invest in tobacco and chemical weapons.

A random cohort of members are currently being surveyed on what industries they would and would not like the option to invest in. They are also being asked what is driving or limiting their interest in responsible investment and how likely they are to invest in such an option.

The fund has also asked for feedback on what it should be called, proposing ‘Ethical Growth’, ‘Sustainable Growth’ and ‘Socially Responsible Growth’ and possible names.

A Rest spokesperson said: “Many Rest members feel strongly about socially responsible investing (SRI) and are calling on their super funds to make a change. So, we are listening to our members and, for the first time, will be working with them to build a best-of-breed ethical and sustainable investment option.”

According to its website, 80% of Rest members believe super funds have a responsibility towards society when it comes to investing, and 75% of members expect the fund to be investing responsibly without impacting returns.

The work to develop an ethical option follows the super fund’s landmark trial in which McVeigh took the fund to court to uncover what Rest was doing to manage climate change risk.

After more than two years, the case was dismissed in November 2020 with Rest agreeing to all of McVeigh’s requests. In a statement the fund acknowledged climate change could lead to catastrophic economic and social consequences.

It also acknowledged climate change as a direct, material and current financial risk. fs

Zenith partners with MSCI Eliza Bavin

Zenith Investment Partners has partnered with MSCI to enhance the delivery of institutionalgrade portfolio analysis, service scalability, insights and reporting to its managed account portfolio clients.

Zenith said it will roll out the MSCI BarraOne portfolio tool within its consulting business to deliver greater global market insights into client portfolios.

MSCI BarraOne is a research-driven analytical platform that provides users with integrated risk and performance analytics and deeper visibility into the risk and return profile of investments.

Zenith’s head of consulting Steven Tang said the subscription will deliver better insights to clients, at a faster pace, supporting the investment decision-making and implementation across multiple portfolios on behalf of their clients.

“Advisers are proactively looking for consulting relationships that can help better scale their ongoing service delivery to clients,” Tang said. fs

01: Katherine Kaspar

chief executive MIESF

Industry fund names new chief executive Jamie Williamson

T

The quote

Katherine has considerable passion for the role of small, specific-industry funds, and will make an important contribution to MIESF in the future.

he Meat Industry Employees’ Superannuation Fund has appointed a former Link Group general manager and industry fund chief executive to its top job.

MIESF has named Katherine Kaspar 01 as its incoming chief executive, following the announcement that Bill McRobert would retire this year.

Kaspar was chief executive of Kinetic Super from August 2016 until December 2018, including during its merger with Sunsuper in May 2018. She was also a non-executive director of the fund from November 2010 to August 2016.

Most recently Kaspar was general manager, strategy, product and experience at Link Group, a role she departed in July last year.

Prior to entering superannuation, she was a senior associate and solicitor in corporate and financial services law, working with King & Wood Mallesons and MinterEllison.

In addition to this new role, Kaspar is

chair of Cystic Fibrosis Community Care and is studying an executive MBA at Harvard University.

“Katherine has considerable passion for the role of small, specific-industry funds, and will make an important contribution to MIESF in the future,” MIESF chair Chris White said.

Also commenting, Kaspar said MIESF is a strong performing fund which she is excited to be leading.

“I join the fund during a time of great change in the superannuation industry: regulatory change, consolidation and technology advancements, and I believe MIESF is uniquely positioned in this change to capitalise on its core strengths and build on its successes,” she said.

“I look forward to working with the MIESF board, management team and all of our extended partners, employers and industry supporters as we continue our mission to provide optimal member outcomes.” fs

Vanguard growth ETFs shine Karren Vergara

Two Vanguard exchange-traded funds have outperformed actively managed wholesale funds in the growth category, new Rainmaker research finds.

Vanguard Diversified High Growth Index ETF (VDHG) and Vanguard Diversified Growth Index ETF (VDGR) delivered 10.5% p.a. and 9.1% p.a. respectively over a three-year basis ending November 30.

VDHG, which has some $660 million in assets and charges as little as 0.27% per annum in management fees, allocates 90% of funds to Vanguard’s other passive strategies like small caps and emerging markets.

VDGR has some $344 million in assets and similarly invests in underlying Vanguard funds, allocating 70% to growth assets.

MLC Horizon 7 Accelerated Growth Portfolio (8.4% p.a.), which charges management fees of 1.1% p.a. along with 0.04% p.a. of indirect costs, came in second.

The Wholesale Managed Funds Performance Report highlighted November 2020 as an

“exceptional” month for equities, namely because of several vaccines being rolled out in the hope that they can normalise global economies.

In the same month, the S&P/ASX200 returned 10.2% and the MSCI All Countries Index registered 7.5%. The S&P500 returned 17.5%.

In the global equities sector, Loftus Peak Global disruption Fund delivered 23.1% p.a. in the three years to November and Zurich Concentrated Global Growth returned 22.4% per annum.

Over a one-year period, the former topped the rankings, delivering 39.4% p.a. while Forager’s International Shares Fund returned 36.7% per annum.

The research note found Aussie equity small caps vastly outpaced large caps.

Bennelong’s Emerging Companies Fund (31.6% p.a.), Australian Ethical’s Emerging Companies Fund (25% p.a.), and Lakehouse’s Small Companies Fund (24.6% p.a.) were the best small-cap performers over three years.

The Hyperion Australian Growth Companies Fund delivered the highest return in the large-cap segment of 18.9% per annum. fs

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News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

13

Products 01: Paul Bolinowsky

BNP Paribas expands services BNP Paribas Securities Services is expanding its collateral management services in Asia Pacific, to include initial margin requirements arising for noncleared OTC derivatives positions.

Initial margin rules for non-cleared derivatives transactions started to phase in from September 2016, with the sixth and final phase set for September 2022 after a year-long deferral in April 2020.

“Asset owners can have a challenging time when implementing initial margin requirements due to the size of their derivative positions and the fact that they tend to operate under one single consolidated entity,” BNP Paribas Securities Services head of product collateral access David Beatrix said.

“Asset owners also tend to delegate their investment process across multiple managers, which can result in fragmented initial margin calculations leading to higher collateral requirements. Our services take the complexity out of the process, enabling asset owners to centralise their calculations and adopt a streamlined and efficient approach to initial margins implementation.”

Traditionally, initial margin requirements on bilateral transactions were negotiated on a caseby-case basis without prescriptive regulation.

However, this changed in 2016 as Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) set guidelines for initial and variation margin.

For Australia, institutions with $75 billion in assets must comply with the framework by September 2021 and those with $12 billion must comply with it by September 2022.

APRA’s margining requirements for noncentrally cleared derivatives are published in prudential standard 226.

Newton IM adds Future strategies The BNY Mellon subsidiary has launched three investment strategies that are poised to benefit from the opportunities in sustainability.

Newton Investment Management will manage the Future Earth, Future Food and Future Life global equity portfolios and is based off a framework which identifies major areas of disruption and structural change.

The Future Earth strategy invests in companies that protecting the environment and natural resources. The four sub-themes in the strategy are efficient infrastructure, resource management & recycling, clean energy, and electric vehicles.

Meanwhile, the Future Food strategy invests across agriculture & production, food processing & innovation, and retail & consumption to benefit from opportunities associated with innovations in new food and global food supply chain.

Rounding out the new suite of products, the Future Life strategy focuses on companies that have opportunities associated with an ageing

First Sentier launches fund First Sentier Investors has launched a new US-listed infrastructure fund that is managed locally.

The First Sentier American Listed Infrastructure Fund (FLIAX) aims to achieve income and capital growth by investing in a diversified portfolio of up to 40 stocks.

The sectors the companies operate in include utilities (electric, natural gas and water), mobile tower operators, freight railways, energy pipelines, waste management and data centers, as well as listed companies outside the US that own US infrastructure assets.

FLIAX is managed by a Sydney-based team led by deputy head of listed infrastructure Andrew Greenup, who also co-manages the First Sentier Global Infrastructure Fund (FLIIX).

Greenup said last year that the global pandemic created a buying opportunity in global listed infrastructure that led to mispricing of assets like energy infrastructure, toll roads and airports.

Jessica Jouning, a senior investment analyst in the global listed infrastructure securities team, works alongside Greenup as assistant manager overseeing FLIAX. The strategy is unavailable in Australia.

population and the accompanying change in demand for products and services.

The strategy focuses on four sub-themes: care and support, financial security, health innovation, and ‘living better’ with opportunities explored across healthcare, leisure, financial services, housing, and travel.

BNY Mellon Investment Management country head Australia Paul Bolinowsky01 said thematic investing has been part of Newton’s investment philosophy for over 40 years.

“Disruptive change is happening at a record pace across all elements of our lives. We believe that by identifying those changes early and investing in them over the long-term we can capitalise on these structural drivers of growth for our clients,” he said.

“This gives our clients the chance to gain direct exposure to investment themes that we believe will deliver some of the most successful investment outcomes in the coming years.”

This latest development follows the appointment of former chief Aviva Investors Euan Munro as its newest chief executive.

Munro will commence the role in June 2021.

Arowana winds up LIC The Arowana Contrarian Value Fund (CVF) is in the process of winding up and delisting from the ASX after a period of underperformance.

The listed investment vehicle flagged in April 2020 that it was “engaging in a detailed strategic review” because of the adverse impact of COVID-19.

At the time, the board said it was “comfortable” with investment manager ACVF Management’s ability to navigate through the difficult period but was still considering winding up the LIC. The board recently announced it will hold an extraordinary general meeting on February 4 to put forth resolutions to wind up CVF. During FY20, the global economic shocks of COVID-19 resulted in “disappointing” performance, together with a hedging strategy that did not pay off as markets unexpectedly rallied, the annual report showed.

CVF made a $7.4 million net loss after making a profit of $466,000 in FY19. It returned 6%, slightly beating the benchmark’s 7.7% net of fees. It paid a fully franked yield of 15% based on the closing price of $0.79 as at 30 June 2020.

While the board said it supports the valuebased investment strategy, CVF’s investment portfolio against the benchmark index was nevertheless “disappointing”.

CVF listed six years ago, trading at $1 and peaking at about $1.31 in 2018. The share price plummeted from about $1.06 to 37 cents on 17 December 2020. It invests in local and international companies such as Corporate Travel Management, Nine Entertainment, Janus Henderson Group, Perishing Holdings and Village Roadshow.

Arowana is the parent company of CVF, which operates and scales small and mediumsized businesses.

Kevin Chin is the founder and director of CVF.

02: Caroline Bell

Six Park launches ESG options Six Park has launched its first range of sustainable portfolios in partnership with a Melbourne-based financial advice firm.

The online investment manager partnered with Summerhill Financial Services to deliver sustainable portfolio options to existing clients late last year.

Six Park said since making the sustainable options available, around one in three clients have chosen the sustainable option.

The new portfolios consist of sustainabilityoriented ETFs which provide exposure to Australian and international equities (both hedged and unhedged), excluding emerging markets. ETFs used include E200 by State Street, Vanguard’s VESG and BetaShares’ HETH. The minimum investment in the options is $5000 and fees start at $9.95 a month, according to Six Park’s website.

“We’ve reviewed the sustainable ETFs currently available on the Australian Stock Exchange, and we’ve carefully considered their relative benefits and drawbacks,” Six Park co-chief executive Pat Garrett said.

“There’s a growing number of sustainable ETFs but they vary widely in the way they’ve been constructed, so Six Park’s Investment Advisory Committee spent considerable time examining the available options as part of their decisionmaking process.”

The importance of sustainable investing will continue to be grow over time, he added.

“Research shows this is the way the industry is heading – in the ASX 2020 Investor Study we saw that interest in ESG investing was a priority for the next generation of investors, and these investors are the future clients of Australian financial planners and accountants,” Garrett said.

“We’re excited to be partnering with Summerhill, which is a future-led practice that understands the importance of both digital engagement and sustainable investment as part of their business strategy.”

Summerhill Financial founder Caroline Bell02 said she is excited to be partnering with Six Park as it ramps up its digital offerings.

“Sustainable portfolios were an important factor in our decision to partner with Six Park, as this is an area of considerable importance to ensure we can provide clients with services that align with their attitudes toward responsible investing,” Bell said.

“We plan to move further into the digital space to help fill the advice gap with affordable and accessible financial advice options.”

Bell said last year saw many people realise the importance of providing access to financial advice and assistance, though many were unsure where to begin.

“Many people want to build wealth but don’t necessarily need financial strategy advice,” she said. fs

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www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

THE VALUE OF A CURE As COVID-19 ravaged the world, investors were left scrambling. As we tip-toe into 2021, there is light on the horizon in the shape of a vaccine.

Where does that leave product providers? Are we ready for financial cures to what ails us?

Annabelle Dickson writes.

Product preview | Feature

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

01: Mike Aked

02: Kerry Craig

03: Brian Parker

head of research, Australia Research Affiliates

global market strategist J.P. Morgan Asset Management

chief economist Sunsuper

F

or many, the start of the New Year signaled an end to a shocking year consisting of a global pandemic, monumental shutdowns and widespread financial losses.

But it took mere days to see 2021 is not a clean break but rather a continuation of the previous with new clusters of COVID-19 popping up in Sydney and Melbourne and the UK mutation of the virus reaching Queensland’s shores.

Further to this, it took just five days for political unrest in the United States to level up, with rioters occupying and vandalising the United States Capitol in an attempt to overturn President Donald Trump’s electoral defeat.

But for capital markets, 2021 has established itself firmly as a time to heal as it moves towards a global economic recovery.

The S&P/ASX 200 is currently returning around -3.54% over 12 months, a far cry from the 30% losses in March 2020.

In July 2020, Fidante Partners investment specialist Sinead Rafferty declared the recovery in Australian share markets as “the fastest rebound in history”.

But the overall recovery in the global economy will be slow, says Research Affiliates head of research in Australia Mike Aked01.

“There was a lot of damage done to the psyche of spending and consumption in 2020. In 2021 businesses and consumers will be holding back on making investments and spending money until the pathway is clearer,” he says.

As a result, Australians are hoarding cash, despite returns being close to zero.

The Australian Bureau of Statistics shows the household savings ratio surged to 10.3% last year which is the highest rate in 35 years with household wealth increasing to a record $11,351 billion.

Despite this, exchange traded fund (ETF) issuers are gearing up for another year of product launches in the hopes that retail investors are ready to open their wallets.

Alphinity Investment Management principal and portfolio manager Stephane Andre believes the equity market has high hopes and high expectations for the year, as reflected in the high price-to-earnings ratios.

