Financial Standard Volume 19 Number 05

www.financialstandard.com.au

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Chief Economists Forum 2021

Australian equities

AMP, Montgomery, Fidante Partners

Opinion:

Events:

Events:

uperannuation trustees and financial advisS ers must beef up their expertise on cryptocurrencies and non fungible tokens as both start to gain ground with SMSF investors.

Non fungible tokens, or NFTs, have been dominating headlines recently as everyone considers the potential applications and implications of the new technology.

For some it may seem silly but for others, like BTC Markets chief executive Caroline Bowler, the adoption of NFTs is the way of the future.

“It’s about ownership. It’s the same as any piece of art that is sitting in a gallery anywhere.

You can buy reproductions of the Mona Lisa until the cows come home, but the Louvre will still own the original,” Bowler says.

“I think we’re going to see in five years’ time these things are going to be so mainstream that we’re going to wonder how we managed without them.”

And controversial technologies turning mainstream may very well be true. Releasing SMSF data for the 2018/19 financial year recently, the Australian Taxation Office (ATO) published the amount sitting in cryptocurrencies for the first time, estimating SMSFs hold about $140 million.

While that is still a far cry from the $158 billion in cash and term deposits, it is a sign that as we progress these technologies are gaining legitimacy.

“In 2020 we saw a five-fold increase from the start of the year to the end in terms of the number of new accounts being opened,” Bowler says.

“And to dive a little deeper; from August to November, we saw a doubling and then from November to February of this year we saw another doubling. So, there is a very strong upward trajectory.”

It’s not just the number of accounts being created, but also the way in which SMSFs are investing in cryptocurrency that is changing.

As Bowler explains, the past perception was that an SMSF investor would purchase a cryptocurrency as a once-off and hold the position, but this is changing.

“We’ve seen an increase in activity in SMSF accounts actually trading on cryptocurrency, not to the extreme of a day trader, but there is more engagement with digital assets than we would expect to see with SMSF account holders,” she said.

Additionally, Bowler said the data BTC Markets has collected points to the fact that SMSF investors are not always necessarily interested in just the ‘big name’ cryptocurrencies but are also looking into more niche offerings.

“There seems to be this appetite to buy into more alternative assets by SMSF investors.

You’d have to do quite a bit of research to trade in these particular assets,” she said.

“These are not what you’d typically expect to have found. There is this perception of the SMSF investor being quite a cautious type, but that’s just not what we’re seeing.”

While the change in trend is interesting, Verante director and SMSF specialist Liam Shorte warns that SMSF investors need to properly understand the risks of any investment.

“The majority of people investing in the cryptocurrency space are from the IT sector, they understand blockchain, they’ve done their research,” Shorte explained.

“They’re taking measured risks on investing in the area. So, they have a lot more confidence than even me as an adviser who is still learning about that sector.”

Shorte said there is no inherent problem with SMSF investors looking to put their retirement savings into cryptocurrencies if they do understand it, but for those that don’t it may not be worth the risk.

“It has been a lot more rapidly accepted over the last few decades, but I think people need to sit down and remember this is their retirement funding, they are the trustee for their super fund,” Shorte said.

“This is why the ATO has come out so strongly on new requirements for the SMSF investment strategy that they must deliberate on risk, diversification, liquidity. This money is for retirement, not to be taking a huge gamble with.”

Shorte also offered a warning to other advisers dealing with clients investing in cryptocurrency or considering doing so, saying clients must know that honesty is the best policy.

“In some of these cases in an SMSF one partner is driving the investment strategy… they really need to explain to their spouse what it is they’re doing and the risk they are taking,” Shorte explained.

“Because they are partners they are jointly liable for the investment strategy.” fs

Feature:

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Matthew Pilcher PPS Mutual

SMSF Association Conference

Crypto, NFTs add risk to SMSFs Eliza Bavin

22 March 2021 | Volume 19 Number 05 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Products:

32 Profile:

Julia Lee Burman Invest

Adviser levy to increase by 160% Elizabeth McArthur

Caroline Bowler

chief executive BTC Markets

ASIC has hit financial advisers with the news that levies will increase by the equivalent of 160% over two years, with industry bodies outraged.

The total cost levied by ASIC is now $1500 per retail advice licence, plus an additional $2426 per authorised representative under the licence. A sole practitioner would now have to pay $3926.

The cost was previously $1500 per retail licence plus $1571 for each additional adviser.

Chartered Accountants Australia and New Zealand, CPA Australia, Financial Planning Association of Australia, Institute of Public Accountants and the SMSF Association have now joined forces to slam the hike.

They claim the steep increase – during a time when the financial advice sector is losing thousands of advisers a year (just over 20,000 remain on the ASIC Financial Adviser Register now) – highlights issues with the funding model and will cause more advisers to exit the industry.

The group says the funding model doesn’t Continued on page 4

Aussie REIT returns struggle Karren Vergara

Australia’s listed property sector continues to languish from the effects of the global pandemic, slumping 14% compared to its preCOVID-19 performance.

Rainmaker’s Wholesale Managed Funds Performance Report found that equities delivered a mixed bag of returns in the month to January 2021.

Listed property lost 4% over the month, while emerging markets came out on top with 3.7%.

Returns in the combined property category in the three years to January 2021 topped 13.3% p.a. for the Australian Unity Diversified Property Fund, which is an unlisted fund that owns 11 properties nationwide in the sectors of retail, office and industrial.

The Lendlease Australian Prime Property Retail Fund came in second, returning 12.1% p.a. This fund, which is similar to Australian Unity’s fund in that it directly owns 11 Australian properties Continued on page 4

News

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

Sunsuper, QSuper confirm merger will go ahead

Editorial

Karren Vergara

Jamie Williamson

S

Editor

Well, we are only just coming to the close of March, but one thing is already certain: ASIC did not come to play this year.

The corporate watchdog has made very clear its plans to put its newfound powers in the superannuation sector to use and, by the sounds of things, trustees near and far must be on the edge of their seats.

First cab off the rank was Rest, chastised by ASIC for allegedly misleading and deceiving members when it came to voluntary rollovers in a bid to retain funds under management.

Rest’s response to the civil proceedings was rather funny, with the fund saying it was “disappointed” ASIC opted to take action over a matter that it had self-reported – as if the fact the law was broken is somehow void because they came clean.

Then, in the same week Statewide Super became the subject of a Federal Court filing for allegedly charging members for insurance cover they didn’t actually have, and for apparently having known for many months it was happening and doing nothing to stop it.

Retail super funds, or at least those attached to AMP and the big banks, must have been happy; as we all know, the industry funds escaped the Royal Commission unscathed while the retail sector was all but eviscerated.

And ASIC isn’t done, not by a long shot. In an address, deputy chair Karen Chester confirmed the regulator has at least 20 enforcement investigations into super funds underway and is conducting surveillance on multiple trustees suspected of misconduct. Juiciest of all, ASIC has also prepared evidence in support of criminal charges.

Now, not long ago I would have believed that all ASIC’s work is for the betterment of consumer outcomes, but now I’m not so sure.

I understand the purpose behind taking the actions, and I understand that the aim is to ensure these things don’t happen again, which is a good thing for members. But who will ultimately pay to rectify the issues?

In December last year, at the 11th hour, legislation was passed giving industry funds an extension on how long they could use member funds to pay for civil or criminal penalties resulting from breaches of the Corporations Act and ASIC Act. A ban on this was due to come into effect on January 1 but was pushed to 1 January 2022.

At the same time, the new Best Financial Interests Duty threatens to have an adverse effect on super fund members. New administrative burdens associated with being able to prove the fund has always acted in members’ best financial interests will likely see fees pushed up (pg.6); an outcome that’s certainly not in their best financial interests.

It’s the ultimate catch-22, that actions taken to protect consumers are simultaneously hurting them. There has to be a better way, and Treasury and the industry better come up with it fast – ASIC, it seems, out for blood. fs

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The quote

The Palaszczuk government supports this proposal because it aligns with our vision to reinforce Queensland’s position as a preferred investment destination.

unsuper and QSuper will merge later this year, with the two funds naming the key executives and board directors to lead the $200 billion entity.

The two funds have signed a Heads of Agreement to merge by September this year, a decision that is supported by the Queensland government.

The move will see the departure of QSuper chief executive Michael Pennisi. Current Sunsuper chief executive Bernard Reilly will become chief executive of the merged fund, and current QSuper chair Don Luke will serve as chair.

“Bernard is a first-class chief executive with exceptional investment and risk-governance leadership credentials. He brings an in-depth understanding of global asset management and broad strategic experience in superannuation, funds management and enterprise transformation,” Luke and current Sunsuper chair Andrew Fraser said.

“Bernard has a deep commitment to the mission of serving the best interests of members and, along with his commitment to our combined team, the board are confident that they have a strong leader to transition the merged fund.”

The Queensland government has given the green light for its biggest superannuation funds to merge. Currently, Sunsuper has some $80.6 billion in assets under management and 1.4 million members, while QSuper has about $120 billion and 600,000 members.

Queensland Treasurer and minister for investment Cameron Dick said the government had ensured the interests of fund members would be protected through the merger process, should it proceed.

“The Palaszczuk government supports this

proposal because it aligns with our vision to reinforce Queensland’s position as a preferred investment destination,” he said.

The two industry funds floated the possibility of a merger in 2019.

In April 2020, the funds confirmed the planned merger will be delayed, owing to difficulties in conducting due diligence while staff are working remotely as a result of the COVID-19 pandemic.

Reilly was appointed chief of Sunsuper in October 2019. Prior to that, he worked at NSW Treasury Corporation and State Street Global Advisors (SSGA).

Reilly has committed to the role of the merged entity until at least December 2022 and will spend most of his time in Brisbane.

The board of directors will comprise Fraser, Michael Clifford, Mark Goodey, Elizabeth Hallett, Michael Traill and Georgina Williams from Sunsuper.

From QSuper the board will include Luke, Bruce Cowley, Mary-Anne Curtis, Shayne Maxwell, Sandra McCullagh, Beth Mohle and Kate Ruttiman.

“The board brings together directors from a range of backgrounds, each bringing sound judgement and strong commercial acumen, as well as unique skills that ensure diversity of thought and an ongoing culture of putting members first, which will define the merged fund from day one,” Luke and Fraser said.

“The merged fund’s membership will be well served by this board, who understand the role of employers nationally, and are committed to our expansive adviser community, as well as the Queensland government as a major employer within the fund.”

The merged fund will be headquartered in Brisbane where most management and staff will be based. fs

ASIC takes Statewide Super to court Jamie Williamson

ASIC has commenced Federal Court proceedings against the South Australia-based industry superannuation fund, alleging that between May 2017 and June 2020 the fund sent annual statements and warning letters to about 12,500 members detailing their insurance cover at a time when they did not have cover under a Statewide insurance policy.

The regulator is also alleging the fund deducted insurance premiums to the tune of $1.5 million from the super accounts of 1300 members who did not hold cover. Statewide’s group insurer, both during the relevant period and now, is MetLife Australia. Though Statewide became aware of the mischarges in May 2018, it did not notify members nor did it act to prevent the premiums being charged again, the regulator alleges.

In doing so, ASIC said Statewide breached its obligations as an AFSL holder. It is also accused of breaching its obligation to report such breaches to ASIC within 10 days.

According to documents filed by ASIC, the $9.7 billion fund changed its administration system to one known as Acurity and the migration of insurance data and coding of insurance rules into Acurity was not completed correctly.

“The insurance coverage status of certain members within Acurity could, and did, differ from their status under the Statewide insurance policies during the relevant period.”

From mid to late 2017, and for a further two years, Statewide personnel engaged with Acurity’s service provider, Iress, to correct errors in the data. As at May 2020, insurance status errors continued to exist in the system, ASIC said.

Several members of the Statewide leadership team, including the chief executive and chief risk officer, apparently first became aware of the issues with Acurity in January 2017.

A breach report lodged by Statewide with ASIC in September 2019 identified the issue impacting 12,500 members which occurred on 19 June 2019.

ASIC said that deducting premiums for cancelled insurance cover deprived the impacted members of the value of the premiums charged and returns on those amounts. Telling members they had insurance cover when they did not also gave rise to the risk that a member would not be able to make a claim should a claim event occur, and may have decided not to seek insurance cover elsewhere given they were led to believe they had cover with Statewide.

Statewide Super acknowledged the proceedings, saying: “Once Statewide Super discovered the nature of the insurance administration error, the organisation self-reported to ASIC, while conducting a forensic examination and developing a remediation plan. Statewide Super has actively sought to cooperate with ASIC at all times.” fs

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News

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

01: Helen Rowell

Adviser levy to increase by 160%

deputy chair APRA

Continued from page 1 account for changing industry dynamics, is contributing to the decline in adviser numbers, and shifts a disproportionate burden to those remaining in the sector.

The industry groups also say ASIC’s preliminary cost estimates are often inaccurate and hence difficult to budget for, and that penalties and fines are diverted to consolidated revenue rather than offsetting ASIC’s costs.

They also noted ASIC’s industry funding model had not changed despite major shifts in the financial advice sector, with banks largely exiting advice. Yet ASIC’s budget to oversee financial advisers has increased from $25.6 million in 2017-18 to more than $56 million in 2019-20, the group alleges this funding is needed due to the supervision and remediation of historic advice deficiencies at the big banks.

The advice bodies are calling for the government to review the industry funding model, reduce the levy, fund ASIC from consolidated revenue and ensure ASIC’s industry funding levy reflects the cost of regulation rather than funding other measures.

In a communication to members, the Association of Financial Advisers (AFA) said: “We have escalated this issue to all those in the government who we can, however to this point the response has been little more than an acknowledgement of the issue and the problem that it has caused.”

“What has been made clear to us is that the ultimate decision maker on this is the Federal Treasurer, Josh Frydenberg. The Treasurer is also the person who has approved the funding increases for ASIC, following the Royal Commission.” fs

Aussie REIT returns struggle Continued from page 1 diversified by region, sat at the bottom of the sample of 61 funds.

The difference is that the Lendlease fund returned -5.4% p.a., meaning it has lost around 18% over three years. Another difference is that it specialises in retail shopping centres, which have been hit hard both by changes in shopping habits towards online shopping and the effects of COVID-19.

“In between these funds are other options including portfolios of Australian listed property trusts (the S&P/ASX A-REITS Index returned 5.1% p.a. over three years), international property securities funds (both currency hedged and currency unhedged) and other unlisted trusts with direct ownership of properties, including specialist commercial and industrial properties,” Rainmaker said.

“It goes to show that investing in property requires an additional level of due diligence not as necessary as it is in some other asset sectors.”

Fidelity’s Global Emerging Markets Fund was the best performer for its sector, returning 15.2% p.a. over three years and 17.6% p.a. over one year.

Capital Group’s New World Fund delivered 12.5%, the second-best performing emerging market fund over three years. fs

APRA calls out poor group insurance practices Karren Vergara

A

The quote

The ongoing viability and availability of life insurance through superannuation may be at risk.

PRA recently wrote to superannuation funds and life insurers, criticising a list of practices that are resulting in poor outcomes for members, fearing that history is repeating itself.

Between 2012 and 2016, the cost of premiums reduced and benefits increased significantly, while insurers took large hits to their bottom line.

Consequently, insurers hiked up premiums, introduced restrictive terms and conditions, while trustees had trouble obtaining quotes for cover as insurers and reinsurers declined to participate in many tenders.

Such practices are currently alive and well, according to APRA, calling out the deterioration of the claims experience ultimately leading to poor member outcomes.

“Indeed, the ongoing viability and availability of life insurance through superannuation may be at risk, adversely impacting access to life insurance cover for a large part of the Australian community,” the letter read.

Several super funds have increased premiums, some as frequently as twice in one year, blaming increased government regulations.

APRA is not ignorant of this trend, observing the premiums per insured member escalated during 2020 and as a result trustees went to tender for insurance arrangements more frequently.

“APRA is concerned that, in some cases, the pricing on which tenders are being won by insurers, whilst initially attractive to RSE licensees, may prove to be unsustainable, and therefore likely to lead to significant increases in

premiums at the end of premium guarantee or contractual periods,” the regulator said.

A recent Financial Standard poll found that the industry will continue to bump up premiums in 2021. Nearly 90% of participants said group insurance will become more expensive and increased costs will not be commensurate with better quality cover.

APRA went on to criticise trustees over the poor quality of insurance data that lacks granularity.

To be able to design and price appropriate insurance arrangements depends on the accuracy and timeliness of this data, APRA said, adding that this is contributing to losses for insurers and further exacerbates poor member outcomes.

Group insurers are also feeling the pinch, after ASIC found funds are inappropriately defaulting members into categories.

APRA deputy chair Helen Rowell01 wants to see more evidence of trustees taking these concerns seriously or else action will be taken.

Rowell expects trustees to have appropriately designed default insurance that balances costs and the needs of members, and to give insurers enough time to prepare for tenders.

“APRA’s focus is on ensuring RSE licensees and life insurers take steps that will support the provision of high quality and sustainable insurance outcomes over the medium to long-term for both current and future superannuation members, and reduce the unpredictability and volatility in insurance product design and pricing that makes assessment of the value of insurance very difficult,” she said. fs

Dover, McMaster hit with $1.4m penalty In a win for ASIC, Dover Financial Advisers and its founder Terry McMaster have been ordered to pay over $1.4 million in penalties by the Federal Court of Australia.

Justice O’Bryan imposed a $1.2 million penalty on the defunct financial advice firm based on 19,402 contraventions brought against it by ASIC. McMaster was ordered to pay $240,000 for his role as he “made all relevant decisions” in misleading and deceiving clients relating to Dover’s Client Protection Policy, which formed the core of his Royal Commission testimony.

ASIC argued that under the policy, the firm intentionally misled clients in a number of ways, including misstate, exclude, limit, restrict and/or dilute their legal rights against Dover.

On 22 November 2019, O’Bryan upheld ASIC’s claims that from around 25 September 2015 to around 30 March 2018, Dover breached several sections of the Corporations Act because the policy contained a clause that did not provide the maximum protection available to clients, and instead purported to remove or dilute such protections.