“The market expects low interest rates for years to come, fiscal stimulus, no significant lift in inflation, and importantly a vaccination to be rolled out by end of 2021 reopening the economic activity,” he says.

“A serious disappointment to any of these elements would not be well received.”

The era of recovery In 1990 the financial excesses of the 1980s caught up with the economy and sparked a recession in the September quarter and continued for a year.

The former governor of the Reserve Bank of Australia Ian McFarlane who served during

this recession said in the 2006 Boyer Lectures on the ABC that it was a typical boom and bust.

“In most cases, it was the fall in asset prices that meant that loans could not be repaid, thus transferring the distress to financial institutions,” McFarlane said.

Aked speculates the recovery in 2021 and beyond will be similar to that of 1990, which he coins a “jobless recovery”.

“There is a lot of money in people’s accounts, there’s a lot of liquidity out there that will probably lead to increasing prices,” he says.

“I think we’ve all been burned from the fact that this is just an iterative cycle. And there’s no bottom and full recovery.”

But the greatest risk we face he says, is the inflationary result of everything that has happened in the last 18 months.

J.P. Morgan Asset Management global market strategist Kerry Craig02 agrees and believes the aggressive fiscal and monetary stimulus will boost inflation.

He has concerns over the amount of spare capacity in the economy and how fast it will be eroded as it will lead to more inflation than originally anticipated.

“Central banks have done an excellent job in anchoring the inflation outlook over the years, but more recently they have struggled to bring inflation rates back toward targeted levels,” Craig says.

“Usually, you have a drawback but what we’re actually seeing is that we have lots of fiscal policy being supported and very loose monetary policy and that could lead to the threat of inflation coming through faster than expected.”

The result of this, he says, is spiking bond yields which will upend the valuation metric in justifying low P/E multiples and upset the balance of bonds and equity markets.

Craig likens the current situation to the “taper tantrum” of 2013 when the US Federal Reserve announced the future tapering of its quantitative easing policy leading to a surge in US Treasury yields.

“I think the inflation outlook when the market starts to price inflation is going to be really key. But think about something that could really upset the market in terms of what happened in bond yields,” he says.

“Economic resurrection in some parts of the world will be staggered as viral outbreaks are contained, but virus resurgence risk is mostly priced in already.”

Sunsuper chief economist Brian Parker03 shares similar sentiments and thinks the certainty of a recovery hinges on the success of the COVID-19 vaccine.

It is going to take months, he says, to see a decent uptake of the vaccine and, between now and then, there is going to be vulnerable periodic lockdown.

“And yet, in the meantime, there is another lockdown in the UK and fairly frightening infection rates across the United States with around

The market expects low interest rates for years to come, fiscal stimulus, no significant lift in inflation, and importantly vaccination...

A serious disappointment to any of these elements would not be well received.

Stephane Andrew

15

3500 people dying every day,” Parker says.

“Despite the negative news, everyone is getting their hopes up and looking through it.”

VanEck Australia managing director and head of Asia Pacific Arian Neiron04 agrees and believes if the pandemic can be controlled by the vaccine, equity markets will continue to recover.

“The efficacy of the vaccine and the willingness of the population and coming back to some form of normality… we think that equity market signals will be more positive,” Neiron says.

But Parker thinks the most interesting thing is the way financial markets tend to overlook negative COVID news and political news.

In light of this, he says investors should continue to prefer equities and credit over government bonds.

“The cyclical sectors in the equity market are looking attractive. However, we do not expect deep value stocks to see a meaningful rotation until we get concrete news on a vaccine or steeper yield curves,” Parker says.

Shift to value The steepening of the yield curve may mark a period of renaissance for value managers and cyclical stocks after more than a decade of sustained poor returns. (See Figure 1).

As a value investor, Maple Brown Abbott managing director and chief investment officer Garth Rossler05 says it has been a very long winter, but he has started the year with a positive mindset for the shift away from growth.

“Value has underperformed for 13 years which has been extraordinary. The previous longest underperformance was more like three to four years,” Rossler says.

He attributes the weak performance to the decrease in interest rates from 6% down to zero during this time.

“Now we are seeing the early stages of a reversal from that. I think value could have a long, sustained period of recovery because interest rates have done their bit,” he says.

“We saw a strong rotation in the fourth quarter of 2020, and we think it will continue into 2021.”

Aked agrees with Rossler and sees the resurgence of value as one of the biggest investment themes of 2021.

Value companies are priced as if they are going to go bankrupt, Aked explains, and looking back at 2020, in some places companies were the cheapest seen since the end of the 1990s tech bubble.

“When we know that bankruptcy isn’t going to happen that’s when they tend to reprice. We saw that in the last quarter of last year and I imagine we’re going to see that in spades through 2021,” Aked says.

But Alphinity’s Andre considers the rotation as more of a change in earnings leadership than a value argument.

The strongest market returns in a recovery, he says, are typically generated during the PE

16

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expansion phase driven by expectations of an earnings recovery.

But he believes we are towards the end of this phase with global equities trading at a forward PE ratio of 21 times, and Australia of 20 times, both well above the 30-year average.

“We do now need to see the actual earnings growth recovery to not only justify the current market valuations but to provide positive returns, with a likely PE contraction more than offset by earnings growth,” Andre says.

“We are firmly of the view that for the rotation to be sustained it requires earnings participation. Without it, it is only hope, and will fade.”

Sunsuper’s Parker doesn’t believe in taking bets on growth versus value but does predict that performance will narrow over time.

While technology stocks, and growth investments got an extra boost last year, he says, the market is showing signs of correction.

“The gap between the performance of value and growth will narrow over time but I don’t think it happens quickly,” Parker says.

“We should see a broadening of share market performance. We will not see share markets being driven by the same relatively narrow diverse stocks in the last year and some of the previous laggards will catch up over time.”

Tribeca Investment Partners lead portfolio manager Jun Bei Liu06 also isn’t swept up in the hype of growth or value as she says they are just blanket terms for her.

“We want to buy stocks that deliver growth that are at a reasonable price that we can justify,” she says.

Even so, Liu acknowledges that growth companies have done very well as the portfolio is taking profit from the high performance, but she prefers diversification rather than a prescriptive style.

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

04: Arian Neiron

05: Garth Rossler

managing director and head of Asia-Pacific Van Eck Australia

managing director and chief investment officer Maple-Brown Abbott

“We are not about to shift the portfolio completely into businesses that are labelled as value,” Liu says.

An example, she says, of where she saw significant value was Treasury Wines when the share price dropped to around $8 from $17 in January 2020.

“To us that is value rather than buying companies that appear to be cheaper. For me, I buy a bit of everything as long as I can see returns,” Liu says.

Now, she is set on buying companies that will recover from the pandemic and have rising growth expectations and has started to allocate more to Sydney Airport with the prospect of international travel in sight.

On technology, Liu continues to like the sector because of the structural growth it offers and does not think that it will be sold off significantly.

Even Rossler acknowledges the rotation from growth to value has not reached the technology space.

In the last quarter of 2020, he says growth stocks such as CSL remained stagnant whereas the tech stocks were up around 30%.

“Tech is crazy you just have to look at Tesla, its share price has gone from $400 to $800 in three months,” he says.

“The turn from growth to value hasn’t touched the tech space yet. In Australia tech is trading at about 100 times forward earnings because the big ones such as Afterpay and Xero are not making any money.”

Economic resurrection in some parts of the world will be staggered as viral outbreaks are contained, but virus resurgence risk is mostly priced in already.

Kerry Craig

The 2021 ETF pipeline Last year, trading of ETFs reached a new high of approximately $100 billion of value and ETFs reached a market capitalisation of $94.4 billion in December, up 53.5% over a 12-month period, driven by $20.5 billion of net inflows.

Figure 1. US yield curve

6.0

1.0

5.0

0.9

4.0

0.8

Differential %

3.0

0.7

2.0

0.6

1.0

0.5

0.0

0.4

-1.0 -2.0

0.3

-3.0

0.2

-4.0

0.1

-5.0 1955

1960

1965

1970

1975

1980

1985

10-year US Treasury bond yield less 3-month US Treasury bill yield.

Source: Rainmaker/Factset

1990

1995

2000

2005

2010

Shaded areas represent periods of US recession.

2015

2020

0.0

Figure 2 shows 38 new ETFs launched last year while 40 products closed, which is the highest number of shuttered funds on record. Further to this, both UBS and Pinnacle left the market.

Aganist this backdrop, BetaShares chief executive Alex Vynokur says not only is the demand for technology products strong but also the pipeline of products launching in 2021.

Vynokur says this year the business strategy is to continue building out the suite of technology exposure and cement its position as the home of technology investing in Australia with the first new products launching in the first quarter.

“I think technology offerings and ability for investors to access growth which is mostly happening outside of Australia is going to be an important part of the strategy,” he says.

“This is a mega trend, technology is disrupting industries across the board, whether it’s retail, travel or communication, technology is playing a very significant role and I think that will continue.”

According to Vynokur, this is the driving force behind product development, and he expects to launch around six new ETFs this year.

Currently, he says, BetaShares’ most popular ETFs is the NASDAQ 100 (NDQ) with $1.4 billion in funds under management and along with the currency hedged version, HNDQ. “The fact that it’s available to Australian investors at a cost-effective price point has really enabled the adoption of that exposure,” he says.

And it doesn’t stop there.

BetaShares currently has six technology ETFs covering numerous facets of the sector including Asia Technology Tigers (ASIA), Global Cybersecurity (HACK), S&P/ASX Australian Technology (ATEC) and Global Robotics and Artificial Intelligence (RBTZ).

On the other hand, VanEck’s Neiron says when people generally think about technology, they think of the NASDAQ 100 which he says is 20% consumer discretionary and not a pure technology play.

Last year the ETF issuer launched the VanEck Vectors Video Gaming and eSports ETF (ESPO), the only one of its kind in Australia.

The video gaming and eSports industry is worth US$200 billion and tipped to grow between 10 and 20% over the next two years, reflecting the structural changes in demand for digital and interactive entertainment.

The key thing, Neiron says, is that there are three billion video game players, so this aspect of technology is not just a passing fad.

“It’s not just talking about Xbox or Playstation. Everyone is on their mobile phones, tablets, and the big part is that eSports is actually disrupting traditional spectator sport,” he says.

“The number of spectators is unlimited because it’s digital and disrupting traditional media.”

For example, the prize pool for the US Masters golf tournament is US$2 million but the 16-year-old that won the Fortnite world cup pocketed US$3 million.

Product preview | Feature

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

“These video game and eSports companies have high cash flow and a high return on equity with low debt,” he says.

When asked about how it came to fruition, Neiron says it is purely innovation in a growing space.

“One of the key things we look at as an investment firm is areas to innovate and seeking the forward-looking views on where the world is going. We are looking at the structural trends not the fads and things that are in vogue,” he says.

In light of this, VanEck has a busy agenda for 2021, looking at a range of opportunities across credit, equities and themes and with the first products launching by the first half of the year.

“Our value proposition in the market is offering access to opportunities investors have limited to no exposure. We want to bring some of the ideas that we have been thinking, some are extension strategies to what we’re doing now and some are ground breaking,” Neiron explains.

Unlisted goes to market Chi-X chief executive Vic Jokovic 07 says the pipeline for product launches on the exchange this year is strong after listing several funds in 2020.

Janus Henderson, Kapstream, Schroders and eInvest all launched fixed income ETFs on the exchange in the last two years and most recently, Magellan launched its MFG Core Series.

As a result Jokovic is noticing more active managers bringing unlisted funds to market.

“There have certainly been managers wanting to bring unlisted funds into a listed form.

Be that new funds they want listed or existing funds moving from an unlisted format to being both available on market and unlisted,” he says.

Chi-X originally launched funds within the fixed income space but Jokovic says it was never the intention to limit the offering to just this.

“We were talking to both fixed income managers and equity managers 12 months ago. It just seemed that there were more managers that were coming to us trying to solve issues around getting their fixed income funds to market at the time,” he explains.

In addition, he says, the demand was driven from the institutions looking for fixed income first and then equity later.

“The pipeline now that is mixed across both fixed income and equity managers. There are also some passive funds for index ETFs in that pipeline, which will be the first for Chi-X,” he says.

Chi-X director of product, sales and data Shane Miller says the exchange expects to offer a total of 22 funds by the first quarter of 2021 which will rise to 30 by the end of the second quarter.

“As we grow and get more interest, there are more fund managers coming to us to launch funds,” Miller adds.

Magellan Financial Group head of research and head of core series/portfolio manager Vihari Ross 08 says the move to offering a listed

06: Jun Bei Liu

07: Vic Jokovic

lead portfolio manager Tribeca Investment Partners

chief executive Chi-X Australia

product was an obvious innovation from what was lacking in the market.

The MFG Core Series launched on December 15 with three funds - the MFG Core International Fund, the MFG Core ESG Fund and the MFG Core Infrastructure Fund all with management fees of 50 basis points per year.

According to Miller, each fund has had “at least one trade” per day since the launch.

Ross likens the move to launch the open-ended funds to that of omni-channel retail where consumers can buy products online or in store and return any items through the same two channels.

“We wanted the end client to be able to access the funds they wanted to access in the way they want to access it,” she says.

“It’s literally giving people the ability to interact with your products in any way that they wish to.”

Ross says there are no current plans to expand the MFG Core Series as it is still early days but to never say never.

“Of course, there is potential for other funds in the future given it’s a series. At this point, there’s no imminent plans to do anything new apart from what we’ve done.”

Super situation In superannuation, fund mergers have remained the flavour of the month. While 2020 was the year of talks and due diligence, many deals will finalise this year and others are expected to be announced.

KPMG’s Transformation in the Superannuation Industry report estimates the current 217 APRA-regulated funds will have shrunk to 85 over the next 10 years, with most of the activity in industry funds.

Starting the year off, MTAA Super and Tasplan will be rebranded as Spirit Super following completion of their merger on 1 April 2021.

Spirit Super will have about $23 billion funds under management and 326,000 members across Australia.

Meanwhile, LGIAsuper and Energy Super signed an agreement in December 2020 and could finalise a merger as early as 1 July 2021.

The two funds will have a combined member base 120,000 and total assets of $20 billion.

Other mergers on the boil include Cbus and Media Super, an expected unification of Sunsuper and QSuper and a potential merger of Australian Catholic Superannuation and Retirement Fund and NGS Super.

While KPMG puts this down to funds having ambitious scale, APRA’s latest iteration of the heatmap will likely see the surge of more merger activity as it takes action on 10 MySuper products overseen by eight trustees.