“The contraventions flowed from the same wrongful conduct,

being the decision to include in the Client Protection Policy a misleading statement. In the circumstances, the defendants argued that imposing penalties in the manner proposed by ASIC carries obvious potential for the defendants to be punished multiple times for the same underlying misconduct,” court documents read.

In June 2018, ASIC accepted an enforceable undertaking from Dover and McMaster to leave the financial services industry.

Dover has ceased because of the enforceable undertaking, and the firm made a net loss of almost $2 million in the 2018 and 2019 financial years. In FY20, it made a net loss of about $370,000 while its net assets were worth less than $20,000, the latest hearing revealed. “[With] regard to Mr McMaster’s financial position, aside from his superannuation entitlements which he is not presently able to access, Mr McMaster’s assets are limited to a $700,000 property and other low value personal items,” O’Bryan said.

As a result of their financial positions, the defendants deemed that an appropriate penalty would be in the range of $350,000 to $600,000 for Dover, and $5000 to $20,000 for McMaster. fs

News

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

CSC pivots towards divestment

01: Sarah Adams

group executive of strategy, brand and reputation AustralianSuper

Elizabeth McArthur

At Commonwealth Superannuation Corporation’s annual general meeting on March 16, the $50 billion government fund revealed it has divested pure-play coal.

CSC chief investment officer Alison Tarditi revealed for the first time that the fund has divested companies like Whitehaven Coal, that have undiversified thermal coal businesses, despite still believing in the power of engagement.

“We have divested from undiversified thermal coal producers both domestically and internationally because we cannot engage effectively to produce effective change with singlefocus producers,” Tarditi said.

“However, we don’t believe in the precipitous exit... from diversified resource companies like BHP, for example, or S32 who are well placed and incentivised to deliver a robust transition to the new energy system. These companies, for example, were two of the first companies in Australia to adopt the transparent reporting standards advocated by the Taskforce on Climaterelated Financial Disclosures which was set up by the Financial Stability Board internationally.”

CSC chair Patricia Cross also was clear that the fund favours engagement over divestment.

“CSC does have a very long record of being actively engaged in ESG matters, but when it comes to things like fossil fuels, we feel CSC is better positioned to not divest but to continue to be actively engaged with companies,” she said.

“We try to encourage climate transition in all companies that we invest in so we’re having an impact on $50 billion of assets under management.”

Market Forces, the activist group that advocates for super fund divestment, welcomed the news.

“CSC has finally belled the cat, stating clearly that there is no way to seriously engage on energy transition with pure play coal companies such as New Hope and Whitehaven,” Market Forces campaigner Rachel Deans said.

“We are calling on all super funds which claim to be aligned with the Paris climate agreement to divest from pure play fossil fuel companies. They are simply out of line and out of time.”

Market Forces research previously found that approximately 15% of CSC’s investments were made up of what they define as “out of line, out of time” companies.

According to CSC’s latest disclosure on domestic investments, it had a holding of about $1 million in Whitehaven Coal, BHP is its largest domestic equities investment with a $2 billion holding. fs

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AustralianSuper introduces insurance changes Karren Vergara

A The quote

AustralianSuper provides insurance to members at cost and despite the uncertainty related to COVID-19 premiums are remaining fairly stable.

ustralianSuper and its insurer TAL are making several changes to insurance premiums that will amend work-cover ratings and see some members pay lower premiums.

Following its annual insurance review, Australia’s largest superannuation fund, which reached $203 billion in assets under management at the end of 2020, nearly half of its 2.2 million members will pay lower premiums.

Others however will see insurance costs go up.

From May 29, the average cost for industry division members will rise by 3.2%, while public sector members will pay 0.4% more.

A 45-year-old member for example, will pay $10.95 in total for death ($3.45), income protection ($5.65) and TPD ($1.85) cover per week, which includes a nine-cent increase per week or $4.68 extra per year.

A 25-year-old member for example, will pay $2.27 in total for death ($1.15), income protec-

tion ($0.67) and TPD ($0.45) cover per week.

This is three cents less per week or $1.56 less per year.

Work ratings and pricing will change also from May 29. The Standard work rating will be known as Blue Collar and Low Risk will become White Collar. The Professional work rating will not change.

The prudential regulator is slamming the group insurance sector for delivering poor member outcomes off the back of a hoard of super funds – Living Super, HESTA, MTAA Super and Vision Super to name just a few – for increasing premiums for little or no value.

AustralianSuper group executive of strategy, brand and reputation Sarah Adams01 said: “In uncertain times, insurance plays a very important role in many people’s lives. AustralianSuper provides insurance to members at cost and despite the uncertainty related to COVID-19 premiums are remaining fairly stable.” fs

Westpac merges consumer, business divisions Eliza Bavin

Westpac has announced it will combine the leadership of its consumer and business divisions to form a new consumer and business banking division, with one executive exiting the business.

Westpac said the new division will be led by the current chief executive of the consumer business, Chris de Bruin.

Current chief executive of business Guil Lima left Westpac effective 22 March 2021 when the changes come into effect.

Lima had been in the role for 15 months.

“Mr de Bruin has significant experience running both consumer and business banking functions at a large multinational bank, as well as a strong background in fintech and digital banking, which will be particularly valuable as we better support customers’ needs,” King said.

Westpac formed the business division in June 2019, after announcing it would restructure its business in March of that same year.

Westpac had said it would realign its wealth strategy and BT

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Financial Group will cease as a standalone division.

Its insurance divisions moved into business and consumer; private wealth, platforms and investments and superannuation moved into an expanded business arm.

Westpac chief executive Peter King said the move will serve to simplify the business model and consolidate divisional management.

“Our new lines of business operating model has given us a solid foundation for this change, with greater clarity on accountability and a common management approach across each of the six business lines,” King said.

“The combined division will drive simplification of banking and help to reduce cost, including by consolidating support functions.”

King added that the change will enable a more efficient use of common assets and provide the ability to better capitalise on work already underway to improve capabilities, particularly in service, digital and data. fs

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News

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

01: Adrian Verdnik

02: Melinda Howes

partner Hall & Wilcox

general manager BT Super

Admin fees could balloon from BFID Karren Vergara

T

he new best financial interests duty (BFID) could see members pay higher administration fees as the record-keeping obligations ramp up, superannuation funds and industry experts warn.

The reforms, which are part of the Your Future Your Super legislation currently sitting before parliament, will force trustees to prove they are acting in the best financial interests of members thanks to the introduction of the word ‘financial’ in best interests duty.

Hall & Wilcox partner Adrian Verdnik 01 said the onus will be on trustees to prove they always acted in the best financial interests of members and may face difficulty in demonstrating that for every decision they make.

“Trustees will face complex procedural issues, and record-keeping obligations will apply to all decisions. This will increase the administrative and compliance obligations of trustees,” he told Financial Standard.

Super funds are already inundated with regulatory obligations, such as APRA’s SPS 515 Strategic Planning and Member Outcomes.

The new law will mean additional form-filling burdens that overlap.

Verdnik said trustees are already good at documenting the reasons for their expenditure and undertaking analysis and commercial justification on why they were embarking on major projects.

“The new law will require them to do more in terms of due diligence and documentation for all types of expenditure,” he noted.

Aware Super argued it would be premature to comment on the potential impact of the BFID on marketing and other activities.

“The proposed BFID will likely have little impact on how we support our members but will increase a fund’s administrative burden and the cost of record keeping requirements; costs which could ultimately be passed on to members through higher fees or reduced services,” the super fund said.

Retail superannuation funds, which will continue to benefit from their parent company’s big advertising budget and fork out dividends from members’ savings, are major concerns of the not-for-profit sector, thanks to loopholes in the proposed legislation.

Following conversations with Treasury, the Australian Council of Trade Unions assistant security Scott Connelly said department officials have confirmed that dividend payments are not included in the best financial interests test and are deemed to pass by default.

“There is also the capacity for profit-making vehicles to leverage their corporate structures

to the advantage of growing their market share in terms of advertising reach. Under this Bill, the capacity for big banks and institutions to own wealth management companies and to effectively corner the market is legitimised,” Connelly said.

Two separate sittings of the Standing Committee on Economics into super last year revealed the marketing budgets of super funds.

IOOF subsidiary OnePath, which changed ownership from ANZ on 31 January 2020, spent $40 million over five years from 2015 on advertising and marketing its products or $8 million on average.

Between November 2020 and June 2021, OnePath chair of Victoria Weekes said about $400,000 is expected to use digital means to distribute and market its products.

In the six months to June 2020, Westpac’s BT Super spent $870,000 on digital advertising on monthly engagement communications, as well as campaigns to attract new members and retain members, general manager Melinda Howes 02 told the inquiry. “[For context] advertising is one that we don’t charge directly to the members of the fund. That is actually paid out of, if you want to call it, that profit or revenue for the shareholders. Ultimately all those fees and expenses do work their way into what we require for the fee structure to run the fund. But that is an example where actually members are not being directly charged for those advertising costs; they’re being paid for by the shareholder in the first instance,” she said.

Suncorp Super spent about $80,000 on digital advertising over six months, but has not direct sponsorship outlay. The Suncorp Group, however, is a well-known sponsor of Queensland’s Suncorp Stadium.

AustralianSuper copped flak for not divulging details of its $11 million marketing expense and its effectiveness in acquiring new members, claiming other super funds might learn from it.

Chief executive Ian Silk said that he does not know what proportion of members came from employers defaulting workers into the fund and how many actively joined, after he was asked on several instances by the committee.

The committee raised the issue of whether the fund’s $11 million marketing spend was justified given that AustralianSuper couldn’t provide a breakdown of the conversion rate.

Silk said providing details would be “detrimental to fund members” given that the industry is very competitive and many super funds advertise to retain or attract members.

The minister for superannuation, financial services and digital economy Jane Hume has

warned that the imminent BFID law will make it harder to get away with this excuse as trustees will be subject to stringent reporting and disclosure requirements akin to public companies.

How will marketing departments change?

The quote

Super funds are no different to other organisations in that they want to see return on their investment from their marketing spend.

Verdnik predicts that the use of survey analytic tools will increase, and more frequent questions about brand awareness and how members found out about the fund will be asked.

“Super funds are no different to other organisations in that they want to see return on their investment from their marketing spend and they will need to use those tools to see if they are doing so,” he pointed out.

Trustees will have to make decisions by weighing up various considerations and generally come back to the best financial interests of members as the “guiding light” when making decisions.

“It is a bit naive of the legislation to think that all decisions can be made in the best financial interest because so much happens in the operations of large, complex organisations, and trustees need to take other considerations into account as well as the financial interests of members,” Verdnik added.

Industry Super Australia said all of its marketing activities and campaigns will not change as they have always been in the best financial interests of members and any future spending will continue to have to pass that test.

“But we are concerned with new regulatorymaking powers that would allow the government to ban fund activity and investment even if it is in the best financial interest of members.

A government giving itself the power to ban legitimate expenses and investment in the best financial interest of members should not be tolerated in a democracy,” ISA said.

Aware Super suggested that the introduction of a threshold based on the percentage of fund revenue (for expenditure) and funds under management (for investment) – would help to reduce the potential negative impact on members.

“The bill also includes a power for government to make rules prohibiting certain payments regardless of whether that payment is considered to be in the best financial interests of members,” Aware said.

“We have real concerns that there are no checks and balances as to what may or may not be covered under these prohibition rules, which is an incredible overreach and could have serious implications for how we invest and support our members to feel confident and comfortable in their retirement.” fs

News

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

Pendal group chief to exit

01: Simon Steele

head of global equities AMP Capital

Kanika Sood

ASX-listed Pendal Group has named a new US-based group chief executive as a successor to Emilio Gonzalez, as it sees its “biggest future potential” in the US. Gonzalez will stay for a six-month transition period, when Nicholas Good will take over as the group chief executive of Pendal Group.

Good was appointed the chief executive of J O Hambro Capital Management (JOHCM) in the US in December 2019 and has spent a large part of his 24-year-long career working in ETFs for State Street and BlackRock/Barclays BGI (which merged).

At State Street, he was the chief growth and strategy officer, and previously the co-head of State Street’s ETF business with responsibility for North America and Latin America regions.

Pendal credited him with growing US SPDR revenue from US$359 million in 2015 to US$491 million in 2017.

Prior to State Street, Good spent eight years at BlackRock, including as the Asia Pacific chief executive of iShares business during which iShares’ APAC revenue grew from US$20 million to US$170 million.

“The board sincerely thanks Emilio for his contribution, constancy, and commitment for over a decade and recognises his significant achievements, particularly the successful acquisition of JOHCM in 2011 that transformed the company into a global funds management business,” Pendal Group chair James Evans said. “…Nick is a global leader in the funds management industry with a strong track record of building and growing businesses. He is an impressive strategist and has an inspiring leadership style.

“Importantly, the biggest future potential for the group is in the USA. With Nick on the ground there, and with the support of the talented global executive team, including the regional CEOs, Pendal Group will be well-positioned and equipped as it transforms its business to take advantage of future growth opportunities,” Evans said.

Pendal will pay Good $600,000 in fixed salary, short-term incentives of up to $1.9 million (as half cash, half restricted shares vested over five years), and long term incentives grant of up to $750,000 (as performance share rights to PDL shares). Both LTI and STI are at the board’s discretion and subject to meeting performance hurdles. STI annual target is $950,000 or half of the maximum limit.

Gonzalez joined Pendal in 2010 after working at Perpetual.

Good will remain based in Boston. fs

AMP Capital severs ties with global equities unit Karren Vergara

A

The quote

AMP Capital and Fiera Capital are committed to ensuring that existing client terms and conditions will not be impacted.

MP Capital will offload its $653 million global equities capability to a Canadian fund manager for an undisclosed figure.

Montreal-based Fiera Capital has agreed to acquire the four-year-old strategy available to investors in the UK, via a UCITS platform series, and Australia and New Zealand, which is the AMP Capital Global Companies Fund (GCF) offering.

The strategy is managed by London-based head of global equities Simon Steele 01 and investment manager Neil Mitchell; Hong Kongbased investment manager David Naughtin; and investment manager Andy Gardner, who is located in Sydney.

They collectively manage about US$500 million in assets under management.

The move underscores parent company AMP’s commitment to transforming the business by slicing and dicing its various business units. AMP recently entered a joint venture with Ares Management to sell off 60% of its

Annabelle Dickson

Four IOOF financial advice firms have joined Count Financial ahead of the MLC acquisition, with one firm saying they wanted a licensee without “hidden agendas”.

Magnis Financial Planning, Glenbuckie, Aim Financial Advice and Strategic Wealth Management were previously operating under IOOF’s Bridges and Executive Wealth Management Financial Services.

Sydney-based Strategic Wealth Management principal Nicholas Moustacas said one of the main reasons to partner with the CountPlus-owned licensee was that it is not owned by a company that’s priority is to sell product.

“Secondly, there are clearly no hidden agendas with their model. We have the support to succeed because they know our growth and success is linked to theirs,” Moustacas said.

“And thirdly, in my opinion their professional standards team

is the best in the industry, which gives us comfort that the other advisers in the network will have the same high level of standards and processes that we strive to maintain.”

The four firms joining the network marks further growth for Count Financial after Plan Protect and YS Financial Planning from Sydney and Financial Stability from Melbourne joined last month.

IOOF announced its plans in August to acquire 100% of MLC Wealth comprising its financial advice, platforms, and asset management business for $1.44 billion.

Following the announcement, several advice firms have left the MLC licence including HFM & Partners.

Count Financial chief advice officer Andrew Kennedy said the licensee continues to target quality advice firms to join the network.

In February Count Financial said its adviser numbers dropped from 284 to 238 in the last 12 months. fs

Outstanding performance through the economic cycle Independently rated

private markets businesses that include equity, infrastructure debt and real estate.

GCF grew to about $158.9 million at the end of January 2021, returning 19.6% over one year and 25.5% p.a. since inception date of 5 November 2018. It aims to deliver 10% p.a. after fees and costs; top holdings include software firm Synopsys Inc, Visa, Ferrari and S&P Global.

The firms said until the transaction meets regulatory and other approvals, the investment team will continue to manage the strategies.

“AMP Capital and Fiera Capital are committed to ensuring that existing client terms and conditions will not be impacted, and clients experience a seamless experience throughout the transition,” they said.

Steele commented: “We look forward to welcoming our clients and working alongside our new colleagues while contributing to the vision of making Fiera Capital a top tier global asset manager, recognised for its best-in-class solutions offering and trusted investment partnerships.” fs

IOOF firms jump to Count Financial

Market leading investment solutions $12 billion AUM

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1800 818 818 | latrobefinancial.com

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Events | Chief Economists Forum

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

Chief Economists Forum 2021

In the first live event post-COVID, Financial Standard’s flagship forum returned to Sydney and Melbourne, providing hope for the year ahead.

Little did we know at last year’s Chief Economists Forum just what 2020 had in store. With the year providing a level of economic challenges not seen before, the focus for 2021 is squarely on recovery.

Economists from Capital Group, DWS, the Grattan Institute, La Trobe and PGIM shared their outlooks for the year ahead, covering everything from COVID-19, to the election of President Joe Biden, climate change and tensions with China.

US upbeat on stimulus, vaccination Capital Group economist Darrell Spence is optimistic that by September 2021, when most Americans receive their vaccinations, the country will emerge from the coronavirus-induced recession. In the meantime, however, the US$1.9 trillion stimulus plan proposed by President Joe Biden in February will have a critical role to play.

Appearing via livestream, Spence said the US economy will be highly dependent on the stimulus to see it through to full vaccinations. Currently, about two million doses are administered per day.

“It will be helped along by monetary policy that is likely to stay easy for a long period of time. There is a risk that if we don’t dial back stimulus once we’re completely free and clear of the pandemic that we do create inflationary pressures and that’s just something we’ll have to keep an eye on,” he said.

The Fed has already blown out its balance sheet by about US$304 trillion, making its initiatives during the Global Financial Crisis “look a little small”, he said.

One question he is asked frequently is: what potential problems will this mountain of debt create?

“Unfortunately, [the] most honest answer I have is that it will become a problem when it becomes a

problem, and that is when the investors, domestic and foreign, decide that they no longer want to hold treasury debt, and to be quite honest, I just don’t know what that point might be,” he said.

One concern is when a country reaches a debtto-GDP ratio of 100% in the way that is happening in US, could lead to an economic disaster.

“That could create a crisis because in a situation where your interest rates are higher than your growth rate, the debt will start to grow in and of itself and spiral and we’ve certainly seen that happen in places like Italy in Greece. But the US has interest rates that are below their growth rate right now so that spiral of debt doesn’t necessarily have to be a concern,” Spence said.

Australian recovery has been outstanding Australia’s economic recovery has not just been good - it’s been very good.

That’s according to La Trobe Financial chief investment officer and deputy chief executive Chris Andrews, who told delegates that despite the damning effects of COVID-19 on economies around the world, Australia’s rebound has been phenomenal.

“In a nutshell it has been good, very good. It’s far better than any of us had a right to expect 12 months ago,” he said.

Andrews said that while there are some issues surely to arise in the longer term, as a whole Australia has fared extremely well in the economic shock caused by the pandemic and its ensuing lockdowns.

Despite the positive attitude, Andrews said there are several headwinds to watch out for over the course of the year including rolling lockdowns, the end of stimulus measures like JobKeeper and the ongoing migration pause.

Markets have looked through the near-term uncertainty and I think they’ve been doing this now for at least six or eight months with their eyes very much riveted on the eventual recovery.

Nathan Sheets

Andrews urged states to follow in the footsteps of New South Wales in containing COVID-19 outbreaks to minimise the need for more lockdown measures.

“Lockdowns are doing real damage to our economy. The damage can result in permanent wealth destruction,” Andrews said.

“New South Wales has mastered the art of managing inevitable outbreaks without widespread lockdowns and the other states need to catch up.”

Additionally, Andrews said that while the ceasing of JobKeeper will influence businesses, overall, it is not likely to cause too much damage.

“There is a strong case for extending JobKeeper on a select basis, think CBD cafes and internationally facing tourism businesses et cetera, but the reality is the vast majority of income support has been removed from the economy with no ill effects,” he explained.

“So, while there is a risk at a micro level with individual businesses, we don’t see the removal of income support as having a material effect on aggregate outcomes.”

The final anticipated headwind, the lack of migration, Andrews believes will be the biggest issue facing Australia.

“We know that turning migration on will be a near-term government priority, but in the meantime, it is a clear demand-side headwind,” he said.

The growth and inflation dynamic Presenting via livestream from Hong Kong, DWS chief investment officer for APAC and head of emerging market equities Sean Taylor shared a confident outlook for global growth, particularly in Asia Pacific.

“We’ve got numbers we haven’t seen for many years – mainly due to the recovery, this is driven

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

by interest rates being at historical low levels and lots of fiscal spend. We’re seeing a globally coordinated fiscal spend, which we haven’t seen in a very long time, good corporate spending and the consumer picking up,” Taylor said.

“We have a real recovery in Europe and then very good structural growth in emerging markets and Asia which we think will continue through the next few years.”

Taylor said growth is not an issue – there is general market consensus that growth will continue in the economic recovery from the pandemic.

However, the question is whether there will be too much growth or too little.

Taylor thinks the US Federal Reserve will reach its inflation target of 2% by the end of the year. But he struggles to see how it will get beyond that any time soon.

“We do think there’s a risk of a spike of 2.5% to 3% over the next couple of months because a year ago the oil price was quite low and now it is higher,” Taylor said.

Strong global recovery ahead PGIM Fixed Income chief economist and head of global macroeconomic research Nathan Sheets said he expects the recovery to commence from at least the second half of this year and into 2022.

He expects China and emerging Asian countries to lead the recovery, followed by the US and Australia.

Next in line will be Europe and finally Latin America.

“My sense is that China has led this global recovery. And that’s very likely to continue. China’s very much benefited from being the first in first out, and [being the exporter] to the world of a whole range of products – mainly various kinds PROUDLY SPONSORED BY

Chief Economists Forum | Events

of consumer goods, but also technology, health products and the like…” Sheets said, adding that many emerging Asian countries are also likely to come out strong.

He said Europe seems to be lagging, as its economy may have shown greater sensitivity to lockdowns.

“Markets have looked through the near-term uncertainty and I think they’ve been doing this now for at least six or eight months with their eyes very much riveted on the eventual recovery,” he said.

He said the sell-side consensus is 6 to 6.5% growth in real gross domestic product for the US economy. This, he said will be enough to bring global growth to pre-pandemic level and eventually rise above that by 2022 end.

However, on the darker side the US still has 10 million less jobs than before the pandemic, and President Biden and Secretary of the Treasury Janet Yellen have taken the view that there are more risks to the outlook over medium term.

Threat of climate change This is the year that Australia must take the climate change conversation seriously and take action, the chief executive of the Grattan Institute Danielle Wood said.

Closing out the forum, Wood warned that ignoring the importance of climate change is not just at the peril of the environment, but at the expense of the economy.

Australia currently has two international climate agreements in place. It aims to reduce greenhouse gas emissions 5% below 2000 levels by 2020 under the Kyoto Protocol, and up to 28% below 2005 levels by 2030 under the Paris Agreement.

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“If we hit our 2030 targets, it will be on the back of electricity alone. We have seen substantial reductions in emissions from that sector because of the rise of renewables,” Wood said.

The Emissions Reduction Fund (ERF) is currently Australia’s main mechanism in reducing greenhouse gas emissions, incentivising business to undertake projects and implement new technology that cut down emissions.

While there has been some progress at reducing emissions in some sectors, it does not reflect the progress when looking at the rest of the economy, she said, pointing out that the government will face pressure to do more in 2021.

“All of our major allies have now signed up to zero by 2050, the administration leaves us increasingly isolated on a global stage.”

At the major United Nations Climate Change Conference, which will take place on 1 November 2021, trade sanctions will be a hot topic. Countries that do not have ambitious targets on climate change might face such issues.

That could mean a real economic cost for Australia, Wood said, commending the businesses that are already on board to take climate-change action.

Overall, she said the country is not currently taking the “most economically efficient route” – which is an economy-wide carbon price.

As a result, the next-best scenario would be sector-specific plans.

“Nonetheless, we’re better off doing something than doing nothing. We need to get on the right trajectory, and we need to implement policies that are going to be able to ramp up,” she said. fs

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News

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

Fullgoal enters Aussie market

01: Alex Vynokur

chief executive BetaShares

Eliza Bavin

Fullgoal Asset Management, a Chinese equity and fixed income investment manager, has expanded its distribution to cover the Australian and New Zealand markets by retaining 3PD. Fullgoal, which has investment teams in Shanghai and Hong Kong, has $200 billion in assets under management, predominantly from Chinese and international institutional investors.

Fullgoal said it is expanding its distribution to cover the Australian and New Zealand markets via 3PD, an Australian-based third-party distribution company.

Fullgoal Hong Kong chief investment officer Zhang Feng said the Chinese investment markets have now become liquid and well-regulated to a level required by international investors.

“We expect to continue delivering strong returns for our investors in areas they have had little access. For instance, most global managers rarely stray from benchmark included securities and US managers are becoming more politically constrained,” Feng said.

“Without those constraints and comprehensive, fundamental coverage of small and mid-cap stocks, we easily differentiate and add value.”

Fullgoal has retained 3PD, founded by Robert Harrison and Steven Larkin, who have more than 60 years of combined sales experience. fs

No more easy 6% returns: Fidelity Elizabeth McArthur

Despite the fairly sunny economic outlook, lower investment returns are a reality that institutional investors will have to grapple with, according to Fidelity International.

Fidelity International cross-asset investment specialist Anthony Doyle said while the Reserve Bank of Australia appears to have successfully incentivised Australians to borrow and spend – with the housing market, in Sydney especially, running hot – monetary policy globally will force investors to think outside the box.

An incredible 40-year bull run in the bond market is well and truly over, Doyle said. The repercussions of this are only beginning to be felt, with strategic asset allocations for institutional investors like super funds shifting to keep up.

“Thinking about the defensive portion of our investors’ portfolios – if you buy car insurance or home insurance it costs you money to do that, the insurance company doesn’t pay you to take out that insurance. Historically, investors have been rewarded to take out insurance against bad things happening by owning government bonds or investment grade credit, you’ve been paid to do that. Those days are long gone,” he said.

“Defensive assets still play an important role within a multi-asset portfolio, but you’re going to have to pay for that insurance.”

Recently, Credit Suisse Research Institute published its Investment Returns Yearbook 2021 which predicted lower returns in equities and bonds for the foreseeable future.

In a diversified growth portfolio with 70% equities and 30% bonds returns for the future are looking significantly lower, according to Credit Suisse. fs

BetaShares eyes expansion with new shareholder Kanika Sood

B

The quote

We really want to broaden the scope of what we do and how we do it to empower people with their financial future.

etaShares chief Alex Vynokur01 says the firm is open to acquisitions, listing its ETFs overseas and adding a retirement income product, as it brings on a US private equity investor.

TA Associates has become a roughly 50% shareholder in BetaShares Holdings, replacing Korea’s Mirae Asset Financial Group and some minority shareholders. BetaShares did not disclose the sale price and actual shareholdings.

Mirae came on board as an investor in BetaShares Holdings in 2012. As it exits the shareholding, its two directors on BetaShares’ board Young Kim and Jung Ho Rhee will be replaced by a TA director and a to-be-announced non-executive director.

Vynokur said the transaction gives the firm two main avenues of growth: the organic growth in ETFs which are about to hit $100 billion, and inorganic growth opportunities in fintechs and other product issuers.

“There are two components to our growth plan. First and foremost is organic growth. Our business is growing very strongly. We started 2020 just shy of $10 billion under management [and] finished 2020 north of $15 billion. I see the trend continuing over the course of next decade,” he told Financial Standard.

“In addition to that, we are very interested to make strategic investments and potentially

acquire businesses both in Australia and overseas that could help us add better value for our clients. Fintech is one area where there is lot of innovation happening at the moment.

“We are open to partnering with fintech companies...We really want to broaden the scope of what we do and how we do it to empower people with their financial future.”

He said while ETFs would remain central to what BetaShares does, it is “definitely looking” at a retirement income product.

The 10-year-old BetaShares currently has 57 ETFs listed on the ASX and a total FUM of $16 billion. It has been the first mover in many listed funds such as its shorting ETF BEAR and BBOZ that were traded heavily during the pandemic.

Vynokur declined to comment on changes in ownership of co-founders with the TA transaction.

Rainmaker previously estimated BetaShares one-year fee revenue at $46.8 million (22% of the $211 million fee revenue generated by ASXlisted ETFs) for the year ending September 2020 – highest of all ETF issuers in Australia.

TA Associates has previously invested in companies including PIMCO, Invesco, Russell Investments and K2 Advisors.

The private equity firm is currently a strategic investor in Yarra Capital, which recently acquired Nikko Asset Management’s Australian business. fs

Women boost SMSF balances Annabelle Dickson

The average SMSF member balance for women has increased more than it has for men over a five-year period to the 2018/19 financial year, new data shows.

The Australian Taxation Office’s (ATO) annual statistical overview on SMSFs showed the average female balance increase by 28% while males increased by 22%.

Despite this, there is still a disparity between the average member balance, with women having a balance of $654,000 and men having a balance of $784,000.

In 2018/19, SMSFs had on average assets over $1.3 million each, up 5% on the previous year and 22% over five years.

SMSFs make up 26% of all super assets at $733 billion and the establishment of new funds grew 7% in the five years to June 2020.

In addition, SMSFs achieved positive returns for the past five years with the estimated return on assets for 2018/19 at 6.8%.

More than 13,500 tax agents were used to meet SMSF tax and regulatory obligations while only

5000 SMSF auditors were engaged.

In addition, there were 63% of corporate trustees, opposed to 37% of individual trustees.

The data shows 55% of SMSFs have existed for more than 10 years while 47% of SMSFs had assets between $200,001 and $1 million.

The ATO included data from 2020 which showed there was a 3.2% growth in SMSF establishments as there are currently 593,375 SMSFs with a total of 1,107,268 members.

The median age of SMSF members of newly established funds in 2018/19 was 46, compared with 61 for all members, as at 30 June 2020.

Throughout 2020, there were $12 billion in member contributions, $5 billion in employer contributions and $9 billion in outward transfers.

SMSF members paid a total of $3.7 billion in administration and operating expenses for their funds.

The majority of SMSFs are based in New South Wales (32.8%), followed by Victoria (30.9%), Queensland (17%), Western Australia (9.4%), South Australia (6.8%), Tasmania (1.2%), ACT (1.7%) and NT (0.2%). fs

Opinion

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

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01: Matthew Pilcher

director of proposition PPS Mutual

Changing the narrative Insurance and advice as an asset we needed reminding that life can be filled Imorefwith unexpected bumps and in some cases serious events, the global pandemic has certainly brought our collective vulnerabilities into focus. The past 12 months have offered many lessons: one is that we should try our best to be prepared for the unexpected.

Financial advice has been subjected to unrelenting scrutiny of late, perhaps distracting from the core value that advisers deliver to their clients.

This article offers an alternative view of looking at the value an adviser brings to clients as they are guided through the all-important process of insuring against unexpected life events.

In fact, we begin by asking the question: why not consider advised insurance cover an asset, rather than a necessary expense?

After all, an asset is anything that can be utilised to produce value. For many professional clients, the asset of most value is their ability to earn an income. Whilst many people would regard the value of the equity of their house as their main asset, the value of their future earnings would be considerably more than this. Beginning with basic maths, if you amortised the earnings of most young graduate doctors, accountants, or lawyers today over the course of their working lives, it would amount to several million, if not tens of millions of dollars. This is without considering the personal sacrifices and investment they have made in their education and training to qualify as a professional in their specific field of expertise.

Therefore, using income protection and TPD insurances to protect this income stream - should they be unable to work for a period (or even ever again) - should be recommended as a value add to the client.

Likewise, trauma insurance should be considered an asset to many professionals as, through a lump sum, it helps to ease the financial burden for the insured person and their family by providing peace of mind that financial support is available when most needed. It allows the insured to focus on recovery and not have to worry about how to fund medical treatment or lifestyle adjustments.

Understandably, sickness and life-threatening disease is not something that we like to think about, nor is the case of a person dying. In the awful event of death without insurance, remaining family members may have to sell their home to repay outstanding mortgage or other debt. Life insurance offers the peace of mind that in the event of the unimaginable, loved ones left behind will not also be burdened with additional financial stress.

It is also worth mentioning the value of business insurance i.e., buy/sell or ‘key man’ insurance particularly for professional business partnerships in providing certainty and to retain the value of the business asset.

Recent research, compiled by CoreData on behalf of CPA Australia, found that respondents reported benefits to their physical and mental health, family and social life, relationships, and work satisfaction from receiving professional advice.

When it comes to insurance, we believe that there are three key ways a financial adviser can increase value, making insurance a measurable asset to the life insured.

adviser goes way beyond choosing the correct level of insurance in the first instance.

In the underwriting process not only will the adviser arrange much of the paperwork, but they will also have the expertise to challenge insurers to get the best outcome for their clients.

The adviser will make sure that the insurance is reviewed on an ongoing basis to reflect a client’s current circumstances so that the insurance asset remains appropriate.

Throughout the past year, many clients have found the support of financial advisers invaluable in guiding them through what to do with their insurance cover when dealing with the financial and emotional consequences of business not being able to operate due to COVID-19.

Choosing appropriate cover A professional financial adviser can advise clients on the appropriate amount of cover, specific to an individual’s needs. Most people, even highly educated professionals, have low awareness concerning the correct amount of insurance that they need.

Like all consumer products and services, there is a range of quality available within life insurance offerings. Often the easiest insurance to obtain is through direct or group schemes, however they often have very basic covers and are designed for the mass market rather than for the needs of select groups. They may have tight definitions when it comes to claim time, cover a reduced number of conditions, or do not have extra features that may be beneficial to specific circumstances.

Adding to the confusion is knowing how to measure value for money. The insurance industry is experiencing significant volatility in terms of pricing and in the second half of this year we are expecting to have a whole new generation of income protection products that are likely to be more diverse than they are currently.

Therefore, it is now more important than ever for professionals to have advisers guiding them through the insurance process, making sure they have the appropriate cover that is priced appropriately and specific to their needs.

Ongoing review of policies The financial adviser is the clients expert guide throughout the entire insurance journey.

A recent ASIC report on consumer engagement in insurance in super revealed that several fund members who directly engaged with their insurance found the process challenging and were not always able to achieve what they had set out to do.

This highlights that the value of a financial

Claim time

The quote

For many professional clients, the asset of most value is their ability to earn an income.

This is when the value of an adviser really shines. If a client has suffered a health event, it can be hugely traumatic for both them and their family and can have potential impacts on their mental health.

Insurance claims can add to this stress, so to have an expert, who understands the major trauma that has happened in your life, to guide you through the process and ensure you are being treated fairly is extremely valuable. This also helps explain why the proportion of claims paid for individual covers are far higher for claimants with an adviser than for non-advised claims (source – APRA Life Insurance Claims and Disputes Statistics).

Although people tend to focus on cost at the outset or along the way, the value of insurance cover will be determined at the time when the client needs it the most (i.e., at claim time).

This is the moment of reckoning because the outcome can be binary depending on the quality of the advice the client has received and the quality of the cover that has been put in place.

It then comes as no surprise that The True Value of Advice report, with research conducted

by IOOF and CoreData, has found the majority (90%) of advised clients said that accessing financial advice has left them in a better position financially.

At PPS Mutual, we have always believed that professionals require specialist financial advice when it comes to protecting their lives and their financial best interests.