As at June 2020, MySuper underperformers with red ratings over a six-year investment period include BT Funds Management’s Asgard Employee, BT Super and Westpac Group Plan (lifecycle), Colonial First State Investments’ FirstChoice Superannuation Trust lifecycle (lifecycle) and AUSCOAL (lifecycle).

We wanted the end client to be able to access the funds they wanted to access in the way they want to access it.

Vihari Ross

17

The list also includes EISS Super, AMP’s AFLPA and AFL Industry MySuper, and MySuper No.3 (lifecycle) and Maritime Super.

Since the inaugural heatmaps, 11 out of 47 MySuper underperformers have exited the industry.

But the biggest thing to impact MySuper going forward is the early release of superannuation (ERS) scheme which wrapped up at 2020 end.

Of the $36 billion paid out, the 10 funds with the highest number of applications received from the ATO have made 3.1 million payments worth a total of $23.2 billion.

Research conducted by the University of Melbourne found the outflows had little impact on fund performance, with outflows constituting about 1.6% of assets under management on average and 26.5% of cash holdings.

But Rainmaker Information executive director of research Alex Dunnin says some super funds have had to take assets out of the market and were therefore unable to take advantage of the equity market recovery.

“We have heard from a couple of funds that say that it has cost them one or two percentage points,” he says.

The ERS may impact in other areas too, and to the detriment of members. With many Australians having redeemed their entire superannuation balance and closing their account, the pool of insurable members has shrunk.

In addition to the underinsurance implications this has, those that remain in the fund may see their costs soon go up.

While it’s just one example, it’s already happening at Legalsuper. In September 2020 the fund informed members of planned 35% increases to insurance premiums. In addition to the Protecting Your Superannuation and Putting Members Interests First reforms, Legalsuper cited the ERS as a driver.

Legalsuper chief executive Andrew Proebstl told Financial Standard that while the impact of the ERS scheme is at the lower end of the scale, there have been some lower balance members that have wiped out their savings, reducing the pool of members paying for insurance.

Another set of reforms that will impact the super industry comes in the shape of the Your Future, Your Super package which, if passed, comes into effect on 1 July 2021.

The Your Future, Your Super reforms introduce an underperformance test, stapling, a comparison tool, as well as accountability and transparency obligations.

The underperformance test will see any MySuper products that fail a new APRA-administered annual test twice in a row banned from receiving any new members until they improve their performance.

“That is really frightening a lot of funds, but the horrifying thing is that there has never been a performance test,” Dunnin says.

Furthermore, YourSuper will rank MySuper products by fees and investment returns over an

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eight-year period to account for long term returns.

Products that fail an annual performance test must notify members. Two consecutive years of failures prohibits the super fund from accepting new members.

In notifying about poor performances, trustees must alert members to the YourSuper comparison tool to help them compare and select a superannuation product that meets their needs.

Rice Warner says the YourSuper comparison tool will not be able to accurately and equitably compare performance given its simple metric.

Instead, it recommends that funds are grouped in blocks of five to avoid the idea that a fund appearing at the top is ranked the best and performance should also be over a seven and 10year period as per industry standards.

Meanwhile, the stapling measure will “staple” a member to their existing account to prevent the opening of multiple accounts.

But Rice Warner has two concerns about this measure.

The actuary notes before industry funds and master trusts, superannuation was provided by employers and tailored benefits to their demographic profile, and many subsidised fees and premiums.

Under stapling, Rice Warner says employer schemes “will be starved of new members and will inevitably dwindle.”

“We anticipate that over time, most employers will have as little interest in their employees’ superannuation arrangements as they do with their personal banking services for payment of wages.”

Rice Warner’s other concern focuses on new entrants to superannuation such as young workers or migrants.

Super funds will likely position themselves favourably to these potential members but will need to be careful they don’t breach anti-hawking legislation.

But the actuary suggests trustees be exempt from anti-hawking legislation as underperforming funds will eventually be eliminated due to the heatmaps.

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

08: Vihari Ross

09: Troy Theobald

head of research and head of core series/ portfolio manager Magellan Financial Group

director of financial services Robina Financial Solutions

“We anticipate that this may provide an opportunity for funds who are disadvantaged under the stapling measures to compete in a newly created distribution channel,” Rice Warner says.

Further reform is simply another headwind super funds face, being that they are under greater scrutiny than ever before and the pressure to perform has never been greater.

For Dalton Financial Partners director Josh Dalton lack of transparency as to the investments super funds hold has him erring on the side of caution this year. He doesn’t feel comfortable investing upwards of $500,000 of client money when he is unable to see what is in the fund.

Dalton is particularly concerned with industry fund exposure to direct property. He says office towers are the highest risk investments with corporate looking to downsize.

“Industry funds have a large exposure to property and office towers which could significantly impact performance over five years,” he says.

“Transparency is a risk management technique. If a client is investing in direct property through us we know exactly who the tenants are and how long the lease is but there isn’t that transparency in super.”

While Dalton says he is one of the few financial advisers to champion industry funds, he remains cautious going into 2021.

“We will be recommending them less, particularly for older clients until we get full transparency,” he says.

The largest drops in history have happened quickly.

You should have an approach to investing to deal with whatever the world throws at you. That should never change.

Troy Theobald

Oversupply While the fact that the Australian financial services industry is so eager to continue growing is somewhat reassuring at a time such as this, Robina Financial Solutions director of financial services Troy Theobald09 says a flurry of new products isn’t necessarily a positive.

For example, one should be wary of the number of new ETFs coming to market that have low trading volumes or invest in “exotic assets”, he warns.

Figure 2. New ETFs launches by year in Australia

45 38

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“These will be a problem at some point. You need volume of trade to enter or exit the ETF and investors need to factor this into their decision making,” Theobald says.

Whether or not trading volumes have been an issue, several ETFs have closed or are in the midst of closing.

The ETF Securities Global Core Infrastructure ETF (CORE) and the Enhanced USD Cash ETF (ZUSD) will be terminated after the last day of trading on 29 January 2021.

The termination of the ETFs comes off the back of a review which found both funds did not reach sufficient size to be cost effective for investors compared to other Australian equity ETFs. Back in November, BetaShares announced it was delisting five products including three active ETFs it issued for AMP Capital along with BetaShares Agriculture ETF - Currency Hedged (synthetic) (QAG) and the BetaShares Commodities Basket ETF - Currency Hedged (synthetic) (ASX: QCB).

Theobald believes investors need to be aware of the risks of the underlying investments inside the ETF. Despite this, the investment vehicle still remains at the top of his list.

“We have moved to separately managed accounts or ETFs as our preferred options. They provide greater transaction speed and the SMA provides greater transparency and the clients own taxation position,” Theobald says.

To safeguard against the uncertainty of factors like rising inflation Theobald encourages clients and investors alike to always have cash reserves and steer clear from the chatter.

“The largest drops in history have happened quickly. You should have an approach to investing to deal with whatever the world throws at you. That should never change,” he says.

“Stick to a good philosophy with a disciplined, diversified approach. Ignore the BBQ talk and being reactive to others’ feelings. That would be the largest mistake investors make that I see.”

On the other hand, preparing his clients for 2021, Dalton has taken on a lot more property and infrastructure and moved away from term deposits altogether.

“Fixed interest exposure is the lowest it has ever been because it drags out portfolio returns.

Instead, we have taken on growth assets and have a bias towards a value approach as we think tech is overpriced,” he says.

And those looking after our money, be it in the superannuation or retail funds management world, will too be tested.

Liu says one aspect of funds management is having a broad idea of where the market be in 12 months’ time but in the short term, there is a lot of uncertainty, because – as we saw last year - anything could happen.

“It’s almost a conclusion that 2021 is going to be another year of positive equity markets, although we will have volatility,” she says. fs

News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

Xinja returns deposits

01: Leanne Turner

chief executive MTAA Super

Annabelle Dickson

The neobank has become the first Australian bank to return its customer deposits after it withdrew its banking products and announced the return of its authorised deposit-taking institution (ADI) licence.

The Australian Prudential Regulation Authority began monitoring Xinja’s return of deposits, worth more than $252 million, to 37,884 customers on 16 December.

The neobank has now transferred the remaining 4176 accounts with a total value of $65,809 to NAB for customers to collect.

The regulator said Xinja will formally return its banking licence in the coming weeks.

Xinja withdrew its transaction and savings account products and said it was returning its ADI licence after what it said was an “increasingly difficult” year after only obtaining the licence in September 2019.

“After a year marked by COVID-19 and an increasingly difficult capital-raising environment, and following a review of the market in Australia, Xinja has decided to withdraw the bank account and Stash (savings) account and cease being a bank,” Xinja said.

The company had raised more than $5 million through equity raising campaigns and a further $45 million from private and institutional investors.

It was only in July last year that Xinja announced its plans to launch a US share trading platform Dabble, giving investors access to over 3000 stocks and exchange-traded funds (ETFs).

It is unclear whether this will go ahead as one of Dabble’s features was to sit alongside Xinja’s savings account Stash and customers will be able to purchase shares using the funds in their account. fs

MTAA Super, Tasplan reveal new brand Kanika Sood

M

The quote

It’s fresh and optimistic and innovative – everything we want to be.

Optimum Pensions partners David Orford’s Optimum Pensions has signed a five-year exclusive agreement with Generation Life to bring its retirement income product to the market.

Generation Life will manufacture, administer, market and distribute an investment-linked pension or annuity for Optimum Pensions.

The agreement has a five-year exclusivity agreement, which may be extended for another five years subject to meeting sales and marketing related hurdles.

“Generation Life has a proven track record of working with financial advisers in delivering tax effective investment products providing investors with increased returns and better tax outcomes.

We are delighted to now partner with Optimum Pensions,” Generation Life chief executive Grant Hackett said.

“We are now delighted to partner with Optimum Pensions. Together, we will deliver an innovative lifetime annuity that will help Australian live a more stress-free retirement – knowing that they won’t run out of money…”

GDG will release further details of the Optimum product in February with full-year results for FY21.

GDG reported $59 million in net inflows for the December quarter, and had $1.49 billion in total funds under management. fs

19

TAA Super and Tasplan will take on a new name on April 1, as their $23 billion merger completes.

The combined fund will be called Spirit Super and have 326,000 members and lower administration fees.

MTAA Super chief executive Leanne Turner01, who will be the chief executive of the combined fund, said the new name reflects its ambition to be a national superannuation fund.

“What I love about Spirit Super is it captures the energy of what we’re about. It’s fresh and optimistic and innovative – everything we want to be,” Turner said.

“The new name also speaks to the past achievements of our funds. MTAA Super and Tasplan are both outstanding funds and take great pride in providing historically strong longterm returns, excellent value and service to our members. As Spirit Super, we will have greater capacity to continue improving our products and service and to really embrace a memberfirst approach to everything we do.”

Turner flagged a drop in administration fees for all Spirit Super members.

“The details are being worked through, but there will be a drop in administration fees when Spirit Super kicks off. So right off the bat, members will start seeing the benefits of the merger,” she said.

Tasplan recently told members of its plans to switch from lifecycle MySuper to singlestrategy, citing higher administration costs for the lifecycle among the reasons. MTAA Super runs its default superannuation product as single strategy.

Tasplan raised its income protection premiums by 7.3% as at end of September 2020.

MTAA also increased its death and TPD premiums in February 2020, attributing it to Putting Members Interests First and Protecting Your Super reforms and subsequent decrease in the number of members covered by its group insurance policy.

Tasplan chair Naomi Edwards said: “Our name is our future, so it was important we embraced something our members could be proud of and inspired by. I think Spirit Super nails it.

Importantly, our name will also set us apart in the market.

This will help us grow, compete, and continue pursuing opportunities in the best interests of our members.”

MTAA and Tasplan entered a binding Memorandum of Understanding to investigate a possible merger on June 2019. They committed to the merger in November 2019, setting a deadline for 1 October 2020.

However the merger was pushed from 1 October 2020 to 31 March 2021 citing COVID-19. fs

Group insurance using second-rate data, statistics: Rice Warner Karren Vergara

The poor quality of group insurance data is conducive to administrative blunders that are notoriously difficult to rectify, according to Rice Warner.

Superannuation funds and their life insurance partners are falling short of improving data collection, management and analyses, the consulting firm said, resulting in missing or conflicting values, ambiguity, and a lack of granularity.

While Rice Warner has seen the quality of data enhance recently, there are still vast areas requiring improvement by the super fund and insurance provider.

There are about 10 million superannuation accounts that hold insurance, of which 86% are set on a default basis, according to ASIC. Members paid an estimated $4.1 billion in insurance premiums in the 2020 financial year alone.

With the onset of regulatory reforms, it appears that insurers and super funds aren’t able to stay on top of new legislation and reflect the changes in their data.

For example, the complexities of the Protecting Your Super and Putting Members Interest First legislations introduced new rules for switching cover on and off.

“This has heightened the risk and prevalence of administrative errors which are notoriously difficult to successfully unwind,” Rice Warner said.

Service-level agreements between funds and insurers typically require filling out on every data field which must be captured and detail data audits that must be completed by the insurers, including independent reviews.

“Funds should review their data management practices and consider revising their data-sharing requirements with insurers to ensure they can access the data required to monitor member outcomes,” Rice Warner suggested.

Another ongoing challenge is improving data received from employers and ensuring information like a member’s occupation is up to date. Some funds are successful at this while others are not.

Interestingly, there are only two superannuation fund administration providers in the industry.

Given the concentration of providers and the fact that there are only five major group life insurers, it should be possible in the future to develop an industry portal to handle group life data more efficiently, Rice Warner said. fs

20

Featurette | Life insurance

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

Flatlining: The future of underwriting Automation is forcing life insurance underwriters to upskill or ship out. As the industry faces a tough reckoning on many fronts, we ask whether the writing is on the wall for underwriters. Karren Vergara writes.

Eight years ago, researchers from the University of Oxford analysed over 700 jobs to determine which will likely fall prey to computerisation.

The famous research found insurance jobs (which had a good representation of life insurers) in the US are at high risk of becoming digitised – well ahead of cashiers, telephone operators and machinists.

The study by economist Carl Benedikt Frey and academic Michael Osborne determined insurance underwriting roles had a staggering 99% chance of being overtaken by artificial intelligence. Insurance claims and policy processing clerks (98%), and insurance sales workers (92%) are also at risk.

Data from Seek in Figure 1 also paints a bleak picture of the declining demand for underwriters.

Job advertisements for underwriters tumbled starting roughly the same time as the release of the Oxford study, with the index peaking 120 points then plummeting about 95 points in 2020.