Our mission is to continue promoting the true positive impact that quality financial advice brings to the insurance process and ultimately delivering best interest outcomes to the client. fs

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News

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

Montgomery sells boutique stake A global long/short equities boutique is branching out on its own, as it buys back Montgomery’s stake in its business.

Andrew Macken and Chris Demasi’s Montaka Global Investments was established in 2015, with Roger Montgomery’s Montgomery Investment Management as a minority shareholder and distribution partner.

Montaka, which now has $400 million in total fund assets and three distribution and marketing staff, has branched out on its own after buying back Montgomery’s stake. It will also build distribution capabilities of its own, with no plans to seek another external distribution partner.

Montaka continues to be backed by a family office investor, who is an investor in both the business and its funds.

“We appreciated the opportunity to work with them, to build such a strong business. Now we are excited about the opportunity to grow and to do that even closer with our clients,” Montaka co-founder and portfolio manager Chris Demasi said.

Meanwhile, Montgomery Investment Management has $750 million in total assets and is setting its eyes on building a multi-boutique business.

It has over 10,000 direct clients and about 30,000 subscribers via Roger Montgomery’s blog, according to the firm. fs

01: Sean Hughes

commissioner ASIC

Court makes orders in ASIC versus TAL Kanika Sood

T

The quote

These stories matter not just to individual policyholders, but to the reputation of the market as a whole.

AMP Capital loses super mandate Another super fund has axed AMP Capital Ethical Leaders Balanced Fund as the sole manager of its socially responsible option, citing liquidity concerns and negative press.

Mercy Super has made the decision to drop AMP Capital Ethical Leaders as the manager of its socially responsible option.

The fund said it has concerns over the potential liquidity of the Ethical Leaders Balanced Fund in the short-term.

In March 2020 the AMP Capital Ethical Leaders Balanced Fund had just under $1 billion in funds under management, as of December the fund reported $435 million in FUM. Mercy Super pulled its mandate from the fund on 15 February 2021, rolling member assets over to its MySuper Balanced option as an interim measure while the trustee searches for an appropriate manager.

“In recent times, there has been negative press surrounding AMP Capital stemming from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry as well as inappropriate culture within their senior management team,” Mercy Super said.

“This contributed to several large superannuation funds withdrawing their investment from the fund requiring AMP Capital to place certain restrictions on future redemptions.”

Mercy Super added that “key staff responsible for the socially responsible characteristics of the fund have resigned from AMP Capital”. Portfolio manager Kristen Le Mesurier exited in 2020, taking a new role as head of ESG and engagement at Platypus Asset Management. fs

he Federal Court made orders in ASIC’s December 2019 case against TAL, which stems from a Royal Commission case study.

The matter relates to a TAL income protection customer, who in January 2014 made a claim on her policy after being diagnosed with cervical cancer. TAL voided her policy, saying she had failed to disclose some “unrelated prior medical history”.

The court found TAL guilty of breaching its duty to act with utmost good faith under the Insurance Contracts Act. (Interestingly, TAL’s lawyers had alleged the customer breached her duty of good faith under the Act by failing to disclose her prior medical history.)

However, ASIC’s other allegations did not stand in court: that TAL engaged in false or misleading conduct in handling the consumer’s claim by making representations in a claims pack that it had a right to delay processing of the consumer’s claim, and to withhold benefits under the policy until she provided certain executed authorities.

“ASIC expects those involved in handling insurance claims to act consistently with commercial standards of decency and fairness, ensuring claims are handled in a fair, transparent and timely manner,” ASIC commissioner Sean Hughes 01 said.

“This case was highlighted by the Royal Commission. These stories matter not just to individual policyholders, but to the reputation of the market as a whole. The community expects

to be treated fairly and with dignity and respect by their insurers. The duty of utmost good faith is a long-standing core principle in the relationship insurers have with their policyholders. It fundamentally underpins the trust which consumers place in their insurers.”

Chief Justice Allsop found TAL, on receiving the claim, did not tell the policyholder that it was going to investigate old medical history.

TAL also did not give her an opportunity to address the concerns raised before rejecting the claim.

Further, TAL breached its duty to act in good faith by telling the consumer that she herself had acted without good faith and by threatening to recover $24,000 in payments that had been made to her after the insurer started its retrospective investigation.

ASIC initiated court proceedings against TAL in December 2019, after the case was referred by the Royal Commission. It sought multiple separate declarations about aspects of TAL’s conduct it saw as misleading, deceptive and in contraventions of the ASIC Act, Corporations Act and Insurance Contracts Act. The court documents also show in January 2021, TAL’s lawyers Gilbert+Tobin argued the court lacked jurisdiction to make certain declaratory orders against TAL because of the absence of a “matter” in Constitutional terms.

TAL’s lawyers sent notices to Attorney-Generals (Commonwealth and state) under s 78B of the Judiciary Act giving them 35 days to express their opinion. fs

QSuper unveils retirement income product Karren Vergara

QSuper has officially launched its new product to meet the increasing demand for guaranteed retirement income well ahead of the federal government’s mandate.

Lifetime Pension provides tax-free fortnightly payments for members aged between 60 and 80 for the rest of their lives.

The product provides an additional layer of income for retirees and 60% of it will be counted towards asset and income tests. It also has a spouse-protection option and binding death benefit nominations.

A minimum of $10,000 is needed to purchase Lifetime Pension. At 60 years old, an annual payment amount at commencement for every $100,000 for example, will pay $6164 (singles) and $5707 (spouse protection).

The first-year payment amount will be pro-rated according to when the product was purchased, and the member’s exact age in days at the time of commencement.

It is also subject to any annual adjustment that will occur on July 1 each year, based on the asset pool’s financial results (which includes investment returns, the mortality experience

of the pool, timing, and fees and costs), invested in QSuper’s balanced option.

Chief of member experience Jason Murray commented that Lifetime Pension meets the challenge set out in the federal government’s Retirement Income Review, which is developing products that allow retirees to spend their superannuation with confidence.

“The review has rightly called out the need for such products and we’re pleased to be the first major superannuation fund to meet it. Our product is designed to provide retirees with more income in retirement and the confidence that they will have income for life,” he said.

Federal Treasurer Josh Frydenberg is putting the pressure on super funds to meet the growing demand for these types of products that address retirees’ long-term financial needs.

The Retirement Income Covenant was introduced in the 201819 Budget but has been delayed significantly.

It is due to take effect in mid-2022 as championed by Frydenberg, who pressed for the need of retirement income products following the release of the Retirement Income Review. fs

News

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

13

Executive appointments 01: Mel Jose

MLC AM hires porfolio manager Clime’s former chief investment officer, who sued Clime and its chief executive, has moved to MLC Asset Management’s multi-asset team.

Anthony Golowenko has been appointed portfolio manager in the multi asset capital markets research team at MLC Asset Management.

Golowenko was most recently at Clime Investment Management, where he was head of investments for two years before taking over as chief investment officer in mid-2018. After seven months in the role, he departed Clime in 2019.

ASX announcements from Clime indicate Golowenko resigned. But he sued Clime and Bristow shortly after his departure, claiming unfair dismissal.

A hearing for the case is scheduled for August this year.

Prior to Clime, Golowenko had a 19-year career at State Street Global Advisers where he was a senior portfolio manager and portfolio strategist.

Golowenko started with MLC in early February 2021.

“We are pleased to welcome Anthony to MLC,” MLC chief investment officer Jonathan Armitage said.

“He brings significant investment experience specifically in the areas of domestic and international equities and objective based strategy development and further strengthens this industryleading team.”

MLC Life appoints retail general manager MLC Life Insurance has appointed a general manager for retail distribution partnerships, as the incumbent leaves.

Michael Downey is moving into the role that reports directly to MLC Life Insurance chief executive Michael Rogers effective March 22.

The appointment comes as Russell Hannah leaves the company on March 26.

Downey has over 20 years of experience in financial services, including advice and licensee strategy, strategic product development, distribution strategy and management.

“I am delighted that Michael has joined us as we enter the final phase of our technology upgrade.

His deep experience and leadership skills will be central to delivering our retail distribution strategy and management,” Rogers said of the appointment.

In his most recent role, he was the general manager of advice partnerships with responsibility for leading MLC Advice licensees.

“I am thrilled to be joining MLC Life Insurance.

I’ve a long-standing admiration for this iconic Australian life insurer, which is soon poised to leverage its significant investment in technology in order to excel in servicing licensees and advisers.

I’m looking forward to leading the distribution and adviser servicing team,” Downey said.

MLC Life Insurance received a $650 million capital injection just before Christmas, as its

JANA hires head of operations The asset consultant has appointed a head of technology and operations from the New York Stock Exchange as it builds out its digital transformation team.

Ann-Mary Rajanayagam spent over four years at the NYSE as a program manager in equities, options, index and bonds.

Prior to this, she was a project manager and business analyst at J.P. Morgan Asset Management, also in New York.

She has also held analyst roles at NAB, BT, Colonial First State and UBS. In her new role, Rajanayagam will oversee JANA’s technology and operations, focusing on governance, process, and developing digital strategy, including vendor management and business efficiency.

“We are hugely excited to have her on board to lead JANA’s next phase in its digital transformation agenda,” JANA chief operating officer Ashleigh Crittle said.

“Her expertise and insight will prove invaluable as we continue to grow our digital capabilities to help deliver the best outcomes for our clients.”

majority owner Nippon Life saw the risk of MLC Life’s “stagnant” business performance continuing beyond 2021. MLC Life’s ownership structure remained the same: 20% with NAB and 80% with Nippon.

Former Clime chief in new role After leaving Clime Investment Management abruptly in November, the former chief executive has taken on a new role at an early-stage investment firm.

Rod Bristow02 has been appointed as chief executive of Investible, having been in the role at Clime since September 2018, after joining from Macrovue.

Bristow oversaw significant growth for the Clime, including the $5 million acquisition of Madison Financial Group earlier this year.

Investible closed its first venture capital fund last year with more than $22 million and invested in 25 early-stage companies across 15 sectors.

Investible co-founder Creel Price said Investible’s vision is to elevate seed investment on a global scale and enable high-potential founders to achieve their goals.

“We welcome the additional experience, leadership and passion Rod brings to the business, as we enter this next phase of growth,” Price said.

Following Bristow’s departure, Clime appointed its chair Neil Schafer and non-executive director Brett Spork as interim co-chief executives for a five-month fixed term which will be terminated when Clime appoints a new chief executive.

Rest in hiring spree Rest has appointed a new general manager in superannuation and continues to build out its member engagement team.

Catherine Farrugia and Steven Ahn have joined the member engagement team.

Farrugia joined in February as the new general manager of digital, responsible for digital strategy, design and delivery, which covers the super fund’s website, app and virtual agent.

Farrugia has been with Rest for 14 years and was previously general manager of channel management.

Ahn has been appointed as the general manager of member insights and strategy. His new role involves leading member analytics, data science, market research, ‘voice of customer’, and dashboarding teams, and guiding strategic insights into operational delivery.

He was previously a consultant in business transformation and operations for over 10 years and worked at Medibank and Telstra.

Rest is in the process of recruiting for a general manager of brand and marketing.

Mel Jose01 has been appointed to the role at Rest, moving on from her role as senior manager of investment governance at NGS Super. Prior to AMP, Jose also worked at Westpac, BT Financial Group, Perpetual, CommInsure and Colonial First State.

02: Rod Bristow

Jose spent only five months at NGS Super, joining from AMP where she held a number of roles over six years. A Rest spokesperson confirmed the appointment to Financial Standard saying Jose brings a wealth of experience to the role.

“Mel has more than 20 years’ experience in the superannuation industry, including 16 years’ experience in product management and strategy,” Rest said.

“She spent six years at AMP, where she led the reestablishment of the AMP Wealth Investment Product function, management of the Master Trust and Platform investment menus, as well as product management within the Corporate Super team.”

Frontier hires from Cbus Frontier has hired a senior portfolio manager from Cbus to lead its alternatives and derivatives team.

Scott Pappas was most recently at Cbus as a senior portfolio manager in absolute return strategies. Prior to this, he worked a part of Vanguard’s global investment strategy group.

He has also lectured at Griffith University on portfolio management and corporate finance, and has a PhD in behaviour of portfolio diversification.

Frontier chief executive Andrew Polson said: “Not only will Scott offer our clients, some of whom engage Frontier as a specialist adviser in this area, with innovative thinking across some less well-understood areas, but his deep experience and academic background will provide our emerging consultants with invaluable exposure to this increasingly important part of portfolio design and management.”

Pappas started in the role on March 22.

“Having worked closely with Frontier during my time at Cbus I have a good understanding of the capability and culture within the firm and I’m excited to become a part of that. My team has a rich diversity of backgrounds and knowledge and I’m keen to add my own dimension to that,” he said of the appointment.

Funds SA appoints executive The $37 billion public sector investment manager has appointed a director of asset allocation, hiring from Tcorp.

Brendan Hallett will be responsible for leading the asset allocation team and will be deeply involved in developing investment strategy for Funds SA’s clients.

Hallett most recently spent seven years at TCorp, where his roles included portfolio management, asset allocation research and investment/client strategy.

Prior to this, he worked at AMP Capital for nearly eight years including as an investment strategist.

He started at Funds SA in March and reports to its chief investment officer Richard Friend.

“The appointment of Brendan is an important addition to our investment team where he will be integral to the continued expansion of the organisation’s investment capabilities. I am delighted that he has joined Funds SA in this role,” Funds SA chief executive officer Jo Townsend said. fs

14

Feature | Australian equities

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

ADD TO CART A growing number of listed Australian retailers are shunning brick-and-mortar stores to sell exclusively online. And equities investors either love or hate them. Kanika Sood reports.

Australian equities | Feature

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

01: Kate Morris

02: Charlie Lanchester

03: Matt Darby

co-founder, director and chief of innovation Adore Beauty

head of fundamental equities BlackRock Australia

head of retail KPMG Australia

I

n 1999, 21-year-old Melburnian Kate Morris01 borrowed $12,000 from her boyfriend’s parents and started a business selling skincare and makeup online.

Last year in October, it listed on the ASX with $158 million in expected revenue for 2020 and a market cap of about $650 million. In the two decades since it started, Adore Beauty has sold exclusively via the internet.

“That was actually always the plan. To me it made a lot of sense because there are a lot of things that you could do online for customers that you couldn’t do in a store,” Morris says.

“For example, being able to have reviews from other customers or being able to show videos that people could watch in their own time.

My experience was that the in-store experience was always kind of limited to the knowledge of the person serving you.”

Adore Beauty is one of the new tribe of Australian retailers using websites instead of shopfronts as their primary avenue to meet customers.

There are others. In the second half of 2020, eight e-commerce-related businesses listed on the ASX including homeware retailer MyDeal and consumer-debt-driven marketplace Zebit.

Longer-listed players Kogan, Temple & Webster, and design products marketplace Redbubble now have market caps north of $1 billion.

The category (even though it is not yet recognised as such in S&P’s classification of the ASX) has benefitted over the years from shoppers becoming increasingly tech savvy, shipping logistics getting better and new methods of payment. COVID-19’s lockdowns delivered a sugar rush to their revenues as Australians locked out of malls, entertainment venues and airports spent record amounts on online retail.

From an investment perspective, potential investors for e-commerce stocks can be split into three broad categories.

First, there are the believers who think COVID has pulled forward a structural shift towards online shopping, e-commerce stocks have a long runway of growth and will rapidly grab a bigger slice of their respective markets as they leverage consumer data to scale and refine operations.

Second are the investors who think e-commerce businesses are easily replicable, have a tough climb to actual profits and are captive to customers that are bought via advertising on platforms like Google.

And lastly are those who sit on the fence.

These are the investors who are convinced ecommerce is a good addition to their portfolios but are waiting for their share prices to weaken before they buy, or those who want to see the revenues past the COVID spike.

E-commerce penetration growing In January 2021, Australians spent about $30.5 billion on shopping for things like food, clothes, and homewares.

Of this $30.5 billion, about 9.1% came from online sales – a significant increase from its 6.3% share of total retail spending just 12 months ago (Figure 1). This is according to the Australian Bureau of Statistics which publishes the online retail sales data on an experimental basis and advises caution in interpreting the results.

Pure-play retailers had a 2.7% slice of January’s total retail spending, while multi-channel retailers had a 6.4% slice.

In other words, COVID has massively pulled forward shoppers’ appetite to buy things online but e-commerce-only retailers are dwarfed by traditional as well as multi-channel retailers.

Charlie Lanchester02 , who heads fundamental equities for BlackRock Australia, posits two reasons as to why e-commerce penetration has been slow to pick up in Australia.

“I think some of the reasons of that are lastmile delivery options. Our cities are wider spread and minimum wage is relatively higher than other parts of the world and we are not quite as automated in self-driving cars or drones delivering orders,” Lanchester says.

“The second reason is that usually Australia is a fast tech adopter. That has not been the case for e-commerce. Our retailers are reasonably concentrated and somewhat oligopolistic in nature…certain companies dominate certain segments and have strong relationships with brand owners globally [and that] has meant they have been dismissive of e-commerce,” he says.

Like many investors, Lanchester believes COVID will force e-commerce’s penetration of total retail sales to tick along at a faster pace. But he is more bullish than others.

“Even post-COVID, we are well behind other developed economies that have 20%. I have a strong view that not only will it catch up, but the penetration rate will also move to 50% over the next decade or so,” he says.

Could this be slowed down by Australia’s large older population, and up to 2.5 million people not connected to the internet at ABS’s last count in FY17?

“I don’t think ageing population will have an impact on e-commerce penetration rates…[For people who don’t have internet access] sadly I think that’s a real social divide and I suspect they are not a huge part of the retail economy,” he says.

Lanchester’s fund’s February documents list Redbubble and Marley Spoon as its holdings.

(BlackRock declined to comment on individual stocks).

KPMG Australia’s head of retail Matt Darby03 does not put a number on how much further online penetration could increase, but he is staunch that it is sustainable.

“We are going to have to understand what’s going to stick versus what was a glitch i.e., short lived impact of the pandemic. The online side, I think, is materially shifted now and won’t come off materially,” Darby says.

15

“The growth rate will reduce but the penetration levels that we have got to now, we’re not going to go back,” he says, citing online shopping in November and December last year which had only slight drops, even when physical stores were open again.

For Adore Beauty, customers it acquired during COVID-19 have so far proven to be sticky. It acquired nearly half a million customers during the pandemic and Morris expects them to transition into returning customers in the same way that new customers did pre-COVID. “States like Queensland and South Australia have been, for most intents and purposes, back to normal since June. So, we have had eight months of looking at their behaviour,” Morris says, basing it off the company’s data.

“They’re not acting any differently to how we expect them to act, just because we acquired them during COVID.”

Usually Australia is a fast tech adopter. That has not been the case Not everyone is a believer for e-commerce.

Despite the structural tailwinds in online shopCharlie Lanchester

ping’s growth, many fund managers are not ready to add e-commerce retailers to their portfolios.

Allan Gray’s Suhas Nayak04 , who runs a sector-agnostic Australian equities fund, says: “They all provide a good service for customers.

The question is valuation for us. For some of these e-commerce companies, expectations are quite high.”

Tribeca’s Jun Bei Liu05 runs a long/short Aussie equities fund and shares Nayak’s view. She owns Redbubble but has not invested in other pure-play online retailers.

“With these businesses, if anything, share price weakness is a buying opportunity. It’s more about when do you buy than, you know, to short them,” Liu says.

“These are good businesses. Your cost of doing business is low, and if you have a brand name [that] is incredibly difficult to build, consumers will follow…and for the ones that established those brands, they will become much bigger businesses in five years.”

Small caps fund manager, Lakehouse Capital’s Joe Magyer06 acknowledges the power of networked businesses, potential stickiness of beauty customers such as at Adore Beauty, and the adoption of online shopping. But he is still staying away from the e-commerce names – and it is not even a matter of their high share prices.

“They are not models built around extreme customer loyalty, and a huge part of their cost is marketing spend,” Magyer says.

“I don’t think they are bad businesses. They are just not positioned to be independently successful [without external marketing]. They will always struggle to reach a scale that a lot of their investors hope.

“I grew up in a retail family. It is very price competitive; competitors will copy anything – no matter however smart – straight away.”

16

Feature | Australian equities

As an example, Magyer cites Redbubble, which is a three-way marketplace where customers can buy items such as mugs and t-shirts with designs posted by artists. A cohort of fulfillers (separate to Redbubble) prints and ships the items. Redbubble takes a cut of final proceeds to the artist.

“It is a business that has low purchase frequency per customer. You might buy a mug or a t-shirt with a printed design today, but you won’t be buying it every week,” Magyer says.

But Liu points out Redbubble, unlike many Australian retailers, has the scope to expand into overseas markets.

The model may also look easily replicable.

“It’s actually quite hard to build a marketplace. You have to have scale, you have to attract the artists, and then you have to actually attract the customers as well – and it’s hard to get both,” says Richard Ivers 07 from Prime Value Asset Management, citing Realestate.com.au and Carsales as great marketplace businesses. Ivers is also a Redbubble investor.

Identifying a fair price Many e-commerce retailers are not profitable yet, and so traditional earnings multiples like price to earnings (P/E) fall short of giving investors an idea of what is a good price to pay today.

Ivers gives an example: if a business spends $100 today to acquire a customer and that person delivers $50 in profit for the company and stays for 10 years, it makes sense for the company to spend $100 today for the $500 contribution to profit over the next decade.

“A lot of people look at things like revenue multiples and gross profit multiples and things like that, but you’ve got to sort of look at individually, but there is a bit more to it,” Ivers says.

“The way I think about it is Redbubble did about $350 million of marketplace revenue after the artists’ cut. Pre-COVID it was growing at about 30% per annum. So, call it about $100 million [30% of $350 million].

“Of that $100 million in revenue growth, about 30% of that falls through to what’s called gross profit after [customer] acquisition costs.

Then that means about $30 million in growth [in gross profit].”

“Then the costs below that are growing somewhere in the order of $10 to $15 million a year. At $10 million, you’ve got $20 million of profit growth a year. And you can value that on 20x that $400 million, that gives you about $1.50 a share,” he says.

But in case you are interested in P/E terms, both Redbubble and City Chic are trading at 25 times FY22 earnings (they are both profitable). Adore Beauty is on a P/E of about 70x, while Booktopia and Temple & Webster are on about 60x.

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

04: Suhas Nayak

05: Jun Bei Liu

06: Joe Magyer

portfolio manager Allan Gray Australia

portfolio manager Tribeca Investment Partners

chief investment officer Lakehouse Capital

Allan Gray’s Nayak, who has stayed away from the sector, likes to think of e-commerce stocks’ viability in free cashflow terms.

“Temple & Webster, for example, is about $1.2 billion market cap at the moment. I think roughly, the market as a whole is about 14x cashflow before interest and tax. A mature Temple & Webster would need about $80 million of cashflow before interest and tax [to justify current share price for Temple & Webster]. The question is how long they will take and what is the scalability of their costs,” Nayak says.

“While you are waiting you don’t get much by the distributions.”

There was an opportunity to invest in retailers in COVID when their share prices dropped initially, he adds, but that time has passed.

Moelis’s John Garrett 08 owns $20 million of Temple & Webster stock that he has continued to buy into until recently. He also has a smaller position in traditional furniture retailer Nick Scali, but prefers Temple & Webster.

“If 10 or 20 years ago you looked at Amazon’s P/E and decided not to invest, you would have missed out,” Garrett says.

“The way we look at it is this. They are not your typical businesses [and so] rather than focus on P/E we tend to think what the businesses look like three to five years ahead. If you have a retailer who has 10 stores today and wants to go to 75 stores, then P/E and EBITDA are meaningless.

“Ninety-five percent of the market will be looking at P/E and think this stock is too expensive. We think they are going to have [100] more stores into the future.”

Garrett says he looks for qualitative as opposed to quantitative metrics such as net-promoter scores, supplier relationships, basket size, active and repeat customers and the return on marketing. But at the end of the day, sales growth trumps all.

“At the end of the day you have to have sales,” he says.

BlackRock’s Lanchester says he looks for profitability, lifetime value of the customer, net promoter score, sales growth, growth margin and gross profit after paid advertising.

“My advice to [investors looking at ecommerce stocks] is that scale does matter in ecommerce. There are a couple of names in Australia that have global businesses and their addressable market is huge. Outside of that, look for the more established players in the local market,” he says.

Marketing spends Most e-commerce businesses listed in Australia spend between 5% and 12% of their sales on marketing to customers, according to UBS. This was cheap in COVID, but is now getting expensive, Magyer points out, citing cost per thousand impressions (CPM) rates for Facebook ads hit their 2020 high in November.

They all provide a good service for customers.

The question is valuation for us. For some of these e-commerce companies, expectations are quite high.

Suhas Nayak

Pure-play online retailers use Google and Facebook – two online platforms with massive scale but also a penchant for tinkering with their search algorithms.

But most investors are undeterred by marketing spends (even if they want to see organic sales), while Adore’s Morris says it makes sense to spend that money.

“If you think we are at inflection point with e-commerce and there is an opportunity to become a dominant player, we’d rather they spend now. We would encourage management to take some pain today for long-term gain,” Garrett says of marketing spends.

Lanchester agrees with Garrett, saying: “It’s a part of this business. These guys have an unbelievable level of detail via data. It is nearly all digital marketing, so you can see if it is working or not, how much spending it brings and the lifetime value of that customer – it is very obvious whether you should spend that money or not,” he says.

“Old retailers would spend vast amounts of money on TV campaigns without any idea of what the return on investment is.”

Adore Beauty has directed its marketing spend towards content such as articles and podcasts (its first episode recently topped two million downloads). Last February, it bought its first television ads.

“I think we’re an extremely data-driven and analytical business. And so, we basically don’t do anything [to] scale anything up unless we have complete confidence that it works,” she says of the company’s decision to buy TV ads.

The TV ads increased the brand awareness by 33%. The podcasts have a segment that runs through independently-selected beauty products, which results in a predictable spike in recommended products’ sales each week.

“I don’t think it’s about rationalising it [Adore’s 12% of sales in marketing spend].

For us, it’s a very deliberate decision based on the opportunity…beauty and personal care, which just in Australia is an $11.3 billion market,” she says.

“If only a very small percentage of that is online…we see a huge opportunity to take share in a growing channel in a growing market.”

Slow climb for advised clients Despite the attention e-commerce stocks receive from fund managers, they may have a long way to go with older retail investors.

Diana Saad09 is a senior financial planner at Silway Private Wealth working with typically pre-retirees or retirees with at least $500,000 in investable assets.

She says her clients are still focused on blue chip stocks like the banks and mining companies. Tech stocks like Afterpay and Xero have

Australian equities | Feature

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

07: Richard Ivers

08: John Garrett

09: Diana Saad

portfolio manager Prime Value Asset Management

managing director Moelis Australia

senior financial planner Silway Private Wealth

been the most topical in conversations lately, while FAANGs also come up a lot.

“There is a sense of familiarity and predictability that clients feel when investing in these [blue-chip] companies. Perhaps that’s also because these are the companies that the media tends to comment on the most, given their large market capitalisation,” she says.

When it comes to ASX-listed retailers, the ones that her clients have the most exposure to (directly or via managed funds or ETFs) are traditional names like Myer, Harvey Norman, JB Hi-Fi and Nick Scali.

“Of course, there are also the self-directed clients that have also gone and purchased such stocks directly such as Kogan and Baby Bunting. Clients that hold these investments, tend to have a balanced risk profile and above, so only a specific portion of my clients have exposure to these ASX-listed retailers,” Saad says.

On e-commerce retailers, she believes they may be better suited to investors in accumulation phase rather than her typical client profile.

“Some of these companies started out as recently privately owned companies (think Adore Beauty that only listed on the ASX late last year) that once listed on the ASX, became largely microcap or small cap stocks, with little publicly available earnings history,” she says.

“These were not well researched blue-chip mature stocks, which means that although there was a lot of potential growth to be gained from exposure to these retailers, there was a lot of potential volatility to weather. These stocks may not be appropriate for clients with relatively conservative investment risk profiles.”

For some shoppers, e-commerce is almost synonymous with discounting, per a 2018 PayPal report that found seven in 10 online shoppers only buy discounted items.

What to expect ahead?

But Adore’s Morris thinks discounting is not a major pressure for the business as its product line leans towards the premium end of the market. While price is important to many customers, KPMG’s Darby says what really drives purchase decisions is a trio of value, convenience and experience.

The BNPL effect Is the success of buy-now-pay-later companies a driver for e-commerce? And thus, could ASIC’s push for tighter lending standards for BNPL providers dampen online shopping’s growth?

Darby and BlackRock’s Lanchester both believe BNPL is not an intrinsic driver for online shopping.

“Buy-now-pay-later is a payment mechanism a bit like credit cards and what we’ve seen is that there’s a growth in [these] proposition mechanisms. It is just another way of influencing the purchase decision,” Darby says.

“I don’t think it’s necessarily intrinsically connected to purely online because we’re seeing buy-now-pay-later being offered [at] physical retailers as well as online retail,” he says.

Lanchester acknowledges the younger generation loves BNPL but says it is still a small part of online sales, and chances that regulation will shut it down completely are very low.

Morris’ opinion differs slightly.

“It’s certainly very popular within our core demographic, which is kind of 25 to 45. I think for customers within that demographic, it is an essential part of the way that they shop,” she says.

“There’s probably customers who would shop less if you didn’t offer buy-now-pay-later.

It’s kind of a must if you are interacting with millennials in any way.”

Broadly speaking, I’m reasonably cautious on this space. But there are lasting benefits that I get, because of what happened last year.

Richard Ivers

Figure 1. Total online retail sales in Australia, original and seasonally adjusted

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Source: Australian Bureau of Statistics, Online sales, January 2021 - Supplementary COVID-19 analysis

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Garrett and Ivers, who both own e-commerce stocks, are prepared for lower growth rates in the future.

“We think it is almost impossible to sit here and say it is going to grow at x%. I don’t think it will continue to do 118%. But we think it will grow at a very attractive rate in the foreseeable future,” Garrett says.

“It is not sustainable to grow a business at 30% a year over the long term. If you can sustain even 15% to 20% for a long time, that’s a big deal,” he says, adding he prefers the company keep away from paying dividends that may make it look good now to analysts but takes away from investment into the company’s future.

Ivers too is ready for more muted growth from the stock.

“Broadly speaking, I’m reasonably cautious on this space. But there are lasting benefits that I get, because of what happened last year. You got a massive increase in customer numbers,” Ivers says.

“A lot of these players had revenue growth of between 50 and 120% and they’ve got an increased customer base, which will hopefully repeat. But it is unclear where sales settle post COVID.” Following its IPO in 2016, in 2019 Ivers invested in Redbubble at about a $1 per share. The stock ended March 11 trading at $5.48 per share.

Some Australian players may even be able to break the mould and expand overseas, and ahead of traditional counterparts.

“There may come a time when they grow so big that they saturate the local market and they have to go overseas to expand their addressable market,” Liu says.

“With the offline retailers, [expanding overseas is] often harder because that will normally involve going to a different market, buying another business. And it often doesn’t end very well. It’s just much [lower] barrier to entry when you’re an online retailer and I think they will [expand overseas].”

Chinese online retailer JD.com started using drones to deliver orders during COVID-19 and had plans to expand their use.

In Australia, unlisted online retailers like The Iconic and Koala offer same-day delivery as one of their shipping options.

But don’t expect drone deliveries on your online shopping orders to become the norm anytime soon.

“I don’t think an hourly delivery schedule is important for every retailer because for example customers shopping at the value end of the market want the best price for a decent quality product that they’re buying,” KPMG’s Darby says.

“And if we are offering multiple, very frequent delivery schedules, there’s a cost to be borne somewhere.

“But then if you’re at the luxury end of the equation, then that [drone or other automated delivery options] could be part of your value proposition.” fs

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www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

18

01: Name

job title Company

Headline goes here

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The quote

xxx.

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Still, stock selection comes down to the individual company’s fundamentals.

Brought to you by “There have been some opportunistic listings in this space,” Lanchester admits.

“However, if you’re inLOGO the right companies with the best management teams, they’ll continue to do well in the longer term.”

How to invest in tomorrow’s winners

Picking the companies that will ultimately thrive is about rock-solid fundamentals – and not paying too much heed to short-term noise, says Charlie Lanchester, BlackRock Australia’s head of fundamental equities.

R

The quote

We hold the view that people’s behaviours have changed forever, and will continue to change even more, and online retail will be a much higher percentage of overall sales in Australia in the next 10 years.

Watch the video on www.fsitv.com

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www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

19

01: Name Lanchester Charlie

headtitle job of fundamental Company equities BlackRock Australia

Investing in a management team The competency of various management teams was another decisive factor when it came to which companies did well in 2020.

“Well-managed companies were able to navigate their way through the crisis much better than poorly performing companies,” Lanchester points out.

“Some of those businesses were really caught out during ae nus, COVID.” sumquas pitatii ssenis sitiis excea ius Quality dictiae management que pariorati has ducilla always boruntum been a aufotam,for cus omnim the BlackRock volorporemo Concentrated molupti strunt.

Industrial Share Niam Fund. faccullantem It also favours elitas aut businesses aspicid endigent that are omnihil molest reinvesting theirque capital iunt acil wisely ius, to adit grow ipsandus their aspe nonsesustainably business verspel iquidis overeos time. audantibus At the et same am liqui demquia time, Lanchester conseque and his nonsequi team avoid dus asundue conessitatum levels of debt. re eatem repe solo quoditatia pore, omnihil This isluptate highlysime relevant simusae just now. ptature While pelesequi many res porrovi have companies tisseditaken inimus active ut utsteps que to resaddress evellac caborecost their in estor basessant over autthe experumquam past year, they rent.have also Et sought et rehenih hugeillabore injections cus,ofomnis capital. miliciae This et quam, isn’t an impediment odit fuga. at Neque the moment, prorerat Lanchesquasima gnianihilia ter says, because cus, non debt poriatis is cheap, suntur, plentiful voles and essi corrum easily secured. rate pratentur? Quis endit volupiet evendandae.

“But thatItate isn’tquiate always iusthe etus case,” voluptis he warns. ab int.

Aximporum It’s why the fund qui ullupit, continues utemquae to run in a more ratur asperibus doluptas conservative investment sitia quatur process alitathat susaavoids sit ut idignatis alignis companies with excessive eum ant licipsum leverage. fugiamet ut aspeliqui “Right simus now, that eliaedoesn’t nobist,seem odi te to voluptaecae make much quea pore of difference, duntusbut doloribus potentially re veni in the ommoditae future it et molent will help us. quidebist It’s about odiatio. not taking Nam too nonmuch nusam risk is rero trying and et ea num to avoid as mothe omnim blow-ups, qui necto especially con con in num num times of dislocation,” fuga. Bis assequam Lanchester faciae explains. dipiendis nossi non nullacc aboritatia dolenditam ipsame nis et voluptibusci Looking to growth bearcimus utem conseque quatur Of course, rendit investing endit autfor quithe dolo long custerm eossitatur? is also Ad ut hit, about finding conse future lant que opportunities, ne commosand nossimodthere’s ite doubt no serionacusaeriate potential return vellab toimoluptas business as et usual exeratempe in 2021 poreperum could offer vellut up some faccae worthwhile laborum investeicaeri onsequiin coreius ments that regard. cipitinusam re sequo magnist issit, This solora kinddem of thinking quisti omnis is behind et elit many res volorof the eniam in stocks cum theestiorio BlackRock voluptas Concentrated iuntem fugitiam Indusdi blaborerum trial Share Fund, eum including earit optatis some ius, that ex essitas offer pelicil int esvalue significant esequat plays. istiberero To thistem end,nos Lanchesab iunt lanti si ter’s team bla qui hasacepudam avoided the destobvious optatur contendaut ation cuptatiosam er – travel stocks doloribus – with assunt, good odireason. arum, sanitis While cuptusmay they asped benefit molenita fromauta vollorest, large reallocation sandionseque of spending dolorepe when dipsape consumers discim embrace quid eos travel diam eiumet once more, res utthis volesto has already reptati illes beenquo factored endantinto officia delenectore their price. quae optat.