Contributing to the decline was the introduction of UnderwriteMe, a rules-based engine backed by global reinsurer Pacific Life Re in 2015, which has since become the dominant technology used by major players like Zurich and MLC Life, while boutiques such as NEOS Life and Integrity Life have also recently jumped on board.

Meanwhile, Munich Re’s proprietary technology ALLFINANZ is gaining momentum as TAL and ClearView put it to use.

Seek’s data reinforces the accuracy of the Oxford prediction – but how much is attributable to the rise of automation given the life insurance sector is copping blows on several fronts?

Automation has also crept into the claims process.

Queensland-based superannuation fund QSuper has upgraded its technology to streamline the claims-management process, using FINEOS’s software.

QInsure has moved from FINEOS’s Claims system to the Claims SaaS edition on the Dublinbased firm’s platform.

The insurance claims management software provides straight-through processing and compliance checks for 50 organisations globally.

The $117 billion super fund with 594,000 members went live with FINEOS Claims in September 2019, which integrated and automated the workflow for claims across life, total and permanent disability (TPD), and income protection.

Some of the functionalities included calculating payments automatically. Another is the Financial Services Council’s Code of Practice functionality that helps case managers deliver on the insurance promise and meet regulatory obligations.

Adrian Karloci01, a director at B&K Consulting specialising in recruitment in wealth management, life insurance and superannuation, does not see life insurance underwriters becoming extinct.

The numbers

99%

The probability computers will takeover underwriting jobs.

He believes traditional underwriting roles will continue to exist as changes the industry is undergoing tend to be more cyclical rather than structural.

“The underwriter’s role will continue to evolve.

The development of underwriting rules engines and technology in underwriting has provided an alternative career path in the space,” he says.

“Some roles definitely have an automation aspect to them and technology will help add value.”

The advantages of AI moving in for most or some portion of underwriting functions are well pronounced: the removal of mundane and laborious tasks paves the way for strategic highlevel work.

“Digital skills are the obvious skill set life insurance underwriters will need to adopt, together with an analytical mindset to interpret data and increased client-facing communication skills,” Karloci says.

Chenthuran Suthersan 02, head of protection advice at UK-based boutique life insurer Anorak, says technology like UnderwriteMe can significantly help with less complex cases, but more involved cases and medical exams are still being referred to human underwriters.

“So while there are less cases that underwriters see, the ones that they do see are complex so the reduction in need for underwriters is not proportional to the number of cases that they will see,” he says.

Life insurance | Featurette

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

01: Adrian Karloci

02: Chenthuran Suthersan

director B&K Consulting

Financial advisers are still reliant on human underwriters. Most advisers will pick up the phone to speak to underwriters to get a decision as well as understand what the issues are.

“That allows us to communicate with the client about what to expect and why. That ensures that we look more knowledgeable to the client, but also the client will be more understanding of the outcome,” Suthersan says.

In a 2009 global study, Deloitte examined life insurers’ underwriting strategies and found that less than a third (29%) adopted a system to streamline the process.

At the time, all the systems analysed used some form of insurance application to base decisions; 65% incorporated either a traditional application or one with reflexive questioning digging deeper into applicants’ responses.

Twenty-six percent of insurers used traditional applications, while the minority used reflexive applications only.

“Nearly half of these reflexive applications are relatively basic (10 or fewer drill-down questions), but one-third of them do have detailed follow-up (over 60 drill-down questions),” Deloitte found.

head of protection advice Anorak

Fast forward to 2020-21, Deloitte found in a separate study that many insurers are in the early stages of underwriting transformation projects going well beyond automating routine, labourintensive data gathering and processing tasks.

Insurers’ ultimate goal is to better leverage AI, alternative data sources, and advanced predictive models to augment an underwriter’s capabilities and eventually transition them to higher-level, multi-faceted roles, Deloitte said, in terms of portfolio management and increased interaction with brokers and customers.

In the year ahead, North American insurers are prioritising underwriting automation, but this is less important for Europeans and life insuance comapnies that operate in the Asia Pacific region (see Figure 2).

It isn’t just the power of technology that is threatening jobs, the cost of regulation is forcing life insurers to hike prices and scrap some products.

Structural changes to life insurance policies have resulted in many policy definitions changing, says HLB Mann Judd Insurance Services risk adviser Andrew Kennedy03.

Figure 1. Insurance underwriting job ads, including life insurance underwriting roles JOB ADS

INDEX (100=2012 avg)

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Figure 2. Operational priorities per region

Source: The Deloitte Center for Financial Services Global Outlook Survey 2020

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Some roles definitely have an automation aspect to them and technology will help add value.

Adrian Karloci

21

03: Andrew Kennedy

risk adviser HLB Mann Judd Insurance Services

Prudential regulator APRA’s intervention on income protection to improve sustainability guidelines resulted in life insurance, particularly within industry superannuation funds, has increased premiums significantly – some as much as 40% in recent months, he says.

To make matters worse, the local life insurance market is contracting, driven by the major banks fleeing the industry over the last five years.

Bancassurance, in the Australian context, is becoming a thing of the past.

AIA Australia swallowed up Commonwealth Bank’s CommInsure; Zurich took over ANZ’s life insurance arm via OnePath; while NAB’s minority stake in MLC Life Insurance hangs by a thread. Westpac is the only major bank tied to life insurance via subsidiary BT Wealth Connect, but even that strategy is up for review.

Life insurance, which was the lifeblood of AMP, was sold off to Resolution Life for $3 billion, while Suncorp divested its unit to TAL. This has left the door wide open to foreign conglomerates, running thriving life insurance operations in their respective countries, to try their hand at the local market beset by red tape and suffering blows to profitability.

Foreign companies currently control the majority of Australia’s life insurance industry.

According to Plan For Life, Dai-ichi Life Group’s TAL holds the largest market (28%), followed by Hong Kong-based AIA Australia (17%), Swiss firm Zurich (14%) and Nippon Life’s MLC Life (11%).

Consolidation has inevitably led to redundancies and many employees reapplying for their jobs in the merged entity.

A former life insurance underwriter who still works in the industry told Financial Standard some underwriters are having such a tough time finding roles that they have turned to jobs outside of life insurance well below their skill set.

The life insurance market has undoubtedly shrunk, another experienced life insurance underwriter said on the condition of anonymity, and the workload has spiked for those left behind.

This is not because of AI or consolidation, the underwriter said, but because a shift back to human underwriting is taking place.

The industry is currently feeling the negative impacts of straight-through acceptance and automated underwriting in claims.

What’s more worrying is that insurers are not creating additional human underwriting roles.

This is because the numbers were crunched years ago when insurers budgeted how much money they will save by not paying underwriters’ salary.

Now, it is the underwriters slogging it out and feeling the pinch of outdated modelling and cost savings, the underwriter said. fs

This is part one of two in our special investigation into the future of life insurance underwriting. Part two will look at where Australian underwriters sit with their global counterparts.

22

News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

Perpetual awards custody mandate

01: Ilan Israelstam

head of strategy and marketing BetaShares

Elizabeth McArthur

Perpetual Investment Management has appointed a new custodian, replacing RBC Investor and Treasury Services following its exit from the Australian market.

State Street Australia won the mandate and will provide custodial and fund administration services to Perpetual’s asset management business.

The appointment is proposed to take effect within the first half of the 2021 calendar year.

“In our search for a new custodian and administrator, we were looking for a provider who could offer a high calibre service, as well as a breadth of solutions that were both innovative and customisable to support our strong product offering and our clients,” Perpetual Limited chief executive and managing director Rob Adams said.

Adams said the business was also seeking a partner who could align with its growth strategy to expand into new markets.

“State Street emerged as strong partner demonstrating deep middle office and custodial experience in both domestic and global markets,” Adams said.

“After a thorough review of a number of providers, we believe State Street is a complementary fit for Perpetual, particularly as our business becomes increasingly global in nature. State Street is a truly global and quality provider and their support will be crucial as we continue to grow our capabilities and client offerings over time.”

Daniel Cheever, head of State Street Institutional Services for Australia, added that State Street is extremely pleased to have been awarded the Perpetual mandate.

“This is a further vote of confidence by market leaders in our ability to provide a full suite of solutions,” he said. fs

ETF industry approaches $100bn in FUM Annabelle Dickson

A

The quote

This represents by far and away the highest annual inflows on record, representing a 59% in­crease in flows from the previous year’s figure.

s new investors turned to exchange traded funds (ETFs) to cash in on the market volatility and consequent recovery in 2020, the industry reaped the benefits breaking several records, new research shows.

The BetaShares Australian ETF Review for year end 2020 revealed the industry grew to $95.2 billion, up from $62 billion at the start of the year.

This is not only the highest annual change on record but shot the market capitalisation of the industry to an all-time high.

BetaShares head of strategy and marketing Ilan Israelstam01 said the most striking feature of the industry’s growth was that it was driven by inflows of $20.5 billion rather than asset value appreciation.

“This represents by far and away the highest annual inflows on record, representing a 59% increase in flows from the previous year’s figure,” Israelstam, who also authored the report, said.

“Our internal analysis also indicates that a higher proportion of these flows than ever came from direct individual investors, with hundreds and thousands of new, often young investors entering the sharemarket for the first time via ETFs in 2020.”

Passive products captured 90% of inflows leaving the active sector maintaining the same proportion as the previous year.

Despite this, several active managers have plans to list existing mutual funds in the active ETF space. “[…] we expect their share of flows to grow steadily over the coming years, particularly if more managers opt for conversions of existing mutual funds into open-ended structures,” Israelstam said.

Vanguard, BetaShares and iShares received 70% of the industry’s flow with both BetaShares and Vanguard becoming the first Australian ETF issuers to record more than $5 billion of annual net flows.

International equities received the highest level of flows at around $7.6 billion, with Australian equities following closely behind at $6.8 billion while US currency experienced the most outflows.

Further, the industry launched 38 new products while 40 products closed, which is the highest number of shuttered funds on record.

Both UBS and Pinnacle left the market.

Israelstam said it was a year that silenced critics of ETFs, particularly those that claimed that the investment vehicle had never been tested during stressful periods.

“In fact, ETFs globally coped admirably and reliably as investors bought and sold ETF holdings in record amounts during the ‘virus crises’,” he said. fs

HESTA announces award finalists

WTW names new head of retirement

Author name here

Eliza Bavin

The $52 billion industry superannuation fund has named the 11 finalists in its inaugural HESTA Impact Awards.

The finalists are recognised for achievements in sustainability, gender equity, health and diversity and inclusion initiatives, health literacy sessions for culturally and linguistically diverse communities and a free online career support program for women in need.

The finalists include Ishar Multicultural Women’s Health Services, Bendigo Health Facilities Management Team and Jodie Bergsma from Dress for Success Sydney, amongst others.

A judging panel will select the winners of the three categories – Team Innovation, Outstanding Organisation and Individual Distinction. Each winner will take home $10,000 to help them continue their efforts.

The awards are inspired by the United Nations Sustainable Development Goals (SDGs) and Blakey said the fund has chosen seven goals to drive HESTA’s decision making.

The winners will be announced on February 24. fs

Willis Towers Watson (WTW) has announced a new head of retirement for Australasia as Brad Jeffrey retires after serving 40 years with the company.

Louise Campbell will take on the position effective immediately, after rejoining WTW in 2017 when it acquired the Australian actuarial practice of Russell Investments.

She has 30 years’ experience, having commenced her actuarial career with WTW as a graduate before becoming a senior consultant and then spending eight years with Russell Investments.

“I’m excited to take on this leadership role, working with our talented superannuation consultants to help our clients meet the challenges of an ever-changing superannuation environment,” Campbell said.

“With member outcomes, government initiatives such as Your Future, Your Super and the ongoing focus on increased efficiency and value for members, our retirement team will continue find innovative solutions for our clients to best addresses these and the other challenges they face.”

Campbell also paid tribute to Jeffrey, who joined the precursor organisation to WTW in Australia in 1981.

“Brad has been instrumental in the development and success of our business as one of Australia’s leading superannuation consultancies,” she said.

“He leaves an experienced and committed team that I am proud to now have the opportunity to lead.”

Having spent 40 years with WTW, Jeffrey said that it had been a challenging, stimulating and thoroughly enjoyable journey.

“As superannuation has evolved, we’ve also evolved and adapted to enable us to continue to help our clients best deliver for their members,” he said.

“I’m grateful for the part I’ve been able to play in our evolution, and doubly grateful for the opportunity to have worked with so many good people.”

Campbell will report to global co-head of the WTW retirement practice John Ball and will be based in Sydney. fs

International

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

Nasdaq proposes diversity rules The major stock exchange has put into motion new rules that will require its companies to have at least one female and one person who identifies as either an underrepresented minority or LGBTQ+ on boards.

Nasdaq has filed the proposal with the US Securities and Exchange Commission that also requests companies to publicly disclose “consistent, transparent diversity statistics” regarding the composition of boards.

For foreign companies and smaller-reporting companies have additional flexibility in satisfying this requirement with two female directors.

Nasdaq said its aim is to provide stakeholders with a better understanding of the company’s current board composition and enhance investor confidence that all listed companies are considering diversity when selecting directors.

Companies will have to include at least two diverse directors on boards or explain the rationale for not meeting that objective.

Firms have one year to publicly disclose board-level diversity from the date the proposal is approved.

RMIT University senior lecturer of finance Angel Zhong says the ASX has a mandated 30% gender diversity target but lags behind.

“Compared to NASDAQ’s new proposal, which includes both gender and racial diversity for each firm, the ASX has a long way to go,” she said.

“Australian firms are on the right track; the latest board diversity statistics by the Australian Institute of Company Directors (AICD) show the percentages of female directors is 26% and 32.1% for the ASX All Ords and the ASX200, respectively.” fs

Racial equity strategy launches Natixis Investment Managers has launched a set of portfolios that aim to identify public companies that promote diversity, equity and inclusion.

Active Index Advisors (AIA) Racial Equity Portfolios tracks the S&P 500 using research and its proprietary data to invest in companies that factor changing US demographics and the economic power of underrepresented populations into their respective business models.

The strategy applies both positive and negative screenings to include companies that aim to achieve greater employee satisfaction, reduce conflicts and improve decision-making processes.

Companies associated with racial inequality and unequal access to health care, environmental controversies, and discriminatory lending practices are excluded.

“The firm believes investments can directly address diversity in its portfolios, and there is credible evidence that companies that are leaders in diversity, equity and inclusion outperform their peers,” Natixis said.