Udamusam “Rather, we rethink numquodi there areofficia less obvious epeliqu oditaspthat names erovid stilletlook millab really ipsus cheap aceptia to us que and nem that fuga.benefit will Ustet as dellitatem the economy quiassin reopens,” poremheexnotes. eatis aut audam et molupta dundit quia quam fugitio rporibus The sweet recto optatur? spot Ihitas quae vendunt volore aut optio Ultimately, Lanchester eatem fugitatur? and his team are intent onAximus, discovering nosapidi thoseut businesses aliquis totatur thatemporer haven’t ehenda been noticed dolentyet. alignam, This isisquat what facias he calls nimolorei“the inume nonem vesting sweetfuga. spot”: Odiemerging ut que nonsequi companies dolupta that dicabor have been autaround eum erferfe for a rnatem while, but laut which escimi,may ipsusatetthe be ellore small nihiciis end ofrem theeiciendae market cap magniam range, say hil ipsus expe verions $300-$500 million. equaspienis Ideally, they ati utwill et aut have aliasa delit et evenien management team dipsuntibus that’s reinvesting ute labore itsintinus, capital sit omnime wisely, Lanchester arior mos says, dolore but omnihiti this won’tsed bemos re-

R

flected in the company’s valuation – its one-year forward multiple.

“We are scouring the full extent of the market for opportunities like this. It may be a value or growth stock, but by focusing on the quality of its management team and how it chooses to reinvest its capital, we hope to see its market cap move up over time,” he says.

“Our aim is to hold it all the way through as doluptatenem it becomes a much eumbigger ipiet company fugia et ifquate possible.” volla quae. Nam, sed quae. Itassum volutas aut quisto conest, sectust, Stock picking odit, is si ut inlandus desequi nem hilliqu On theidebis whole, quithere’s odignatgood vent.reason to be upbeat Simi, about idunte Australian verum corpore equities. repti Their ulla plibus yields simushighly look preperfattractive, erovit qui Lanchester simil magnispoints velesedout, et, cusci ditas modictati particularly when compared con cus sinvelique with other nobitaasset tet ium eosti dollestium ipsam lam simus milclasses. latus “We’ve enim seen eum record que liquatio low interest magnistrates ionseque and odit volo estem. fiscal unprecedented Licab ipicidit, stimulusquodit around qui qui the con eum globe, which num,has odiaspid been very qui constructive doluptas enisfor si quis eqexplatem uity markets quemore sed estis broadly,” volupta Lanchester spitem. Occulpa says. susHowever, sim faccuptamus the current quidis dispersion ellenie ntotatem has endaepressi made careful optassit stock utselection verios nisparamount. rerum ullabor As arum enihitat Lanchester notes: a volore “Youarum can noinciendit longer rest ipsunt, asomnimporera sured that the doluptame same stocksoptur? will lead the market upIligni whilenonsedion the same rem stocks voluptae underperform” rem volore–pra as niet the was eturcase suntemquam over the past sita decade. con poritiis doloreptium This dolorep supports erferis thequasincium case for active sequati managealitate mporibus ment, Lanchester re num ilsays, ipsa explaining:“2020 volecus dolo magnam was aque year dissimi, when active enduntio. funds Molesediorum in general, not quijust as quam really ours, dolorianis cameevendaes back into dipsus vogue. nonseca It’s much epellam, nata more of a cust, stockutpicking lique voluptur? environment Expliquiam and we ellatemexpect would venimoles that et to excepero continue.”voluptiberum ea num There hicatiare autemol other uptatust reasons vidunti why active scimos manestrum ut praisdoloratis agement so valuable ma quam, just optatem now. Equities harum, eveliquaesti may be doing dolorem well relative repedig to other endanim assets, volupbut tur? fact is we remain in a low-yield environthe ment, Pel inihiliquia and there’s netno quunt reason est aut to believe a volendi things gnatur sachange will sunt. anytime soon. Indeed, a typical portfolio Genda today commos mayque produce dolessiless nvelis thanexpligeni half the non reptate returns thanaditissi it would debis historically eicimus. with almost 20% Arum risk. excepratur ad moditatem sitaquae nonsent This makes ut veliquassit outperforming modigenderum the marketesmore nis simo quas critical than venimet ever, Lanchester dolupti stotass says. untium eium ut “In qui are world non porem wheresum you faceseq might only uamenistias expect del modit,annum 6-8%per qui doloribus returns maximolupta from equitiesacillan – far dendebisi below historical dendi omnis numbers aditis – aessi manager dolore porwho rupt atiatesto generates alphaque (orvolupis 3% persanditet annum eseditatur after fees solo above) and blaborrovit, is fundamentally essitae volores far maio more valuable tent esti simuswhen than dis eum returns voloritate were much vellendit, higher,” quehe pratate says. nus mil iumquiberit quibea secepuditat ipiet que pra volorio opta Choosing a veligni fund aspedis manager electusfor autatec atisquitimes the unt facepra temque volupta dit laborum, si di que nihit, However, it’s not quas simply ute essumqui a matter ofcumquis active maninitam nihit etInverrum agement. order ato cus, find te nost the ratqui all-important dolorror maximent alpha, you’ve adigend got toemporem be highly volendi selective taspeliqui about doluptus which fund nesmanager distiam you reicabo choose. rerruntia sunt por senis While magnis there ipiet are aquamus lot of fund moluptia managers quiscid in ex est re estemporro Australian equities out dolupiciunt there – with estrum almost quodi as consequatet, many active managers necum es as ut investible officiis velectempos stocks, acanditaturtoautat cording Lanchester erumque – you cus dolorereius need to go sequis out of dolorway your repero to find omnia one que that has inihilitam an edge. resent preremperum As Lanchester landis says, di re you do need to ask yourself, “Who’s Ecest, managing vitem volorat theestiust money? ionsequi How long alitinulpa have

they been around for? How long has the team been together? Who’s backing them? What’s their platform? Are they focused on building a business or running the money, picking stocks?

What access do they have? How big are they?

Are they too big?”

Going for growth and value Lanchester is proud of his team of four but has the backing of BlackRock.

“We’re quite small and nimble, yet we are supported by the platform that is BlackRock, which obviously has the biggest scale of any fund manager in the world. We think that’s a significant advantage,” he says.

His team’s approach also suits the current environment.

“We’re very style agnostic,” Lanchester says.

He points to the fact that growth managers have done incredibly well over the past decade while value managers have struggled. Yet this is largely irrelevant to his team.

“Our portfolio isn’t skewed one way or the other,” Lanchester says.

“We have a mix of value and growth stocks, but we can pivot either way quickly given our size depending on where we see we have insight. There isn’t a part of the market where we wouldn’t hope to generate alpha.” fs The quote

2020 was a year when xxx. active funds in general, not just ours, really came back into vogue. It’s much more of a stock picking environment and we would expect that to continue.

Issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165

975, AFSL 230 523 (BIMAL) for the exclusive use of the recipient, who warrants by receipt of this material that they are a wholesale client as defined under the Australian Corporations Act 2001 (Cth).

This material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction.

This material is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. BIMAL is a part of the global BlackRock Group which comprises of financial product issuers and investment managers around the world. BIMAL is the issuer of financial products and acts as an investment manager in Australia.

BIMAL is the responsible entity and issuer of units in the Australian domiciled managed investment schemes referred to in this material, including the Australian domiciled iShares ETFs. Any potential investor should consider the latest product disclosure statement (PDS) before deciding whether to acquire, or continue to hold, an investment in any BlackRock fund. The PDS can be obtained by contacting the BIMAL Client Services Centre on 1300 366 100. In some instances the PDS is also available on the BIMAL website at www.blackrock.com/au. An iShares ETF is not sponsored, endorsed, issued, sold or promoted by the provider of the index which a particular iShares ETF seeks to track. No index provider makes any representation regarding the advisability of investing in the iShares ETFs. Further information on the index providers can be found in the BIMAL website terms and conditions at www.blackrock.com/au.

No part of this material may be reproduced or distributed in any manner without the prior written permission of BIMAL. © 2021 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES and the stylised i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

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Events | SMSF Association

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

SMSF Association National Conference 2021 After COVID-19 thwarted the association’s plans for a conference in 2020, the SMSF Association came back with a bang this year, offering in-depth discussion on pending legislative reform and the regulator’s areas of focus going ahead.

Over two days, this year’s virtual conference attracted more than 1100 registrations nationwide and clocked up more than 16,300 total webinar views.

There was even a virtual exhibition area where 1307 one-on-one discussions between delegates and sponsors took place.

Such figures speak to the success of how future industry conferences should be conducted as the world moves forward with the new normal.

SMSF Association chief executive John Maroney said: “It was a great outcome for everyone involved. We were very conscious going into this virtual event knowing just how important the National Conference is to our members, so to get such a positive response is deeply gratifying.”

Being virtual also allowed the SMSFA to reach individuals who could not travel to past conferences, such as those working part time, living in remote areas or having family responsibilities, he added.

One delegate commented: “I thought the virtual platform amazing – I genuinely hope you

continue to offer it via this medium even if it goes back to face to face next year.”

“Every session gave me food for thought and challenged me. It is an amazing result given the constraints you worked under,” another attendee said.

Best financial interests duty Self-managed superannuation funds are ahead of the game in terms of meeting the looming best financial interest rules, according to SMSF Association deputy chief and director of policy and education Peter Burgess.

Burgess told delegates that the reform is something the SMSF sector should have no concern about.

“SMSFs have always been held to a very high standard when it comes to the sole purpose test, and transactions and decisions that could result in members deriving a personal benefit from the use of fund assets have always been heavily regulated and scrutinised,” he said.

The new best financial interest duty is part of the government’s Your Future, Your Super draft

Given that members of an SMSF are also the trustees there is a strong incentive already for trustees to act in their own financial best interest.

Peter Burgess

legislation package, which is causing contention across the industry.

The best financial interest rules aim to make trustees more accountable about decisions they make around things, such as day-today operational fund expenditure, investing members’ money, strategic decisions and decisions about discretionary fund expenditure.

“Given that members of an SMSF are also the trustees there is a strong incentive already for trustees to act in their own financial best interest,” Burgess said.

Later, the minister for superannuation, ffinancial services and the digital economy Jane Hume briefly addressed the conference, saying that SMSFs are an integral part of the superannuation industry, and that the government is keen to support the sector where it can.

“As at September last year, there are more than 591,000 self-managed super funds accounting for $728 billion or around a quarter of funds under management,” she said.

“As [the SMSFA’s] research shows, the driving force behind these numbers is Australians’

SMSF Association | Events

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

desire to be ‘masters of their own destiny’ to control their own personal retirement incomes.

That’s something we as a government wholeheartedly endorse. We want more people to take an active interest in their personal finances and retirement savings.”

Hume flagged that the government will progress important reforms, such as the Retirement Income Covenant, that were put on the backburner when COVID-19 hit.

It will work with the SMFSA soon to improve the retirement needs and strategies of members, she said, adding that superannuation providers should not have to wait for the government’s direction and take action in providing such means now.

“It’s imperative that trustees of all funds support their beneficiaries by developing strategies that carefully consider the retirement income needs and preferences of different cohorts of their members.

“That is what the covenant is about. Having a strategy for retirement is as applicable to self-managed super fund members as it is to members of large funds,” she said.

ASIC targets bad advice Addressing the conference via video link, ASIC commissioner Danielle Press said several key projects are progressing to address the poor advice and behaviours that remain active in the SMSF sector.

The watchdog is taking the appropriate actions against any misleading information provided to consumers, Press said, using the action it took against Squirrel Superannuation as a case in point.

“The provision of misleading information about SMSFs undermines the sector and limits the ability of Australians to make confident and informed choices,” she said.

While ASIC does not regulate the sector directly, it does however, oversee firms that provide financial service to trustees such advisers, auditors and products that SMSFs invest in.

The Hayne Royal Commission adjusted the roles of ASIC and APRA in superannuation.

From 1 January 2021, ASIC was given more powers in super under the SIS Act, having an expanded remit to better promote consumer protection, market integrity, disclosure as well as maintain reports.

Working closely together, she said, the key priorities for APRA and ASIC in 2021 is to improve trustee conduct and ensure better outcomes for consumers.

Additionally, ASIC’s unmet advice needs project has received over 480 submissions, the

majority of which came from financial advisers and accountants.

The SMSFA in its response expressed concerns over the costly, lengthy process, as well as the fact that compliance of licensees takes priority over the needs of consumers.

Press said many of these issues have been broadly consistent with the other submissions that ASIC has reviewed. The next steps will see ASIC hold roundtables with stakeholders in the first quarter of 2021.

Another project, which is cracking down on unlicensed advice, is well underway.

“Last year, we become very concerned about the possibility of increasing levels of unlicensed advice as unscrupulous operators looked to take advantage of vulnerable consumers, particularly during the pandemic,” she said.

As a result, ASIC established a working group to identify cases of unlicensed financial product advice and take action where appropriate.

Since March 2020, ASIC has observed a spike in complaints about such conduct, including unlicensed financial advice provided through websites, social media, cold calling, and seminars.

LRBA win The association also used the conference as an opportunity to welcome the recent announcement by the Australian Taxation Office (ATO) that SMSFs that borrowed from a private company under a limited recourse borrowing arrangement (LRBA) will not suffer adverse tax consequences if the loan interest has been capitalised because of COVID-19.

Burgess said the option of capitalising interest in circumstances where the SMSF would be eligible for loan repayment relief under COVID-19 relief measures will not cause the loan to be treated as a deemed unfranked dividend.

The relevant income will not be taxed as nonarm’s length income either.

About 10% of SMSFs have LRBAs, the majority of which use the debt to acquire property.

“We had previously highlighted an inconsistency between the requirements that must be satisfied under Division 7A of the ITAA 1936 for the loan not to be treated as a deemed dividend and the requirements of the ATO’s safe harbour provisions for the relevant income received by the fund not to be taxed as nonarm’s length income,” he said.

While safe-harbour terms and associated COVID-19 relief measures permit the capitalisation of loan interest, it was unclear whether this would breach Division 7A and

21

result in the SMSF having to treat the loan as a deemed unfranked dividend, which would then have adverse tax implications for the fund.

“The ATO has now confirmed, that assuming all other conditions are satisfied, this will not be the case,” Burgess said.

Burgess reminded delegates that taxpayers must apply for administrative relief if they are unable to make the minimum yearly repayments on their Division 7A loans by the end of the lender’s 2019-20 income year.

SMSF fraud

18 The number of

stolen identities used to establish SMSFs in the second half of 2020.

Delegates also heard of how the ATO has turned its attention to new SMSF registrations after identifying the illegal release of super.

Assistant commissioner Justin Micale said results of its ‘secure front door program’ showed new registrations increased by 7% in 2020 compared to the previous year.

Of these, around 220 were picked up by risk models which resulted in several of the funds being deemed too high risk and stopped from registering.

“This resulted in an estimated $126 million in retirement savings stopped from being rolled out of an APRA regulated account and rolled into an SMSF where potentially it could have been illegally accessed,” Micale said.

“We know illegal early release can come about as a result of promoters providing blatantly wrong information to potential trustees.”

Micale reiterated that the ATO is working with other regulators and federal agencies to identify and take firm action against this type of activity.

In addition, another aspect of the ‘secure front door program’ is to protect against identity fraud.

“In the SMSF system, identity fraud can involve the use of stolen identities to fraudulently set up a new fund so that it can receive payments and rollovers from genuine APRA or SMSF accounts,” Micale explained.

The ATO identified 18 stolen identities being used to establish 12 SMSFs worth around $2 million in super in the first six months of the financial year.

Micale said it is critical for advisers to safeguard client details and alert the ATO of any breaches and thoroughly check the identity of any new clients before establishing an SMSF. “Finally, pay close attention to ATO issued alerts/notifications advising of changes to the SMSF account,” he said.

“If you or your clients are not aware of the reasons for these changes take immediate action and contact us.” fs

22

News

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

Research firm acquired

01: John Lonsdale

deputy chair APRA

Annabelle Dickson

The independent data analytics group has acquired the analytics arm of an independent rating and research firm as it works to build out its market share.

Foresight Analytics acquired investment research and operational capability ratings business Australia Ratings Analytics (ARA) from Australia Ratings Group.

ARA provides investment ratings on wholesale and retail managed funds, separately managed accounts and exchange traded products. It can also create benchmark portfolios/indices for calculation of debt risk premiums.

Foresight Analytics founding director Jay Kumar said the complementary services will provide significant value to clients as they rely on data and human insights to navigate complex investment products and strategies in the market.

“Foresight Analytics is challenging the incumbency of existing investment ratings providers by offering a more competitive and sophisticated service using its advanced data analytics processes for managed products with exposure to publicly traded securities,” Kumar said.

“Both firms share the same mission: to serve clients by simplifying the challenges associated with investment decisions, and collectively we will bring meaningful benefits such as the expanded asset class coverage across equities, bonds, real assets, alternatives as well as diligence ratings on private and public market investment opportunities.”

ARA’s director of research and ratings Maggie Callinan said the combined organisation will bring greater value to its growing client base. fs

APRA closes Westpac probe Eliza Bavin

A

The quote

APRA remains determined to ensure Westpac rectifies its risk governance weaknesses effectively and sustainably.

PRA has closed its investigation into possible breaches of the Banking Act 1959, including the Banking Executive Accountability Regime (BEAR), by Westpac.

APRA launched the investigation into Westpac last year following allegations by AUSTRAC that Westpac had breached anti-money laundering and counter-terrorism laws.

APRA’s investigation examined the bank’s actions to rectify and remediate the issues after they were identified.