“We believe that investors can be part of the solution to our nation’s racial inequality issues, and we are proud to provide an investment offering that could help divert funds away from fueling racial injustice, and instead focus on promoting equality,” said AIA president and portfolio manager Curt Overway. fs

23

01: Anthony Scaramucci

founder SkyBridge Capital

Former Trump aid launches crypto fund Karren Vergara

T

The quote

Bouts of volatility are inevitable as the asset class matures, but that is a small price to pay for the return vs. risk and correlation attributes.

he former communications director of outgoing US President Donald Trump has launched a cryptocurrency hedge fund.

Anthony Scaramucci01, the founder and managing partner of US$7 billion alternative investment manager SkyBridge Capital, has launched SkyBridge Bitcoin Fund.

The fund is priced using the Bloomberg Bitcoin Cryptocurrency Fixing Rate. The minimum initial amount is US$50,000.

Scaramucci founded SkyBridge Capital 16 years ago, which offers fund of hedge funds products and hedge fund advisory services. It uses a top-down portfolio management strategy and a bottom-up manager selection process.

Fidelity Digital Assets, a subsidiary of Fidelity Investments, is the custodian of the fund, while Ernst & Young act as the auditor.

Scaramucci had a short stint as the White House communications director when he became part or Trump’s 16-person presidential transition team executive committee in November 2016. Scaramucci previously worked at Lehman Brothers and Neuberger Berman.

In a presentation to investors, SkyBridge

lauded the benefits of bitcoin as an emerging asset class.

“We believe the merits for including Bitcoin in investment portfolios as both a profit driver and a hedge to rampant currency debasement have never been more compelling,” it said.

“The future is always uncertain, but the probability that Bitcoin is trading materially higher over the next several weeks, months, and years is exceedingly high. Bouts of volatility are inevitable as the asset class matures, but that is a small price to pay for the return vs. risk and correlation attributes.”

SkyBridge went on to say that the security challenges around bitcoin are largely misunderstood.

“Perhaps the crowning achievements of Bitcoin are the immutability of its coding and decentralised nature of its record keeping. The Bitcoin network has never been hacked. While individual exchanges and accounts have been hacked, those issues were corporate-level issues, not network-related issues.”

SkyBridge did not respond to queries about the current size of the fund and if it is available to Australian investors. fs

PNG super fund to evict settlers Jamie Williamson

Papua New Guinea’s largest superannuation fund claimed victory over a small community which had settled on land owned by the fund more than two decades ago.

Bushwara, a community outside of Port Moresby, was issued eviction notices by Nambawan Super about 12 months ago – some 20 years after people first began living on the three parcels of land that make up the site.

The Bushwara community challenged the super fund in court and, on 16 November 2020, the court ruled in Nambawan Super’s favour, saying those living there must vacate within 120 days, or by March 16.

Justice Anis said the settlers had been led to believe they were buying land from the traditional owners when in fact the land is State land leased to Nambawan Super.

“Land cannot be sold like a chattel or a loaf of bread, nor can anyone just occupy it and try to claim rights over it without proper legal basis,” Anis said.

Nambawan Super said it was disheartening to see that people, including some of its own members, had been taken advantage of by those

who “sold” them the land despite having no legal right to.

“As Papua New Guineans we all understand the value of land – and just as people will fight to protect their traditional land, the fund has fought to protect the State Land Leases we have purchased – so they can be developed and improved for today, and future generations,” the fund said.

The super fund intends to develop master planned suburbs with affordable housing on the site to cater to Port Moresby’s growing population, it said.

“Securing these titles has been a challenging process where Nambawan Super has encountered a series of bureaucratic difficulties with one title still being subject to legal action,” the fund said.

“But with these three key titles no longer in doubt, our team is readying to progress development.”

Nambawan Super purchased the three parcels of land, known as P2156, P2157 and P2159, in 1990. In November 2019 the fund said it was becoming increasingly concerned with the number of settlers claiming to own parcels of the land.

Bushwara is just one of an estimated 200 unplanned settlements within Papua New Guinea. fs

24

News

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

Pendal reports $1.6bn outflows

01: Kirstin Hunter

chief executive Future Super

Kanika Sood

Investors pulled $1.6 billion net from Pendal Group’s strategies in the December quarter, but total funds under management grew 5.4% to hit $97.4 billion as performance picked up.

The net outflows of $1.6 billion were mostly from the JO Hambro Capital Management Business, after investors redeemed $800 million from the UK Dynamic OEIC following its underperformance during COVID-19.

JO Hambro also handed back another $700 million to institutional clients who Pendal says rebalanced their portfolios. Two well-performing strategies saw $300 million in outflows following profit-taking.

Pendal Australia’s net outflows for the period were $200 million. This included $400 million from Australian institutional clients and $100 million from legacy Westpac book.

“We continued to see positive momentum in US pooled funds and the Australian wholesale channel, and pleasingly we have had strong initial support for the Regnan Global Equity Impact Solutions strategy with the recently launched UK OEIC fund approaching $100 million in client money by the end of the quarter,” Pendal Group chief executive officer Emilio Gonzalez said.

“Investor sentiment in the UK and Europe and investment performance in our JOCHM valueoriented funds improved in the second half of the quarter.” fs

Legacy pensions score win The SMSF Association has welcomed a new law that will allow the partial commutation of legacy pensions.

The change was announced in the federal government’s mid-year economic and fiscal outlook (MYEFO), which was released last December.

Retirees with legacy products, who were previously unable to commute amounts exceeding their transfer balance cap, will be able to undertake a partial commutation.

“It also ensures appropriate tax outcomes for these retirees given their prior inability to comply with the TBC rules,” MYEFO documents show.

“The government is amending the law to ensure that retirees who have commuted and restarted certain market-linked pension, life expectancy pension and similar products are treated appropriately under the transfer balance cap.”

SMSFA deputy chief executive and director of policy and education Peter Burgess said the change will be appreciated by a minority of SMSFs affected. “[We]don’t believe the TBC rules work effectively in situations where a lifetime or life expectancy complying pension is converted to a market-linked income stream and the commencement value of the market-linked pension exceeds the member’s TBC.” The SMSFA highlighted several inequities still exist in the need to retrospectively apply a new commutation formula to market-linked incomes streams that have been commuted and restarted on or after 1 July 2017. fs

Super fund supports deidentified recruitment Elizabeth McArthur

F

The quote

At the beginning of 2019, more than 60% of our team were men and, even without any tracking of the share of our team who identified as people of colour, it was easy to see we were overwhelmingly white.

uture Super, the $1 billion ethical retail fund, has shared how its deidentified recruitment has helped boost diversity.

Future Super head of group strategy Veronica Sherwood-Meares said on LinkedIn that Future Super now does not look at CVs or resumes when hiring.

“At Future Super, we’re working to deliver a future free from climate change and inequality, and our actions need to match our words. However, our track record with the diversity of our own team hasn’t always been great,” she said.

“At the beginning of 2019, more than 60% of our team were men and, even without any tracking of the share of our team who identified as people of colour, it was easy to see we were overwhelmingly white.”

But she said that since then the fund has managed to transform its diversity for the better.

“Of the 15 new hires we had in 2020, 53% are women (we recognise this doesn’t speak to gender identities that sit outside the binary, and we hope to explore that over time, too), and 73% self-report as being a person of colour,” Sherwood-Meares said.

She said it comes down to a recruitment platform which deidentifies applications.

Through this process, the risk of unconscious bias colouring hiring choices is removed.

The new recruitment style also sees the fund focus on asking questions of candidates that are

based on testing the skills required for the job.

This means candidates are less likely to be chosen purely on where they have worked in the past, rather on the skills they have acquired through their experience.

“It’s really tempting to ask someone where they’ve worked in the past instead of crafting questions which test for the skills required for the job, but we’ve gotten used to sticking to the theory over time,” she said.

Future Super’s new hiring statistics are a marked improvement on the previous year.

In February 2020, the fund’s review of its efforts to increase diversity found that the gender pay gap had actually increased in favour of men from 12% to 17%.

Future Super co-founder and chief executive Kirstin Hunter 01 said the new approach is all about focusing on the candidate, not just the CV. “Future Super exists to create a future free from climate change and inequality. We’ve shifted the way we hire, recruitment is generally consciously bias, we’re deidentifying the system, we’re focusing on candidate versus CV,” Hunter told Financial Standard.

“Since adopting this, in under two years, we’ve transformed the way we hire. We are on the ongoing journey of making Future Super more accountable for the inclusion of our team, and we acknowledge that we’ve still got a huge amount of work to do, we hope the industry follows.” fs

Macquarie IM the nation’s largest investment manager Karren Vergara

Macquarie Investment Management has knocked off AMP Capital as the largest Australian-owned fund manager according to asset size, new Rainmaker data reveals.

AMP Capital suffered a $40 billion drop in funds under management in the year to September 2020, ending the period with $107.1 billion.

This opened the top spot for Macquarie Investment Management, which had $125.7 billion in assets, Rainmaker’s quarterly Institutional Roundup report shows.

IFM Investors ($103.6bn) finished in the third spot, followed by Challenger ($88.9bn), QIC ($72.5bn), Victorian Funds Management Corporation ($64bn) and Pinnacle Investment Management ($61.7bn).

Macquarie manages the largest amount of domestic investments, taking up over half of its portfolio at $86.2 billion. First Sentier Investors

($85.3bn) comes second in terms of locally managed assets, followed by IFM ($80.3bn).

Overall, the exchange-traded products (ETP) segment climbed 27.2% year on year, while listed investment companies (LIC) contracted 2.2% year on year.

Indexed investments surged above $500 billion after falling under this threshold in the previous two quarters.

Accounting for foreign companies, State Street Global Advisors is the largest global fund manager in Australia with $174.9 billion in assets. Vanguard, which had $150.7 billion, came in second despite experiencing a $10.3 billion outflow. Macquarie placed third, followed by AMP Capital.

“Australia’s total FUM market, including overseas sourced and sub-advisory, amounts to $4.3 trillion,” the report read.

Australian-sourced FUM reached $2.7 trillion at September end. fs

Between the lines

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

Iress scores mandate

25

01: Alison Tarditi

chief investment officer Commonwealth Superannuation Corporation

Jamie Williamson

A privately owned dealer group home to more than 70 financial advisers has partnered with Iress to provide a streamlined compliance solution.

FYG has adopted Iress’ data analytics solution, Lumen. The Lumen software scans for risks such as non-compliance with ongoing service and FDS obligations, which in turn reduces the need to rely on internal resources.

According to Rainmaker data, FYG currently has 75 financial advisers on its books servicing about 9000 clients.

“Iress has enabled FYG to move towards an automated risk-based compliance model, allowing us to monitor all advice activity for key risks and using this as quantitative inputs to the file review and adviser audit process,” FYG general manager Andrew Wootton said.

“As a result, we can more efficiently ensure advisers’ service obligations are met, fees are appropriately charged, and a myriad of other Best Interest Duty risks are mitigated.”

FYG sees significant opportunities to expand its use of Lumen, including across business intelligence, revenue and client insights, he added.

Also commenting, Iress sales and delivery director for Lumen Stuart Frith said the business is delighted to be working with FYG. “Lumen’s powerful data analytics capabilities make it easy for licensees to meet ever-evolving obligations, resulting in a more responsible and robust financial advice system,” he said. fs

Commonwealth Super awards mandate for new strategy Elizabeth McArthur

C The quote

CSC is our first Australian client and joins a growing roster of forward-thinking investors who are addressing the issues of environmental risk in their portfolios.

SC and Osmosis Investment Management have partnered to launch a Resource Efficient Core Equity Portfolio (exAustralia). The portfolio will aim to mitigate environmental risks while targeting a better risk-adjusted return.

“CSC seeks to manage all of the investment risks in our portfolio to ensure the robustness and sustainability of our customers’ retirement incomes. This includes the mitigation of natural-resource misuse by companies,” CSC chief investment officer Alison Tarditi 01 said.

“To implement this, we have appointed Osmosis because they have a robust, effective and objective methodology for discerning and reducing such risks to deliver robust financial returns and promote efficient use of energy, water and scarce resources.”

Osmosis said the portfolio will be 60% more

Rainmaker Mandate top 20

resource efficient than the MSCI World (exAustralia) benchmark.

“CSC is our first Australian client and joins a growing roster of forward-thinking investors who are addressing the issues of environmental risk in their portfolios, while simultaneously targeting a better risk-adjusted return, to meet the long-term funding requirements of their customers,” Osmosis chief executive Ben Dear said.

“Announcing this partnership with CSC further underscores our firm’s investment philosophy and thesis, that economic and environmental returns need not be mutually exclusive, and that resource efficient firms outperform their same sector peers.”