In June last year, APRA delegated certain enforcement powers under the Banking Act to ASIC, which was conducting its own investigation into whether the conduct giving rise to the allegations amounted to contraventions of the Corporations Act. APRA said the delegation was done to avoid both agencies separately investigating and potentially litigating related matters.

APRA said, having carefully considered the results of ASIC’s investigation, it decided to close its investigations into the matter.

APRA said despite the decision to close its investigation, Westpac is still subject to a court enforceable undertaking (CEU) to implement an integrated risk governance remediation plan to uplift risk governance across its business with ongoing independent review over its progress.

The $1 billion operational risk capital addon, which reflects the bank’s heightened operational risk profile, will also remain in place until Westpac completes its remediation under the CEU to APRA’s satisfaction.

APRA deputy chair John Lonsdale 01 said: “Although the investigation has not found evidence of breaches of the Banking Act or the BEAR, APRA remains determined to ensure Westpac rectifies its risk governance weaknesses effectively and sustainably.”

“Under the enforceable undertaking, Westpac has clearly defined executive and board accountabilities for the implementation of its integrated risk governance remediation plan.

APRA will be holding Westpac to account for the delivery of the required improvements.” fs

Adviser cops permanent ban

Mawhinney not dishonest, just irresponsible: ASIC clarifies position

ASIC has permanently banned a Melbourne financial adviser for allegedly pressuring people into consolidating their superannuation for a fee.

Nizi Bhandari has been banned from providing financial services permanently.

He was an authorised representative of The Australian Dealer Group, which he was also the sole director, responsible manager, and key person for.

ASIC found Bhandari acted dishonestly in assisting consumers to find and consolidate their super and to obtain hardship payments.

The regulator claims Bhandari told consumers to make false statements to their super fund trustees to gain early access to their super balances.

He also was found to have given consumers personal advice despite only being authorised to give general advice.

In doing this, Bhandari failed to act in clients’ best interests and failed to provide statements of advice.

ASIC also cancelled Australian Dealer Group’s licence, finding that its business model was “not designed to comply with its obligation to act efficiently, honestly or fairly” in providing financial services.

He charged fees for super consolidation – a service which is free through the ATO – on an ad hoc basis without transparency, fairness, or consistency.

ASIC said Bhandari pressured consumers into signing super consolidation agreements over the phone, not allowing them time to read the terms and conditions prior to agreeing. fs

Elizabeth McArthur

The corporate regulator has slightly softened its accusations against Mayfair 101 founder James Mawhinney – saying he wasn’t consciously dishonest, just irresponsible.

During a hearing in ASIC’s case against M101 Nominees held on March 9, a lawyer for ASIC said: “We do not allege conscious dishonesty by Mr Mawhinney.”

The lawyer added: “His conduct is indicative of serious irresponsibility and disregard for his legal obligations and ASIC puts it no higher than that and accepts that it does not allege conscious dishonesty.”

During the hearing, ASIC repeated its accusation that elements of Mayfair 101’s business model were not dissimilar to a Ponzi scheme.

The regulator alleged that funds raised from investors in Australian Property Bonds, the last product Mayfair launched, were used to pay investors in other Mayfair products.

ASIC also pointed to evidence, which has been uncontested, that investors had put their superannuation balances – and in some cases their entire life savings – in Mayfair products.

“These investors were targeted,” the lawyer from ASIC claimed in court.

“They were technically wholesale, but they were not sophisticated investors, and it must have been known through the communications with investors that some, if not most of them, were investing their superannuation funds.”

Mawhinney’s lawyer argued that the label “technically wholesale” is meaningless.

ASIC is seeking to ensure that Mawhinney can not raise any funds for any investment products for the foreseeable future.

The lawyer for ASIC said Mawhinney had not been cooperative with the regulator.

“He was not being cooperative. He has denied the allegations made by ASIC. He has not accepted that the schemes are inherently flawed and… he has certainly put on no evidence of his acceptance of the problems that the provisional liquidators have identified,” the lawyer said.

“Your Honour can take no comfort that he is not a risk continuing to engage in the same sort of schemes.”

After the hearing, Mawhinney distributed a press release which claimed the court had heard that ASIC confirmed no dishonesty or fraud on his part.

“ASIC’s action has ruined the lives of hundreds of Mayfair 101’s investors who invested over $210 million, for many it being their life savings. Those investors qualified to invest based on existing laws and chose to invest based on their own due diligence,” the press release claimed.

“Not one investor had filed a written complaint prior to ASIC’s intervention in March 2020. All investor interest and redemptions were up to date at the time.”

Financial Standard has heard from several such investors, all of which seem to share Mawhinney’s view that ASIC is at fault, rather than Mawhinney and Mayfair 101.

In a letter to ASIC signed by 28 Mayfair noteholders, the group said that prior to ASIC’s intervention not one investor had lost money.

“Your action against Mayfair 101 has stripped noteholders of their power to choose who manages their money and where it is invested, to serve ASIC’s own ideologies,” the letter said.

A judgement in the case is pending, with Mawhinney seeking to have the case dismissed with costs. fs

News

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

23

Products 01: Roger Montgomery

Ardea launches fund in Europe Ardea Investment Management has launched a UCITS-compliant version of its Ardea Real Outcome Fund for European investors, leveraging the services of Fidante Partners.

The Ardea Global Alpha Fund invests in government bonds and related derivatives and will be distributed to European investors via Ardea’s strategic partnership with Fidante.

The Ardea Global Alpha Fund will operate substantially the same strategy of the $6.9 billion Ardea Real Outcome Fund.

Ardea said the fund is unique as it targets positive returns, independent of interest rate moves and general market volatility. Its returns are also “independent of the broader fixed income and equity market fluctuations that may impact conventional funds”, the manager said.

The fund targets low volatility returns exceeding cash rates while prioritising capital preservation and liquidity, Ardea said.

“The expected returns from conventional fixed income portfolios are heavily challenged by the current record low interest rate levels and credit spreads as well as uncertainty about their future direction,” Ardea co-chief investment officer Gopi Karunakaran said.

“Our relative value investing approach is therefore particularly compelling in the current environment, where conventional return sources are faced with more risk for less return and where simply holding bonds is no longer optimal as a defensive strategy.”

Fidante head of distribution in Europe David Cubbin said: “We are thrilled to be bringing one of Australia’s fastest growing active fund managers to the European market, where there is a genuine need for defensive, uncorrelated returns.”

Since its 2012 inception the fund achieved a return of 4.31% and a one-year return of 4.06% to February 28.

Montgomery launches new strategies Montgomery will launch two of Polen Capital’s growth strategies for local clients.

Polen Capital Global Growth Fund invests in a concentrated portfolio of 25 to 35 high-quality growth companies from around the world.

The fund delivered 16.42% per annum net of fees, while its benchmark MSCI ACWI Net Total Return Index returned 10.77% p.a.

Around June 2021, the Polen Capital Global Emerging Markets Growth Fund will launch. This new fund invests in a concentrated portfolio of emerging markets businesses.

Montgomery will seed the funds and invest alongside clients. The minimum investment amount for other investors is $25,000.

“Montgomery Investment Management and Polen Capital share a commitment to investing in high-quality companies with strong growth prospects over the longer term,” Montgomery chief investment officer Roger Montgomery01 said.

BGL receives ISO recertification The SMSF administration provider has had an international standard for information security management recertified for 2021.

BGL Corporate Solutions cloud services CAS 360, Simple Fund 360 and Simple Invest 360 achieved ISO 27001 recertification in January.

BGL managing director Ron Lesh said the recertification confirms the group’s commitment to providing clients the highest level of security and data integrity.

“Keeping up with ISO 27001 has required a significant investment

by BGL and the team in building internal policies and procedures and training our team on ISO 27001 security requirements,” Lesh said.

“Many businesses still use desktop applications believing cloud-based solutions are not secure or reliable. This is far from the truth. Well written cloud applications are significantly more secure.”

Polen head of international business development Paul Williams said: “By working with Montgomery and Polen Capital, investors should have a great deal of comfort that they are working with two companies with extensive experience in investing over multiple cycles and in putting their clients’ interests first.”

Polen has about US$60 billion in total assets, with offices in the UK and US. It currently has a local distribution partnership with Axius Partners.

Metrics launches NZ fund Metrics Credit Partners has launched a private debt fund for wholesale investors in New Zealand with a target annual return of 3.25% over the RBNZ cash rate.

The Metrics Multi-Strategy Private Debt (NZ) Fund marks the Pinnacle boutique’s first investment product designed specifically for New Zealand investors.

The fund is an open-ended Portfolio Investment Entity (PIE) and offers exposure to a portfolio of directly originated loans to New Zealand and Australian companies, aiming to provide monthly cash income.

Metrics managing partner Andrew Lockhart02 said the fund was sparked by increased demand from New Zealand investors along with the launch of an Auckland office in early 2020.

“Given our commitment to the New Zealand market, we wanted to look for opportunities not only to lend to New Zealand companies but also to create innovative investment products for New Zealand investors,” Lockhart said.

The fund invests in loans to a wide range of borrowers, including public and private companies, infrastructure providers and project finance groups.

“The fixed income and credit investment choices available for New Zealanders in their local currency have been quite limited, so it is fantastic to provide investors with the option to capitalise on the growing opportunity in the corporate loan market,” Lockhart said.

Metrics plans to launch a similar fund for retail investors in New Zealand later in the year.

AMP launches new intra-fund advice offer AMP has launched a new intra-fund financial advice offering focused on retirement.

The retirement health check will be available to members of AMP’s Super Directions Fund at no additional cost.

It is a phone-based service that aims to provide members with a simple, fast conversation that might help them clear up some issues around retirement goals and options.

AMP said its own financial wellness research indicates 44% of Australians are concerned about not having enough money to retire and one in three are worried about how market events could impact their superannuation.

“Retirement is a critical period in our lives and the retirement income system is complex

02: Andrew Lockhart

so it’s crucial people get access to information, guidance and good advice,” AMP general manager, workplace super engagement Stephen Owen said.

“The new offer will help our members take more control of their retirement, in particular, the critical and sometimes complex transition from our working lives into retirement.”

He added that the COVID-19 pandemic increased awareness around financial security for many Australians, but that work still has to be done to turn that into positive action.

“Encouragingly, people recognise the importance of planning for retirement, albeit are unsure where to begin. COVID-19 has also acted as a wake-up call, with more Australians setting goals and planning for their futures,” Owen said.

“The challenge is turning this positive intent into action, which is where the health check comes in, arming members with important information about the changes they can make now, even small ones, that can amount to big benefits later in life.”

The new offering will sit within AMP’s Super Simple Advice intra-fund advice service and will be managed in-house.

Managed accounts FUM inch to $100bn Managed accounts assets reached a record $95.2 billion at the end of 2020 thanks in part to stock markets rebounding.

According to the Institute of Managed Account Professionals chair Toby Potter, the sector is stronger than ever and will continue to improve its offering to clients, despite consolidations and a flurry of advice groups moving between providers.

“We are seeing considerable focus on innovation from providers and managers to continue to develop greater capability,” he said.

IMAP and Milliman calculated a $15.5 billion rise in managed accounts funds under management from June 2020. Net inflows in the six months to December 2020 was $7 billion.

“The investment markets for the second half of 2020 were significantly more positive than the first half. The value of the ASX/S&P200 Accumulation Index rose 13.2% over the period, (compared with the decrease of 10.42% decrease in the prior six months). This will have materially advanced the value of holdings as Australian equities make up a significant share of assets in both direct and managed fund form,” Milliman principal and head of investment solutions for Asia-Pacific Victor Huang said.

Separately managed accounts hold the lion’s share of assets at $45.1 billion (up 54% year on year) followed by managed discretionary account services at $38.9 billion (up 28% year on year).

Potter said the significant increase in SMA assets reflect a one-off legal transition of a large platform’s FUM from the “other services” category as it changed the legal structure under which it operated, as well as organic and market growth.

About 47 firms participated in the latest FUM census, which is conducted every six months. fs

24

International

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

Janus Henderson appoints exec

01: Stephanie Pfeifer

chief executive Institutional Investors Group on Climate Change

Kanika Sood

ASX-listed Janus Henderson Group has appointed a global head of client experience.

Andrew Morrison will report to Janus Henderson’s global distribution chief operating officer John Groneman.

Morrison joins from Aviva Investors where he was the head of client experience. He has 20 years’ experience and has also worked at Capgemini and Allianz Insurance.

“Andrew’s appointment reinforces Janus Henderson’s commitment to delivering exceptional client experiences to all our global clients, a key pillar of the firm’s strategy of Simple Excellence,” Janus Henderson global head of distribution Suzanne Cain said.

“He brings a wealth of knowledge, experience and a history of collaboration that will help Janus Henderson continue to meet the evolving needs and expectations of our clients.”

He will be based in London, and lead Janus Henderson’s development and delivery of client experience strategy, while collaborating with clients and leaders across the business. “…Andrew’s appointment will ensure Janus Henderson’s focus on excellence is enhanced even further and those experiences are consistent across all our clients, in all regions,” Janus Henderson Investors head of Australia Matt Gaden said. fs

Link faces another Woodford lawsuit Karren Vergara

Link Market Services has been hit with another lawsuit for allegedly failing to protect more investors from the troubled Woodford Equity Income Fund (WEIF).

UK law firm Leigh Day is representing more than 4000 clients who invested in the WEIF, which is now known as the LF Equity Income Fund, alleging that Link, as administrator, mismanaged the fund and failed to maintain appropriate levels of liquidity and protect the interests of investors.

Leigh Day sent its Letter Before Action (LBA) to Link, claiming that the fund’s failure “had a long genesis and was avoidable, had Link done its job properly”.

Link Group’s UK subsidiary has been embroiled in the demise of the WEIF/LF Equity Income Fund since 2016 when it began underperforming and investors requested to yank out funds.

It garnered global attention in 2019 when its fund manager Neil Woodford made a YouTube apology for its poor performance and liquidity concerns.

“When the fund began underperforming from late 2016, increasing numbers of investors made redemption requests. In particular, from 2016, when gross redemptions increased nearly three-fold compared to 2015, Link should have anticipated that greater levels of liquidity could be needed, and in 2017, when the fund flow became negative, Link would have known that even greater levels of liquidity were needed in order to meet these demands for redemptions,” Leigh Day said.

Since the fund was suspended and wound down, Leigh Day head of product safety and consumer law Bozena Michalowska said Link appears to have failed to value assets accurately and fairly and sold assets at an undervalued price. fs

Global net zero framework launched, instos commit Jamie Williamson

T The quote

Commitments are vital, but only meaningful for the long-term when realised.

he Institutional Investors Group on Climate Change has launched the Net Zero Investment Framework, providing institutional investors with a guide to implementing a netzero investment strategy.

Building on the IIGCC’s existing body of work, the framework is to be rolled out across the globe to serve as the basis for investors worldwide to implement their net zero strategies.

The framework includes setting regular targets for direct and indirect reduction of emissions, disclosure recommendations, and ensuring all assets are net zero or working towards it by 2040 at the latest. It also provides tools for improving alignments via strategic asset allocation and how to approach different asset classes.

A further 22 asset owners used the publication of the framework to commit to achieving net-zero by 2050 or prior. This brings the total number of investors already using the framework to 37, IIGCC said, most of which also participated in its development. They are also part of a wider group of 110 investors representing US$33 trillion.

Scottish Widows, New York State Common

Retirement Fund, the Church of England Pensions Board, PensionDanmark, AP2, Lloyds Banking Group Pensions Trustees, Nest Corporation, AXA Investment Managers, DWS, Aberdeen Standard Investments, PIMCO, Jupiter Asset Management, Robeco and Fidelity International are among those using the framework.

“The global investment community has been called on to play its part in the transition to net zero – and it is answering that call,” IIGCC chief executive Stephanie Pfeifer01 said.

“Commitments are vital, but only meaningful for the long-term when realised. The net zero transition itself requires an ongoing transition from making commitments to delivering impact. The Net Zero Investment Framework, developed with and for investors, is a blueprint for action that will enable and support investors in reaching these goals.”

In a written foreword for the guide, Prince Charles said he hopes large investors will publish their plans for net zero in detail.

“The global firepower of institutional investors must be harnessed and directed towards a net zero future,” he said. fs

Ardea launches UCITs-compliant to European investors Ardea Investment Management has launched a UCITS-compliant version of its Ardea Real Outcome Fund for European investors, leveraging the services of Fidante Partners.

The Ardea Global Alpha Fund invests in government bonds and related derivatives and will be distributed to European investors via Ardea’s strategic partnership with Fidante.

The Ardea Global Alpha Fund will operate substantially the same strategy the $6.9 billion Ardea Real Outcome Fund.

Ardea said the fund is unique as it targets positive returns, independent of interest rate moves and general market volatility. Its returns are also “independent of the broader fixed income and equity market fluctuations that may impact conventional funds”, the manager said.

The fund targets low volatility returns exceeding cash rates while prioritising capital preservation and liquidity, Ardea said.

“The expected returns from conventional fixed income portfolios are heavily challenged by the current record low interest rate levels and credit spreads as well as uncertainty about their future direction,” Ardea co-chief investment officer Gopi Karunakaran said.

“Our relative value investing approach is therefore particularly compelling in the current environment, where conventional return sources are faced with more risk for less return and where simply holding bonds is no longer optimal as a defensive strategy.”

Fidante head of distribution in Europe David Cubbin said: “We are thrilled to be bringing one of Australia’s fastest growing active fund managers to the European market, where there is a genuine need for defensive, uncorrelated returns.”

Since its 2012 inception the fund achieved a return of 4.31% and a one-year return of 4.06% to February 28. fs

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Between the lines

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

EQT wins super mandate

25

01: Alex Hutchison

chief executive EISS Super

Kanika Sood

The Aracon Superannuation Fund will use Equity Trustees Superannuation Limited as its independent trustee.

Aracon is a master plan whose sub-plans include funds like Elevate Super, Fairvine and Oracle.

Aracon Superannuation was initially owned by ARA Consultants, who sold it to Xplore Wealth in October 2018. Xplore Wealth was acquired by HUB24 late last year.