The portfolio will be aligned with CSC’s exclusion policy and in line with Osmosis’ ethical exclusion list, which includes tobacco and all companies that are in breach of the UN Global Compact Principles. fs

Note: Largest investment mandate appointments of 2020

Appointed by

Asset consultant

Investment manager

Mandate type

Health Employees Superannuation Trust Australia

Frontier Advisors

State Street Global Advisors Australia Limited

Australian Equities

2,125

State Super (NSW)

Frontier Advisors

Lendlease Investment Management (Australia) Pty Limited

Unlisted Property

2,002

LGIAsuper

JANA Investment Advisers

QIC Limited

Cash

1,015

MTAA Superannuation Fund

Whitehelm Capital

State Street Global Markets

International Equities

981

Aware Super

Willis Towers Watson

IFM Investors Pty Ltd

Infrastructure

930

Aware Super

Willis Towers Watson

Ardea Investment Management Pty Limited

Fixed Interest

850

State Super (NSW)

Frontier Advisors

Alphinity Investment Management Pty Ltd

Australian Equities

804

LGIAsuper

JANA Investment Advisers

Other

International Equities

709

State Super (NSW)

Frontier Advisors

Ausbil Investment Management Limited

Australian Equities

703

ANZ Australian Staff Superannuation Scheme

Willis Towers Watson

Other

International Equities

644

LGIAsuper

JANA Investment Advisers

K2 Asset Management Ltd

Alternative Investments

636

MyLifeMyMoney Superannuation Fund

JANA Investment Advisers

Antares Capital Partners Ltd

Cash

600

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Challenger Limited

International Equities

592

Energy Super

JANA Investment Advisers

Robeco

Enhanced Indexed Global Equities

578

Aware Super

Willis Towers Watson

Fidelity International Limited

International Equities

557

Retail Employees Superannuation Trust

JANA Investment Advisers

First State Investments

International Equities

461

Mirae Asset Global Investments (Australia) Pty Ltd

Other

Australian Equities

446

Aware Super

Willis Towers Watson

First Sentier Investors

International Equities

431

Aware Super

Willis Towers Watson

C WorldWide Asset Management Fondsmaeglerselskab A/S

International Equities

403

Construction & Building Unions Superannuation

Frontier Advisors

Oaktree Capital Management, LLC

Alternative Investments

Amount ($m)

381 Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01 PERIOD ENDING – 30 NOVEMBER 2020

Size 1 year 3 years 5 years

Size 1 year 3 years 5 years

Fund name

Fund name

Managed Funds

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

GROWTH

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

CAPITAL STABLE

Vanguard Diversified High Growth Index ETF

610

10.5

1

Vanguard Diversified Growth Index ETF

326

4.0

MLC Horizon 7 Accelerated Growth

105

0.8

3

9.1

2

15

8.4

3

10.5

1

Vanguard Conservative Index Fund

Fiducian Growth Fund

170

5.3

2

8.3

4

9.2

3

3468

3.7

7

8.1

5

9.2

IOOF MultiMix Growth Trust

657

3.8

5

8.1

6

Fiducian Ultra Growth Fund

221

6.4

1

7.6

5945

4.0

4

10

1.4

MLC Wholesale Horizon 6 Share

280

1.0

Sector average

524

1.2

Vanguard High Growth Index Fund

Vanguard Growth Index Fund BT Multi-Manager High Growth Fund

3.7

6

Macquarie Capital Stable Fund IOOF MultiMix Moderate Trust

28

9.8

1

7.1

1

6.4

3

587

2.9

7

5.9

2

6.5

1

2777

4.0

2

5.7

3

5.9

5

Fiducian Capital Stable Fund

349

3.9

3

5.3

4

5.3

8

4

Dimensional World Allocation 50/50 Trust

593

2.4

12

5.0

5

6.4

4

8.9

5

IOOF MultiMix Conservative Trust

661

3.5

6

4.9

6

5.4

6

7

9.2

2

UBS Tactical Beta Fund - Conservative

85

3.7

4

4.9

7

4.8

10

7.5

8

8.2

8

Perpetual Diversified Growth Fund

96

2.5

8

4.8

8

5.3

9

11

7.0

9

8.4

7

Perpetual Conservative Growth Fund

343

2.4

10

4.4

9

4.6

11

13

7.0

10

8.5

6

BT Multi-Manager Conservative Fund

30

1.2

14

4.2

10

4.5

12

6.0

7.2

4.4

5.1

6.5

Sector average

393

2.6

CREDIT

BALANCED Macquarie Balanced Growth Fund

770

8.6

3

8.4

1

8.9

1

Principal Global Credit Opportunities Fund

245

11.4

1

6.8

1

Ausbil Balanced Fund

125

2.4

14

7.8

2

7.9

5

VanEck Vectors Aust. Corp. Bond Plus ETF

256

4.5

6

5.9

2

Fiducian Balanced Fund

434

5.2

5

7.8

3

8.5

2

Pendal Enhanced Credit Fund

423

4.4

7

5.3

3

5.0

5

1848

4.1

10

7.5

4

8.0

4

Vanguard Australian Corp Fixed Interest Index

169

4.1

10

5.3

4

5.1

4

BlackRock Global Allocation Fund (Aust)

560

13.5

1

7.2

5

7.4

9

Metrics Credit Div. Aust. Sen. Loan Fund

2389

4.9

4

5.1

5

4.9

6

BlackRock Tactical Growth Fund

517

4.1

9

7.1

6

7.1

12

449

3.8

11

5.0

6

88

1.0

27

7.0

7

7.8

7

89

1.4

20

4.6

7

5.8

2

323

4.2

7

6.8

8

1500

5.0

3

4.4

8

4.7

7

5882

4.2

8

6.8

9

7.2

10

Franklin Australian Absolute Return Bond

543

4.5

5

4.4

9

4.1

11

BlackRock Diversified ESG Growth Fund

292

1.6

22

6.5

10

8.5

6

PIMCO Australian Short-Term Bond Fund

544

2.8

13

3.8

10

3.5

15

Sector average

673

2.4

5.2

6.5

Sector average

652

3.5

3.7

4.0

IOOF MultiMix Balanced Growth Trust

SSGA Passive Balanced Trust Vanguard Diversified Balanced Index ETF Vanguard Balanced Index Fund

Vanguard Aust Corp. Fixed Interest Index ETF Yarra Enhanced Income Fund PIMCO Global Credit Fund

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

1

Source: Rainmaker Information

Lifecycle super’s ticking clock ifecycle super started with so much promise LWhen and such a compelling value proposition. you’re young you can afford to take

Brumbie

By Alex Dunnin alex.dunnin@ financialstandard .com.au www.twitter.com /alexdunnin

investment risks to reap long-run investment rewards. When you’re older, you’re concerned about protecting capital, so you want your money invested conservatively.

We learned this in the Global Financial Crisis when many older superannuation fund members, particularly those who were naively invested into non-diversified equity portfolios, suffered huge losses.

Recall that back then the MySuper default index crashed to an awful 22%, leaving a scar on the minds of millions of savers that would last a generation.

Lifecycle superannuation purpose-built to stop this ever happening again seemed the perfect ‘you-can-have-your-cake-and-eat-it’ solution. It was enough to make many of us ignore the implicit opportunity costs lifecycle investment strategies bake-in.

Like the power of compound interest, but in reverse. As you get older, say around your late 40s and your account balance starts building momentum, those annual performance returns exponentially supercharge your savings growth.

But lifecycle products dial-down fund mem-

bers’ investment risks, pushing them into low return conservative investment strategies that put on the brakes just as the superannuation Ferrari is turning into the home straight.

The impact of this, according to analysis published by Rainmaker late last year, was that the typical member of a lifecycle MySuper product, if they were to get age-based index returns through their working life, would retire at age 70 with 22% less than a typical member of a single strategy MySuper product.

The villain here is not lifecycle investing per se but the low returns they, as a group, deliver. Rainmaker analysis routinely shows that too many lifecycle products fail to deliver their promise.

While lifecycle products are meant to get high returns when members are young, as at June 2020, the only age cohort for which the lifecycle performance index beat the single strategy index over five years was for members younger than 20.

This means the only members benefiting from lifecycle investing are those with pretty much no money in their accounts.

Older members five, 10 or 15 years from retirement meanwhile got index returns only half what the single strategy index delivered. Sure it makes sense for pre-retiree fund members to get lifecycle index returns lower than they’d get

from the single strategy index, but for it to happen to younger members too means something went horribly wrong.

Not for all lifecycle products mind you. Just among those suffering repeat low performance, some of which are Australia’s lifecycle power brands. You know, the ones that used lifecycle investment strategies in the years following 2013 to reboot their default superannuation credentials.

Showing the extent of the problem, while there is normally a 2:1 ratio gap between the best and worst performing lifecycle products for each of the age cohorts younger than age 40, for members in their 50s and 60s the ratio gap explodes out to 3:1.

Just look at APRA’s latest heatmap. The colour mosaic it paints of the lifecycle sector compared to the one it paints for single strategy products is not a pretty sight, unless of course you like orange and red.

Lifecycle advocates have in the past tried to defend themselves against these claims naively saying you can’t compare lifecycle products. But that lame dog just ain’t gonna hunt no more.

With an emboldened under-pressure regulator looking for sacrificial funds to hang out to dry in the public square, low performing lifecyclers don’t have much time to turn this around.

Giddyup. fs

Super funds

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01 PERIOD ENDING – 30 NOVEMBER 2020

Workplace Super Products

1 year

3 years

% p.a. Rank

5 years

SS

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

GROWTH INVESTMENT OPTIONS

27

* SelectingSuper [SS] quality assessment

1 year % p.a. Rank

3 years

5 years

SS

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

GROWTH INVESTMENT OPTIONS

UniSuper - Sustainable High Growth

9.0

2

11.4

1

10.8

1

AAA

UniSuper Pension - Sustainable High Growth

10.2

1

12.6

1

12.1

1

AAA

UniSuper - High Growth

6.7

3

9.7

2

10.7

2

AAA

UniSuper Pension - High Growth

7.1

5

10.8

2

11.8

2

AAA

HESTA - Sustainable Growth

6.5

4

9.0

3

9.7

5

AAA

Suncorp Brighter Super pension - MM High Growth Fund

8.3

2

10.3

3

AAA

Cbus Industry Super - High Growth

5.8

5

8.2

4

9.9

3

AAA

HESTA Income Stream - Sustainable Growth

7.2

4

9.9

4

10.6

5

AAA

Equip MyFuture - Growth Plus

4.8

9

8.1

5

9.6

6

AAA

UniSuper Pension - Growth

6.3

7

9.7

5

10.4

7

AAA

AustralianSuper - High Growth

4.7

12

7.9

6

9.1

7

AAA

Cbus Super Income Stream - High Growth

6.2

9

9.3

6

11.1

3

AAA

Australian Ethical Super Employer - Growth

4.3

14

7.9

7

7.9

38

AAA

Vision Income Streams - Growth

5.9

10

8.9

7

10.0

10

AAA

HOSTPLUS - Shares Plus

5.0

8

7.9

8

9.9

4

AAA

Equip Pensions - Growth Plus

4.9

17

8.8

8

10.4

6

AAA

Vision Super Saver - Growth

5.4

6

7.9

9

8.9

10

AAA

Australian Ethical Super Pension - Growth

4.7

19

8.8

9

8.7

42

AAA

Aware Super Employer - High Growth

4.4

13

7.8

10

9.0

8

AAA

AustralianSuper Choice Income - High Growth

5.3

14

8.7

10

10.0

8

AAA

Rainmaker Growth Index

1.5

Rainmaker Growth Index

2.0

6.7

8.1

6.0

7.3

BALANCED INVESTMENT OPTIONS

BALANCED INVESTMENT OPTIONS

UniSuper - Sustainable Balanced

7.1

1

9.3

1

8.7

1

AAA

UniSuper Pension - Sustainable Balanced

8.2

2

10.5

1

9.9

1

AAA

Australian Ethical Super Employer - Balanced (accumulation)

6.1

3

8.1

2

7.6

13

AAA

Future Super - Balanced Growth Pension

8.8

1

9.8

2

8.2

17

AAA

Australian Catholic Super Employer - Socially Responsible

6.5

2

7.9

3

7.1

36

AAA

Suncorp Brighter Super pension - MM Growth Fund

7.9

3

9.4

3

AAA

UniSuper - Balanced

4.4

8

7.9

4

8.5

2

AAA

UniSuper Pension - Balanced

5.0

8

9.0

4

9.6

2

AAA

AustralianSuper - Balanced

3.8

12

7.3

5

8.4

3

AAA

Australian Catholic Super RetireChoice - Socially Responsible

6.9

4

9.0

5

8.2

19

AAA

CareSuper - Sustainable Balanced

4.6

7

7.2

6

7.5

19

AAA

Cbus Super Income Stream - Growth (Cbus Choice)

4.8

9

8.1

6

9.5

3

AAA

Sunsuper Super Savings - Balanced Index

4.2

9

6.9

7

7.4

21

AAA

AustralianSuper Choice Income - Balanced

4.2

15

7.9

7

9.2

5

AAA

Cbus Industry Super - Growth (Cbus MySuper)

4.2

10

6.9

8

8.3

4

AAA

Sunsuper Income Account - Balanced Index

4.7

10

7.9

8

8.4

13

AAA

FES Super - Smoothed Option (Hybrid)

3.7

14

6.9

9

6.8

47

AAA

CareSuper Pension - Sustainable Balanced

4.4

12

7.9

9

8.1

22

AAA

AustralianSuper - Indexed Diversified

3.7

15

6.8

10

7.4

23

AAA

Australian Ethical Super Pension - Balanced (pension)

5.9

6

7.8

10

7.4

47

AAA

Rainmaker Balanced Index

1.9

Rainmaker Balanced Index

2.3

5.4

6.3

CAPITAL STABLE INVESTMENT OPTIONS

6.0

6.9

CAPITAL STABLE INVESTMENT OPTIONS

QSuper Accumulation - Lifetime Aspire 2

2.2

24

6.7

1

7.3

2

AAA

Suncorp Brighter Super pension - MM Balanced Fund

6.7

1

7.5

1

AAA

VicSuper FutureSaver - Socially Conscious

4.8

1

6.5

2

7.6

1

AAA

VicSuper Flexible Income - Socially Conscious

4.3

6

7.2

2

8.1

1

AAA

Vision Super Saver - Balanced

4.4

2

6.2

3

7.1

3

AAA

Cbus Super Income Stream - Conservative Growth

4.8

5

7.2

3

8.0

2

AAA

AustralianSuper - Conservative Balanced

3.4

5

6.0

4

6.8

4

AAA

Vision Income Streams - Balanced

5.0

4

7.0

4

7.9

3

AAA

Cbus Industry Super - Conservative Growth

3.8

3

5.9

5

AAA

AustralianSuper Choice Income - Conservative Balanced

4.0

9

6.8

5

7.8

5

AAA

TASPLAN - OnTrack Control

1.2

59

5.9

6

AAA

QSuper Income - QSuper Balanced

1.4 109

6.5

6

7.8

4

AAA

TASPLAN - OnTrack Maintain

1.9

35

5.5

7

AAA

LUCRF Pensions - Moderate

4.0

8

6.1

7

6.8

9

AAA

StatewideSuper - Conservative Balanced

2.7

13

5.4

8

6.3

6

AAA

Suncorp Brighter Super pension - MM Conservative Fund

5.2

3

6.1

8

AAA

VicSuper FutureSaver - Balanced

2.0

29

5.3

9

6.4

5

AAA

VicSuper Flexible Income - Balanced

2.4

56

5.9

9

6

AAA

NGS Super - Balanced

2.4

17

5.3

10

6.1

7

AAA

TASPLAN Tasplan Pension - Moderate

1.2 119

5.9

10

AAA

Rainmaker Capital Stable Index

1.4

Rainmaker Capital Stable Index

1.8

4.0

4.5

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

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

WORKPLACE SUPER | PERSONAL SUPER | RETIREMENT PRODUCTS

Compare superannuation returns across asset classes using over 28 years of industry insights and research with SelectingSuper’s performance tables.

Simply visit selectingsuper.com.au/tools/performance_tables

4.3

7.2

4.8

Source: Rainmaker Information www.rainmakerlive.com.au

28

Economics

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

The virus, the vaccine and the variant Ben Ong

A

bout this time last year, the world was alerted – but only mildly alarmed – at yet another SARS-like disease spreading in Wuhan, China (the first confirmed case reported on December 8).

The world considered the infections as a Chinaonly epidemic and dismissed as not of any greater import than the flu or SARS (Severe Acute Respiratory Syndrome) in 2003 – that infected 17 countries, with a total of 8273 cases reported and 775 deaths – or at the very worst, the swine flu of 2009 – with 58 countries infected, a reported 1,632,258 cases and 19,633 confirmed deaths.

Not even after China put Wuhan – a city of 11 million residents – in lockdown did the wider world take any real notice.

The International Monetary Fund’s (IMF) first World Economic Outlook (WEO) report (released on 20 January 2020) predicted that: “Global growth is projected to rise from an estimated 2.9% in 2019 to 3.3% in 2020 and 3.4% for 2021.”

What’s more telling are what the IMF foresaw as risks to its outlook for 2020: “The balance of risks to the global outlook remains on the downside, but less skewed toward adverse outcomes than in the October WEO. The early signs of stabilisation discussed above could persist, leading to favorable dynamics between still-resilient consumer spending and improved business spending. Additional support could come from fading idiosyncratic drags in key emerging markets coupled with the effects of monetary easing and improved sentiment following the “Phase One” US-China trade deal, with the associated partial rollback of previously implemented tar-

iffs and a truce on new tariffs. A confluence of these factors could lead to a stronger recovery than currently projected.”

What a difference a few months make.

The World Health Organisation (WHO) named the virus COVID-19 on February 11 last year and declared it a pandemic exactly a month after on 11 March 2020.

No need to narrate and describe what happened thereafter. You, I and Irene and our neighbours went through what happened next – social isolation, lockdowns, panic buying (of toilet papers, mostly) – and the fear of losing our lives, livelihood and should we survive the pandemic, our retirement incomes as the global freeze wreaked havoc on our investment portfolios.

Fiscal and monetary authorities prompt and aggressive counter-cycle responses saw us through the year – mitigating impact on businesses and employment – that, at the same time, underwrote gains (or limited the losses in most equity markets.

Punctuated by the roll-out of vaccines towards the dying days of 2020, all looked swell … until the coronavirus variant that was first spotted in the UK and in South Africa.

It’s reportedly less deadly but more infectious and has already triggered renewed lockdowns in Europe and Asia and the new strain has now circled back to China, that in turn, puts a question mark on whether or not a new vaccine would need to be developed against the new strain.

But if we learned anything from 2020, it is that fiscal and monetary authorities would do whatever it takes to preserve our lives, livelihood and finances. fs

Monthly Indicators

Dec-20

Nov-20

Oct-20

Sep-20

Aug-20

Consumption Retail Sales (%m/m)

-

7.11

1.79

-1.52

Retail Sales (%y/y)

-

13.33

7.05

5.17

7.08

13.55

12.39

-1.50

-21.77

-28.78

Sales of New Motor Vehicles (%y/y)

-3.99

Employment Employed, Persons (Chg, 000’s, sa)

-

90.00

180.37

-44.15

163.42

Job Advertisements (%m/m, sa)

-

13.88

11.85

7.45

4.31

Unemployment Rate (sa)

-

6.83

6.99

6.91

6.81

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

-

6.09

3.07

12.14

4.65

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

-

2.56

3.31

17.41

-1.71

Survey Data Consumer Sentiment Index

112.00

107.66

105.02

93.85

79.53

AiG Manufacturing PMI Index

-

52.10

56.30

46.70

49.30

NAB Business Conditions Index

-

8.82

1.98

0.14

-5.81

NAB Business Confidence Index

-

12.38

3.24

-3.17

-7.64

Trade Trade Balance (Mil. AUD)

-

5022.00

6583.00

5658.00

3109.00

Exports (%y/y)

-

-10.38

-12.80

-20.81

-21.70

Imports (%y/y)

-

-9.51

-20.62

-22.36

-15.72

Dec-20

Sep-20

Jun-20

Mar-20

Dec-19

Quarterly Indicators

Balance of Payments Current Account Balance (Bil. AUD, sa)

-

10.02

16.35

7.23

3.45

% of GDP

-

2.06

3.49

1.43

0.68

Corporate Profits Company Gross Operating Profits (%q/q)

-

3.22

15.84

3.02

-3.71

Employment Wages Total All Industries (%q/q, sa)

-

0.08

0.08

0.53

0.53

Wages Total Private Industries (%q/q, sa)

-

0.53

-0.08

0.38

0.45

Wages Total Public Industries (%q/q, sa)

-

0.45

0.00

0.45

0.45

Inflation CPI (%y/y) headline

-

0.69

-0.35

2.19

CPI (%y/y) trimmed mean

-

1.20

1.20

1.70

1.84 1.60

CPI (%y/y) weighted median

-

1.30

1.30

1.60

1.20

Output

News bites

Eurozone PMI The IHS Markit Eurozone Composite PMI improved from the six-month low reading of 45.3 in November but remained in contraction (below 50) to 49.1 in December. The composite PMI was dragged down by the fourth straight month of contraction in the service sector. The IHS Markit Eurozone Services PMI stood at 46.4 in December due to the negative effects of social distancing and travel restrictions on business activity. New orders declined for the fifth straight month in December, along with exports and employment. Meanwhile, the IHS Markit Eurozone Manufacturing PMI strengthened from 53.8 in November to 55.2 in the following month – the highest level since May 2018 – supported by gains in new orders and new export orders.

US ISM index The pace of expansion of business activity

continued to increase despite surging rates of coronavirus infections and deaths in the country that prompted business shutdowns in several states. The ISM manufacturing index jumped from a reading of 57.5 points in November to a 16-month high of 60.7 in December. The seventh consecutive month of improvement in the index was mainly due to increases in new orders (67.9 from 57.5), production (64.8 from 60.8) and employment (51.5 from 48.4). Similarly, the ISM non-manufacturing index rose to 57.2 in December – the highest level in three months – from 55.9 in the previous month, aided by greater business activity (59.4 from 58), increased new orders (58.5 from 57.2) and a rebound in inventories rebounded (58.2 from 49.3).

Japan PMI Similar to the Eurozone, activity in Japan’s service sector remained in contraction, with the au Jibun Bank Japan Services PMI registering a reading of 47.7 points in December from 47.8 in the previous month. This marked the 11th consecutive month of contraction in the sector as the country battled with the third wave of coronavirus infections. Activity in the manufacturing sector was slightly better with the au Jibun Bank Japan Manufacturing PMI rising to 50.0 in December – indicating that the sector was neither expanding nor contracting – from 49.0 in the previous month. This was the highest reading since April 2019 as new orders fell the least in two years. fs

Real GDP Growth (%q/q, sa)

-

3.33

-7.03

-0.28

0.39

Real GDP Growth (%y/y, sa)

-

-3.82

-6.36

1.37

2.16

Industrial Production (%q/q, sa)

-

0.30

-2.91

0.29

0.39

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa) Financial Indicators

-

-3.04

-6.36

-2.04

08-Jan Month ago 3 mths ago 1Yr Ago

-3.04 3 Yrs ago

Interest rates RBA Cash Rate

0.10

0.10

0.25

Australian 10Y Government Bond Yield Australian 10Y Corporate Bond Yield

0.75

1.50

1.09

1.03

1.32

1.30

0.82

1.19

2.62

1.57

1.93

3.15

Stockmarket All Ordinaries Index

7024.2

1.47%

11.39%

1.36%

12.63%

S&P/ASX 300 Index

6744.7

1.19%

10.86%

-0.49%

10.77%

S&P/ASX 200 Index

6757.9

1.05%

10.75%

-0.88%

10.24%

S&P/ASX 100 Index

5577.6

1.16%

11.03%

-1.35%

10.63%

Small Ordinaries

3133.6

1.39%

9.67%

6.58%

11.69%

Exchange rates A$ trade weighted index

63.40

A$/US$

0.7782 0.7414 0.7158 0.6856 0.7838

61.50

60.70

60.30

64.90

A$/Euro

0.6349 0.6120 0.6092 0.6165 0.6544

A$/Yen

80.77 77.19 75.89 74.47 88.55

Commodity Prices S&P GSCI - commodity index

427.56

385.52

359.08

431.04

443.76

Iron ore

169.52

145.04

122.46

94.61

78.00

Gold

1862.90 1868.15 1887.45 1571.95 1319.95

WTI oil

52.73

45.64

41.04

59.65

Source: Rainmaker Information /

61.73

Sector reviews

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

Figure 1. All Ords vs Majors

Australian equities

120 115

S&P 500

2.0

110

Nikkei-225

All Ords

CPD Program Instructions

Figure 2. Budget balance as a % of GDP

INDEX (JAN 2020 = 100)

Stoxx 50

FTSE-100

% OF GDP

1.0

105

0.0

100

-1.0

95 90

-2.0

85

-3.0

80 75

Prepared by: Rainmaker Information Source:

-4.0

70 65 JAN20

MAR20

MAY20

JUL20

SEP20

NOV20

JAN21

-5.0

FISCAL YEAR ENDING

1981

1986

1991

1996

2001

2006

2011

2016

2021

Australian government spending saved money Ben Ong

T

he All Ordinaries index finished 2020 with a gain of 0.7%. Nothing to write home to mother about, especially compared with the 16.3% and 16.0% surge in the S&P 500 and the Nikkei-225, respectively, over the same period.

However, the local bourse’s performance when looked at in the context of the coronavirus pandemic that witnessed a virtual freezing of domestic and international activity.

The benchmark index rallied by 50.1% after dropping to an 8-year low on 23 March 2020 (a 32.9% loss from the start of 2020) boosted by swift monetary and fiscal policy responses.

Among other things, the Reserve Bank of Australia (RBA) lowered the official cash rate from 0.75% to a record low 0.10%; set a target for the yield on 3-year Australian Government bonds of around 0.25 per cent; and established a “term funding facility for the banking system,

International equities

with particular support for credit to small and medium-sized businesses.”

The Morrison government also did its part, unleashing a massive fiscal stimulus. According to the Budget Papers 2020-21, this amounts to “$98 billion in response and recovery support, including $25 billion under the COVID-19 Response Package and $74 billion under the JobMaker Plan”.

As revealed in the Mid-Year Economic and Financial Outlook (MYEFO) – released in December, the Federal Treasury now sees GDP expanding by 0.75% in 2020-21 instead of the 1.5% contraction foreseen in the October Budget.

“The unemployment rate, forecast in the 2020-21 Budget to peak at 8% in the December quarter, is now forecast to peak at 7.5% in the March quarter 2021” before falling to “6.25% by the June quarter 2022, in line with the re-

Figure 1. US stock market indices

Figure 2. Conference Board Consumer confidence

150

200

INDEX (JAN 2020 = 100)

Present situation

160

Consumer confidence

120

100 Nasdaq

80

Russell 2000

70

S&P 500

60

DJIA

50 JAN-20

80 60 40 20

MAR-20

MAY-20

JUL-20

SEP-20

NOV-20

JAN-21

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

No pandemic on Wall Street Ben Ong

P

andemic? What pandemic?

The S&P 500 index the Dow Jones Industrials Average closed the pandemic year 2020 at record highs despite the US still topping the list of countries with most total cases of coronavirus infections (21.3 million or roughly 25% of the world’s total), new cases (154,000), and total deaths (362,000).

The S&P 500 index closed 16.3% in the black for the calendar year 2020, outperforming the Stoxx-50 index (-5.1%), the FTSE-100 index (-14.3%), and the Nikkei-225 index (+16.0%) – more than double its average annual return from 1956 to 2019 of around 8.0% Even more spectacular is the 43.6% surge in the Nasdaq composite index in 2020 and onwards to a fresh record in the first trading day of 2021, boosted by increased demand for “working from home” technologies prompted by social and

business restrictions wrought by the coronavirus.

Wall Street’s 2020 rally is perfectly rationale given vaccine optimism and the removal of Trump (er, the elimination of political uncertainty).

But underlying all these are America’s aggressive fiscal and monetary responses.

The CARES Act, direct payments to households, extended unemployment benefits, the Paycheck Protection Progamme, etc. implemented by the government, along with the Fed’s interest rate reduction and QE, mitigated the negative impact on the economy.

Low and lowered interest rates induced TINA (there is no alternative) trade as investors sought better returns in the stockmarket that, in turn, lifted upward momentum and forced even “unbelievers” into the equity market for “fear of missing out” (FOMO).

Fast forward to 2021. While it’s encouraging that the rate of vaccinations have picked up as of

Australian equities CPD Questions 1–3

1. Which equity market index produced positive returns for all of 2020? a) S&P 500 index b) All Ordinaries index c) Nikkei-225 index d) All of the above 2. What was the RBA official cash rate at the start of 2020? a) 0.75% b) 0.50% c) 0.25% d) 0.10% 3. The Federal Treasury lowered the 2020/21 budget deficit forecast in its MYEFO report. a) True b) False

CPD Questions 4–6

120

90

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].

International equities

Expectations

140

100

Source: Australian Budget Papers 2019-20 /

INDEX

180

130

110

Prepared by: Rainmaker Information

covery in activity, reaching 5.25% by the June quarter 2024.”

“The underlying cash balance is now expected to be a deficit of $197.7 billion (9.9% of GDP) in 2020-21 [down from 11.0% of GDP forecast in the October Budget]. The change in the deficit since the 2020-21 Budget has primarily been driven by improvements in the economic outlook, including higher-thanexpected receipts and a lower-than-expected number of people receiving the JobKeeper Payment. This has been partly offset by additional policy decisions to support the economic recovery and secure access to vaccines,” according to MYEFO. But this optimistic outlook could be truncated by the simmering Sino-Aussie trade tensions, the emergence of the coronavirus variant and the slower and uneven start to the vaccination campaign. fs

140

29

late, Forbes magazine writes that “…at the current daily level of uptake it’s going to take years to vaccinate the American people”.

This implies that the number of states reimposing restrictions to limit infections would continue to expand. More so with Joe Biden as President. Biden’s already announced that he will ask Americans to commit 100 days of wearing masks as one of his first acts as president.

This would put added downward pressure on consumer confidence and by extension, consumer spending.

Already, the Conference Board’s consumer confidence index has dropped to a seven-month low reading of 88.6 in December 2020 – with the present situation index falling to its lowest reading in four months and the end of the year reading for the expectations index, at 87.5, remains below the pre-pandemic freeze score of 106.1 recorded in February 2020. fs

4. Which index outperformed in 2020? a) S&P 500 b) Euro Stoxx-50 c) FTSE-100 d) Nikkei-225 5. What policy/ies mitigated the negative impact of the pandemic on the US economy? a) Aggressive monetary policy b) Massive fiscal spending c) Both a and b d) Neither a nor b 6. US consumer confidence rose sharply in December due to vaccine optimism. a) True b) False

Sector reviews

Fixed interest CPD Questions 7–9

7. When did the EU and the UK sign the post-Brexit agreement? a) 30 January 2020 b) 1 December 2020 c) 24 December 2020 d) 30 December 2020 8. Which equity market performed worse than the FTSE-100 in 2020? a) S&P 500 b) Euro Stoxx-50 c) Nikkei-225 d) None of the above 9. The Bank of England kept monetary policy unchanged in December 2020 a) True b) False Alternatives CPD Questions 10–12

10. What is the Chinese yuan’s psychological threshold? a) CNY5.0 per US$1 b) CNY6.0 per US$1 c) CNY7.0 per US$1 d) CNY8.0 per US$1 11. What indicators show continued improvement in China’s economy in 2020? a) Retail sales b) Industrial production c) Fixed asset investment d) All of the above

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

Fixed interest

Figure 1: FTSE–100 & Sterling 8000

INDEX

7500

Figure 2: UK GDP growth INDEX

Brexit referendum

75

0

80

7000

85

6500

90

COVID- 19

6000

95

5500

Prepared by: Rainmaker Information Prepared by: FSIU Source: Sources: Factset

5

70

FTSE-100

4500

2015

2016

2017

2018

2019

-10 -15

100

Sterling effective exchange rate INVERTED RHS

5000

-5 PERCENT

30

UK- EU Brexit deal 2020

2021

105 110

-20

Quarterly change

Annual change

-25 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Brexit done but COVID is back Ben Ong

B

rexit is over. But even before the UK and the EU shook hands on the post-Brexit trade and cooperation pact on Christmas Eve 2020 and before the ink on the signatures of European Commission President Ursula von der Leyen, European Council President Charles Michel and UK Prime Minister Boris Johnson has dried, Britain’s already battling a fresh outbreak of coronavirus infections.

The third wave is much worse. Worldometers.info data show daily new cases of infections have reached 60,000 persons as at 4 January 2021 – almost double the second wave peak and exponentially more than that of the first.

So far, the British currency’s reaction has been relatively muted. Sterling’s effective exchange rate has depreciated by 2.5% in 2020 –because central banks around the world have been responding almost in unison (through in-

Alternatives

12. The Chinese yuan has appreciated versus the US dollar in 2020. a) True b) False

creased policy accommodation), leaving no single central bank at a relative advantage.

The FTSE-100 index underperformed its peers, dropping by 14.3% in 2020. This compares with gains of 16.3% and 16.0% in the S&P 500 and the Nikkei-225 index, respectively and the Euro Stoxx-50’s 5.1% loss over the year.

Whether or not the FTSE-100 rebounds or sinks deeper this year depends on how quickly the government gets on top of the fresh outbreak and re-imposed lockdowns eased.

Prime Minister Johnson announced a national lockdown starting on January 4 that is expected to stay in place until the middle of February this year. But as Cabinet Minister Michael Gove warned: “We can’t predict with certainty that we will be able to lift restrictions in the week commencing February 15 to 22.”

This risks of another recession in the UK so soon after the economy’s 16.0% recovery in the September quarter, following GDP contrac-

Figure 2: Retail sales, FAI & IP

Figure 1: Chinese Renminbi per US dollar 6.20

tions of 3.0% in the first quarter of 2020 and 18.8% in the second.

To mitigate the fallout, Chancellor Rishi Sunak announced a fresh £4.6 billion (US$8.2 billion) in emergency funds to support retail shops, restaurants and tourism businesses from the re-enforced lockdown.

The fiscal stimulus gives the Bank of England (BOE) some breathing room to assess the recent developments before its scheduled meeting on February 4 this year.

At its December 2020 meeting, the UK central bank voted unanimously to maintain Bank Rate at a record low of 0.1% and the size of its bond-buying program at £875 billion.

Then again, at the time, it expected that: “The successful rollout of vaccines should support the gradual removal of restrictions and rebound in activity that was assumed in the November Report…”

As we know now, restrictions have been even more tightened. Negative interest rates? fs

30

REMINBI

6.40

20

6.60

10

6.80

0

7.00

-10

ANNUAL CHANGE %

ANNUAL CHANGE %

15 10 5 0 -5 -10

Fixed asset investment -LHS Industrial production

Prepared by: Rainmaker Information Prepared by: FSIU Source: IEA / Sources: Factset

7.20

-20

7.40

-30

2017

2018

2019

2020

2021

2014

20

-15

Retail sales

-20 -25 2015

2016

2017

2018

2019

2020

2021

Yuan becomes victim of China success Ben Ong

T

Go to our website to

Submit

All answers can be submitted to our website.

was less than one and a half years ago that the US Treasury Department branded China a “currency manipulator” – the first time in 25 years – because the yuan’s depreciation gives China an “unfair competitive advantage in international trade.”

The US Treasury’s decision came following the Chinese currency’s fall beyond the psychologically important level – and the threshold Beijing authorities are willing to tolerate before intervening – of RMB7.0 to US$1.0 to an 11year low 7.1087 in August 2019.

To be sure, America’s Treasury dropped the designation in January 2020 because “China has made enforceable commitments to refrain from competitive devaluation and not target its exchange rate for competitive purposes”.

That was before the coronavirus pandemic.

Compared with other nations around the globe, the Politburo’s swift, decisive and dra-

conian 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 data show the economy continues to improve.

The annual growth in Chinese retail spending accelerated to 5.0% in November from 4.3% in the previous month, for its eight straight month of improvement.

Industrial production strengthened to 7.0% in the year to November – the fastest annual growth rate in 20 months from 6.9% in October.

Likewise, November figures show the annual growth in fixed asset investment picked up by 2.6% in November, strengthening from October’s 0.8% year-on-year gain – the second

consecutive month that it had been in the black following seven straight months of contraction and a sharp recovery from the 24.5% drop recorded in February this year.

China’s success has, in turn, revved up demand for its currency. The Chinese yuan has appreciated by 6.5% to RMB6.5398/US$1 last year – the highest since Trump started the Sino-US trade war in 2018 – and by 9.5% from its 2020 low.

The yuan’s sharp appreciation has prompted the South China Morning Post – considered the central government’s mouthpiece – to report that, in addition to earlier diktats aimed at limiting/reversing the yuan’s appreciation, the government would relax rules on cross-border yuan use, effectively making it easier for companies, outbound investors and individuals to settle in yuan internationally effective on February 4.

China’s currency has become the victim of China’s success. fs

Sector reviews

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: NHFIC

here is set to be one million fewer people livT ing in Australia in 2025 than anticipated prepandemic, which experts predict will lead to a fall in new demand for housing of 286,000 dwellings.

That is a key finding of the National Housing Finance and Investment Corporation’s (NHFIC) first State of the Nation’s Housing report, released on December 15, with the fall predicted to recover slightly by 2025 to 148,000.

COVID-19 has caused the largest shock to Australia’s population growth since early last century, the report reads, and government boosts to the construction industry may well lead to an oversupply issue. Despite record levels of residential construction in recent years, supply was already outpacing demand, though by only 4500 dwellings between 2017 and 2019.

This is expected to increase to 127,000 in 2021 and 68,000 in 2022.

For Sydney and Melbourne, supply is expected to exceed demand by almost 60,000 dwellings in the former and 70,000 in the latter across 2021 and 2022 before demand increases in 2023. The impact will be more modest in

Housing supply to outweigh demand in years to come Jamie Williamson

Brisbane, while demand will increase sooner in Perth and Adelaide, but the supply response will likely be subdued resulting in a net undersupply beyond 2022, the NHFIC said.

As a result of the findings, rents in Sydney and Melbourne are expected to suffer and affordability will improve over the next two years, particularly given the impacts on migration the pandemic will likely continue to have.

Between March and October 2020, the Melbourne suburb of Carlton saw the largest rise in total rental listings with a 146% increase. It also had the second most significant reduction in median asking rent, plummeting 26%. This was largely attributed to the shortage of international students as a result of travel restrictions.

This impact on affordability is not likely to spill over for those looking to purchase a property however, though first-time buyers are taking advantage of stimulus measures and low interest rates to get their foot in the door.

Looking at apartments, there is no expectation that supply and demand will return to preCOVID levels over the next four years. In 2025,

www.financialstandard.com.au T: +61 2 8234 7500 F: +61 2 8234 7599 A: Level 7, 55 Clarence Street, Sydney, NSW, 2000, Australia

demand is expected to be two-thirds of what it was in 2019, while supply will be almost half.

Welcoming the report, the Real Estate Institute of Australia (REIA) president Adrian Kelly said: “With housing affordability recognised as a policy priority, it is very pleasing that NHFIC has filled that void with this much needed comprehensive analysis of factors influencing demand and supply and thus affordability.”

Despite the headwinds faced, Australia’s housing market still recorded growth in 2020, and REIA expects this to continue in 2021, largely driven by the strength of regional property as people look to leave capital cities.

“Even though growth in new dwelling investment is unlikely in the 2020/21 fiscal year, given the lags between building approvals and construction activity, the forecast for dwelling investment has been revised from -4% in the Pre-election Economic and Fiscal Outlook to -3.5% in MYEFO,” he said.

With predictions of an August 2021 federal election, measured commitments for property policy are needed going forward, Kelly added. fs

15. The REIA expects Australia’s housing market to continue its growth during 2021. a) True b) False

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32

Profile

www.financialstandard.com.au 25 January 2021 | Volume 19 Number 01

MAKING AN IMPACT Melior Investment Management chief executive Lucy Steed doesn’t do things by accident; she has always known what she is good at and where her path is. But a few years ago, she was forced to align her head with her heart. Elizabeth McArthur writes.

ucy Steed was in a senior role at BT, parL enting three children and always on the go, when things suddenly changed.

Steed had a health scare. The scare forced her to look at how she was living with fresh eyes.

She was part-time in her role at BT and Steed says, as many parents will relate to, she often felt like she wasn’t doing a particularly good job at work or at home.

“It was a catalyst for me. I decided life is too short. I took over a year off and spent time with my family,” she says.

Steed has three daughters and says spending that period as a full-time mum was special.

It was during this time that Steed first heard about impact investing.

“At that time, it was pretty embryonic. There weren’t many people in the Australian market doing it,” she says.

“The opportunity to connect head with heart really appealed to me. I was questioning more and more, ‘what’s it all about?’”

“I really thought the ability to have competitive returns and deliver social environmental impacts was the holy grail.”

So, Steed started dipping her toe back into professional life with a new purpose and specificity.

She arranged to have coffee with people who were involved in impact investing, including Rob Koczkar who was, at the time, chief executive of Social Ventures Australia.

“We really agreed that there was a significant gap in terms of product offerings in the public equity space, and that corporate Australia had a significant role to play in driving forward environmental and social impacts,” she says.

Through Koczkar, Steed was able to meet Tim King who would go on to co-found Melior with her.

The word ‘melior’ is latin for ‘better’. Better investment management is the philosophy behind the manager.

There’s also a 19th century philosophy called meliorism, which is the belief that the world can be made better through human efforts.

Steed and King established Melior in 2018 with a focus on delivering positive impact, rather than just avoiding harm. In its first year, the fund managed to outperform the benchmark by 940 basis points after fees.

Steed points to the work of Michael Traill as being an influence on her. Triall’s book Jumping ship: From the heart of corporate Australia to the world of social investment includes a call to arms that spoke to Steed.

“We need to find ways to deal with the scale and liquidity issues of impact investing, we need to take impact investing mainstream, and that really connected with me. And so, when I read that I said, ‘that’s what I’m going to do’, I’m going to take impact investing mainstream,” Steed says.

Steed had worked in some of Australia’s largest financial institutions before her impact investing journey started.

Once the seed was planted in her mind and Steed started meeting people in the industry, she found that people working in the impact space were generous with their time and seemed to genuinely want more people to get involved.

“One of the big things I did was buy a ticket to an impact investing summit. It was a big investment for me, I had to spend over $1000 to buy a ticket. When you’re in a corporate those kinds of things aren’t a big deal but for me, being at home, that was a big investment,” she says.

“It was a huge opportunity. It turned out that was where the early movers in impact investing were and that’s how I was able to gain insights and get a sense of the market.”

Now, that same conference is generally sold out.

While Melior is still young, the performance of its Australian Impact Fund has been strong, ranking in the top 10 large cap Australian equities managers in FY20, according to Rainmaker Information.

Steed and King founded Melior with backing from the founders of Adamantem Capital, Koczkar and Anthony Kerwick.

“We’re just at the start of our journey. I look at a company like Magellan - which is 10 years old now - and they’re achieving so much. I love that I’m on the start of that journey,” Steed says.

“I have no intention of leaving it. I hope for success with Melior. I want to stay in this role and build a successful impact offering. It excites me to think where it would be in 10 years.”

As the popularity of impact investing grows, Steed is sure that Melior is onto a good thing.

“Younger people have been disengaged with super in the past. But when you have offerings such as impact investing, funds find this new ability to engage. Members are really interested in hearing positive stories,” she says.

While Melior does not have a super fund on the books yet, Steed is sure that impact investing that provides social and financial returns will continue to be something funds are interested in.

Her certainty about Melior’s future is like the assuredness she has had in her own path.

Steed’s father is an accountant, and she says she had a mind for numbers and business early on. She completed a Bachelor of Commerce straight out of high school and went on to study a Master of Commerce Finance and Banking.

She was a studious young person, perhaps encouraged by the fact her mother taught English and history.

In her part-time jobs, at a delicatessen and an ice cream shop, Steed says she’s “not sure I was particularly good. It’s good to have some part time jobs but it probably wasn’t my strength”.

One passion has stayed with Steed her whole life - ocean swimming.

“It’s something I find therapeutic; it helps me disconnect… I like

The opportunity to connect head with heart really appealed to me... the ability to have competitive returns and deliver social environmental impacts was the holy grail.

Lucy Steed

to be near the ocean, that’s my happy place,” she says.

Steed regularly completes three and a half kilometre swims. She understatedly refers to a Hamilton Island swim she did a couple of years ago as “a bit nerve wracking” because there had recently been three shark attacks in the area.

To make matters worse, once she was on the boat heading to the start of the race, she found out there were also saltwater crocodiles and box jellyfish in the water.

Steed tells the story with a laugh; it seems the incident was water off her back.

Speaking about the health scare that forced her to rethink her career, Steed now sees the bright side of that too.

“In a way, I’m fortunate that I had that catalyst that made me change things. Sometimes you’re not that happy and you’re finding things difficult, but you just don’t know what to do,” Steed says.

“Not everyone gets the opportunity to step back. It probably let me see the wood for the trees in terms of becoming more innovative in my approach.” fs