Equity Trustees’s Aracon appointment follows the latter’s parent company, HUB24’s decision to swap out Sargon-owned Diversa Trustees (now called Certes Corporation) as the trustee for its then $7.9 billion superannuation product in favour of Equity Trustees.

“We have focused on building-out our technical and professional capability, with a number of new professionals joining the team in recent months, to ensure we are the preferred independent trustee for Australian super funds,” Equity Trustees’ superannuation trustee office executive general manager Mark Blair said.

“We look forward to working towards ensuring the best member outcomes can be achieved now and, in the future.”

Equity Trustees’s superannuation business was also appointed the trustee for AMP Life’s superannuation funds with over $7 billion in July 29020, after AMP Life’s sale to Resolution Life was finalised. fs

EISS Super awards ESG tech mandate Annabelle Dickson

T The quote

We have a responsibility to consider, understand and manage all the potential risks facing our investment holdings.

he $6 billion industry fund has implemented State Street Corporation’s ESG Risk Analytics Solution to manage the carbon emissions of its assets.

State Street’s solution will provide EISS Super with customised ESG performance and risk management with top-down and bottomup capabilities including viewing the portfolio through ESG data sets.

As a result, EISS will have visibility of the tonnes of carbon emissions produced by companies within its portfolio and assess how the change in allocation in each company would affect the overall risk profile.

EISS Super chief executive Alexander Hutchison 01 said the fund is committed to delivering long-term outcomes for its members.

“We have a responsibility to consider, understand and manage all the potential risks fac-

ing our investment holdings and one of the risk categories we look at is ESG,” Hutchison said.

State Street’s ESG analytics platform includes ESG metrics such as water and waste management, labour practices, employee diversity and inclusion, business model resilience, business ethics.

Head of State Street Institutional Services for Australia Daniel Cheever said assets owners are looking to integrate ESG in their investment processes to manage ESG risks.

“Increasingly, investors analyse data beyond traditional financial metrics and it is important for them to have a holistic view of ESG drivers along with risk metrics our ESG Risk Analytics Solutions delivers,” Cheever said.

“We are excited to support EISS Super as they navigate the ever-changing ESG data landscape.” fs

Rainmaker Mandate top 20

Latest investment mandate appointments

Appointed by

Asset consultant

Investment manager

Mandate type

Care Super

JANA Investment Advisers

LGT Capital Partners

Private Equity

Care Super

JANA Investment Advisers

Challenger Limited

Capital Guaranteed

40

Care Super

JANA Investment Advisers

Antin Infrastructure Partners, S.A.S

Infrastructure

23

Christian Super

JANA Investment Advisers

Other

Other

26

Christian Super

JANA Investment Advisers

Siguler Guff & Company, LP

Alternative Investments

3

Construction & Building Unions Superannuation

Frontier Advisors

Mesirow Financial

Emerging Markets Equities

1

Construction & Building Unions Superannuation

Frontier Advisors

Capital Dynamics (Australia) Limited

Infrastructure

Construction & Building Unions Superannuation

Frontier Advisors

Mondrian Investment Partners Limited

Global Equities

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates; JANA Investment Advisers

LGT Capital Partners

Private Equity

legalsuper

Willis Towers Watson

Other

International Equities

178

Local Government Super

Cambridge Associates; JANA Investment Advisers

Challenger Limited

International Equities

202

Local Government Super

Cambridge Associates; JANA Investment Advisers

PGIM, Inc.

Hedge Fund

100

Local Government Super

Cambridge Associates; JANA Investment Advisers

Marathon Asset Management (Australia) Limited

Other

Prime Super

Whitehelm Capital

State Street Global Advisors Australia Limited

International Equities

Retail Employees Superannuation Trust

JANA Investment Advisers

Paradice Investment Management Pty Ltd

Australian Equities

26

Retail Employees Superannuation Trust

JANA Investment Advisers

Macquarie Investment Management Australia Limited

Australian Equities

1,199

Retail Employees Superannuation Trust

JANA Investment Advisers

First Sentier Investors

Australian Equities

879

Retail Employees Superannuation Trust

JANA Investment Advisers

Artisan Partners Australia Pty Ltd

International Equities

260

Retail Employees Superannuation Trust

JANA Investment Advisers

Wellington Management Australia Pty Ltd

International Fixed Interest

Sunsuper Superannuation Fund

Aksia; JANA; Mercer; StepStone Group

BlackRock Investment Management (Australia) Limited

Emerging Markets Equities

Amount ($m) 9

104 1,260 4

6 168

1,101 151 Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05 PERIOD ENDING – 31 JANUARY 2021

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

660

2.4

7

10.4

1

Macquarie Capital Stable Fund

28

8.0

1

7.0

1

6.8

3

Vanguard Diversified Growth Index ETF

344

2.6

4

9.0

2

IOOF MultiMix Moderate Trust

584

2.2

8

6.2

2

6.9

2

MLC Horizon 7 Accelerated Growth

109

1.4

12

8.7

3

149

2.4

5

5.7

3

Fiducian Ultra Growth Fund

13.3

1

Vanguard Diversified Conservative Index ETF

233

6.9

1

8.3

4

10.7

2

Vanguard Conservative Index Fund

2837

2.4

6

5.7

4

3575

2.4

8

8.1

5

10.2

4

MLC Index Plus Conservative Growth

210

1.8

11

5.3

5

IOOF MultiMix Growth Trust

652

3.0

2

8.0

6

9.7

6

IOOF MultiMix Conservative Trust

650

2.9

2

5.2

6

5.6

7

Fiducian Growth Fund

176

2.8

3

7.9

7

9.9

5

Dimensional World Allocation 50/50 Trust

608

2.1

9

5.1

7

7.1

1

6148

2.6

5

7.4

8

8.9

9

Fiducian Capital Stable Fund

352

2.4

7

5.1

8

5.4

9

MLC Wholesale Horizon 6 Share

287

1.0

14

7.2

9

10.4

3

UBS Tactical Beta Fund - Conservative

84

2.7

4

4.9

9

5.5

8

MLC Wholesale Index Plus Growth

126

1.0

13

7.1

BlackRock Diversified ESG Stable Fund

59

-0.1

22

4.7

10

5.3

10

Sector average

541

0.5

1.2

4.2

5.0

Vanguard High Growth Index Fund

Vanguard Growth Index Fund

10

6.0

8.3

Sector average

BALANCED

413

5.9

6

CREDIT

Macquarie Balanced Growth Fund

774

6.6

3

8.2

1

9.6

1

MCP Real Estate Debt Fund

697

7.8

2

8.7

1

Ausbil Balanced Fund

127

1.1

21

7.6

2

9.5

2

MCP Secured Private Debt Fund II

597

7.7

3

8.5

2

1841

3.3

6

7.5

3

8.6

6

Legg Mason Brandywine Global Inc. Opt. Fund

104

12.5

1

6.9

3

Fiducian Balanced Fund

446

3.0

7

7.5

4

9.0

4

VanEck Vectors Aust. Corp. Bond Plus ETF

169

3.7

9

6.1

4

BlackRock Global Allocation Fund (Aust)

574

14.2

1

7.3

5

9.1

3

Pendal Enhanced Credit Fund

410

3.4

10

5.4

5

4.8

8

BlackRock Tactical Growth Fund

516

1.9

17

7.2

6

7.7

13

Vanguard Australian Corp Fixed Interest Index

234

3.1

13

5.4

6

4.9

6

88

-1.1

36

7.0

7

8.2

9

Vanguard International Credit Securities Index

738

2.7

17

5.2

7

5.2

3

342

2.6

11

6.8

8

Vanguard Aust Corp. Fixed Interest Index ETF

474

3.2

11

5.1

8

6060

2.6

12

6.8

9

Responsible Investment Leaders Bal

437

2.8

9

6.6

Sector average

689

1.7

IOOF MultiMix Balanced Growth Trust

SSGA Passive Balanced Trust Vanguard Diversified Balanced Index ETF Vanguard Balanced Index Fund

7.5

16

Metrics Credit Div. Aust. Sen. Loan Fund

543

4.5

6

5.1

9

4.9

4

10

15

Vanguard Int. Credit Sec. Index (H) ETF

544

2.7

16

4.9

10

4.9

5

Sector average

682

3.3

4.2

4.1

5.2

7.2

Source: Rainmaker Information

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

OPINION

Untangling investment objectives ith its performance test, APRA will soon W call superannuation funds to account for how their MySuper product performs against

Pooja Antil

research manager Rainmaker Information

benchmarks created by the regulator.

The new framework will become the key method for targeting underperformance.

While there has been much discussion about asset mixes and the indexes that will be used to assess them, the wild card is how, or if at all, funds will be judged against their own investment objectives.

The SIS Act requires RSE licensees to formulate and implement an investment strategy. As part of this, each RSE is required to determine investment objectives for every investment option they offer. These should be set out in disclosure documents along with other performance metrics like risk level, risk labels, etc.

In 2012, with the introduction of the MySuper legislation, trustees were required to provide members with specific information in a product dashboard about performance in relation to five separate measures, return target being one of them.

This, however, was a sure-fire recipe for confusion because the legislation had different requirements for each measure and how and whether it should be disclosed in either the PDS or product dashboard.

For example, funds generally disclose to their members the MySuper product’s investment objectives in the PDS but disclose the product’s return target in product dashboard.

Though the two do not differ hugely, they aren’t the same either.

But how is a member expected to distinguish between the two? Should they be looking at both or just one? If one, which one?

Adding even more confusion, APRA in its prudential practice guide SPG-530 on investment governance, when it refers to investment objectives, does not actually refer to them as single metric. It describes them as composite measures that blend the target return with the Standard Risk Measure.

“APRA expects investment objectives would be measurable, formally documented and clearly communicated. A statement of investment objectives would ordinarily include a clear expression of a measurable target investment return and a measurable target level of risk exposure,” it says.

Return target is meanwhile defined in Reporting Standard SRS 700.0 Product Dashboard as “the mean annualised estimate of the percentage rate of net return that exceeds the growth in the CPI over 10 years”.

This implies that in practice objectives are

broad-natured and reflect what a fund desires to achieve whereas return target is a more specific but conservative metric expressed in terms of percentage returns over and above inflation over a certain period. Note when a fund declares a return target, this means it should have a twoin-three chance of achieving that target.

Further, up until now super funds’ objectives have probably not been reviewed systemically.

Not only were funds never held accountable if they did not achieve their objectives or targets, but they were also probably ignored. Illustrating this, Rainmaker recently found that at end June 2020 only two-thirds of MySuper products were on-track to achieve their return targets over a three-year period.

So why do funds need to mention their objectives or return targets in their regulatory documents when even the regulator is not looking at them?

Perhaps a much bigger issue is whether the regulator will in effect add a third dimension to this regime, effectively creating objectives for each fund. Alternatively, will objectives and target returns become redundant?

Maybe APRA’s first objective should be to clear the ambiguity and set a clear measure for members when choosing a fund. fs

Super funds

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05 PERIOD ENDING – 31 JANUARY 2021

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

Retirement Products

1 year

3 years

% p.a. Rank

5 years

SS

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

GROWTH INVESTMENT OPTIONS

UniSuper - Sustainable High Growth

5.1

7

11.2

1

11.5

3

AAA

UniSuper Pension - Sustainable High Growth

5.8

8

12.4

1

12.8

2

AAA

UniSuper - High Growth

6.6

3

9.6

2

11.9

1

AAA

UniSuper Pension - High Growth

6.9

2

10.7

2

13.2

1

AAA

Catholic Super - PositiveIMPACT

6.8

2

8.9

3

AAA

MyLife MyPension - PositiveIMPACT

8.3

1

10.3

3

AAA

HESTA - Sustainable Growth

5.7

4

8.8

4

10.3

8

AAA

HESTA Income Stream - Sustainable Growth

6.5

4

9.7

4

11.2

11

AAA

UniSuper - Growth

5.4

5

8.6

5

10.3

9

AAA

UniSuper Pension - Growth

5.9

7

9.6

5

11.5

8

AAA

ANZ Staff Super Employee Section - Aggressive Growth

4.4

13

8.5

6

11.6

2

AAA

Cbus Super Income Stream - High Growth

5.6

9

9.0

6

12.2

5

AAA

Equip MyFuture - Growth Plus

4.5

11

8.1

7

11.2

4

AAA

Vision Income Streams - Growth

5.4

11

8.9

7

11.3

9

AAA

Cbus Industry Super - High Growth

5.2

6

8.0

8

10.8

6

AAA

Equip Pensions - Growth Plus

4.6

15

8.9

8

12.2

3

AAA

HOSTPLUS - Shares Plus

4.9

8

7.9

9

11.0

5

AAA

HOSTPLUS Pension - Shares Plus

5.6

10

8.7

9

12.2

4

AAA

Vision Super Saver - Growth

4.8

9

7.8

10

10.2

11

AAA

Australian Ethical Super Pension - Growth

2.2

55

8.6

10

9.4

54

AAA

Rainmaker Growth Index

1.1

Rainmaker Growth Index

1.6

6.1

8.4

BALANCED INVESTMENT OPTIONS

6.7

9.2

BALANCED INVESTMENT OPTIONS

UniSuper - Sustainable Balanced

4.2

2

9.1

1

9.2

3

AAA

UniSuper Pension - Sustainable Balanced

5.0

3

10.4

1

10.4

1

AAA

Australian Catholic Super Employer - Socially Responsible

4.4

1

8.0

2

7.8

33

AAA

Future Super - Balanced Growth Pension

5.2

2

9.2

2

8.3

36

AAA

Australian Ethical Super Employer - Balanced (accumulation)

4.0

4

8.0

3

8.2

18

AAA

Australian Catholic Super RetireChoice - Socially Responsible

4.6

4

9.1

3

8.9

20

AAA

UniSuper - Balanced

3.2

15

7.7

4

8.8

6

AAA

UniSuper Pension - Balanced

3.6

12

8.7

4

10.0

5

AAA

CareSuper - Sustainable Balanced

3.9

5

7.4

5

8.1

23

AAA

CareSuper Pension - Sustainable Balanced

3.7

11

8.1

5

8.8

25

AAA

Sunsuper Super Savings - Balanced Index

3.0

17

7.0

6

7.9

26

AAA

Sunsuper Income Account - Balanced Index

3.5

15

7.9

6

9.0

17

AAA

ANZ Staff Super - Balanced Growth

3.4

12

7.0

7

9.4

1

AAA

Cbus Super Income Stream - Growth (Cbus Choice)

4.2

7

7.9

7

10.1

2

AAA

QSuper Accumulation - Lifetime Aspire 1

2.3

32

6.9

8

8.2

20

AAA

TASPLAN Tasplan Pension - Balanced

1.5

60

7.7

8

9.0

15

AAA

AustralianSuper - Balanced

2.9

19

6.9

9

9.2

2

AAA

Australian Ethical Super Pension - Balanced (pension)

3.9

9

7.7

9

7.8

61

AAA

TASPLAN - Balanced

1.6

52

6.8

10

7.9

27

AAA

AustralianSuper Choice Income - Balanced

3.2

20

7.6

10

10.1

4

AAA

Rainmaker Balanced Index

1.1

Rainmaker Balanced Index

1.4

5.3

7.0

CAPITAL STABLE INVESTMENT OPTIONS

6.0

7.6

CAPITAL INVESTMENT OPTIONS

QSuper Accumulation - Lifetime Aspire 2

1.6

36

7.0

1

7.5

3

AAA

VicSuper Flexible Income - Socially Conscious

2.9

12

7.2

1

9.2

1

AAA

QSuper Accumulation - Lifetime Focus 1

2.4

13

6.7

2

7.4

5

AAA

Cbus Super Income Stream - Conservative Growth

3.9

3

7.0

2

8.4

3

AAA

VicSuper FutureSaver - Socially Conscious

3.6

1

6.6

3

8.7

1

AAA

Vision Income Streams - Balanced

4.1

2

6.9

3

8.7

2

AAA

QSuper Accumulation - Lifetime Focus 2

2.2

16

6.5

4

6.8

8

AAA

QSuper Income - QSuper Balanced

1.4

53

6.7

4

8.2

5

AAA

QSuper Accumulation - Lifetime Focus 3

1.8

28

6.2

5

6.2

14

AAA

AustralianSuper Choice Income - Conservative Balanced

3.1

7

6.5

5

8.3

4

AAA

Vision Super Saver - Balanced

3.6

2

6.0

6

7.8

2

AAA

LUCRF Pensions - Moderate

3.7

4

6.1

6

7.3

8

AAA

QSuper Accumulation - QSuper Balanced

1.3

45

6.0

7

7.4

4

AAA

VicSuper Flexible Income - Balanced

1.4

52

6.0

7

8.0

6

AAA

TASPLAN - OnTrack Control

0.7

65

5.9

8

AAA

TASPLAN Tasplan Pension - Moderate

0.6

81

5.9

8

6.6

19

AAA

Cbus Industry Super - Conservative Growth

3.0

4

5.8

9

AAA

Bendigo SSP - Bendigo Conservative Index Fund

2.4

23

5.8

9

6.0

36

AAA

AustralianSuper - Conservative Balanced

2.6

9

5.7

AAA

Prime Super Superannuation Income Stream - Income Focused

2.0

32

5.7

10

AAA

Rainmaker Capital Stable Index

0.8

Rainmaker Capital Stable Index

1.0

10

4.0

7.3

6

4.8

4.3

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

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

2021 Rainmaker Information AAA Quality Ratings announced View the full list of AAA rated superannuation products at www.rainmaker.com.au

28

Economics

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

Getting better, but we’re not there yet Ben Ong

I

n its March 2 meeting – where it kept monetary policy settings unchanged – the Reserve Bank of Australia declared that: “The outlook for the global economy has improved over recent months due to the ongoing rollout of vaccines. While the path ahead is likely to remain bumpy and uneven, there are better prospects for a sustained recovery than there were a few months ago.”

“In Australia, the economic recovery is well under way and has been stronger than was earlier expected. There has been strong growth in employment and a welcome decline in the unemployment rate to 6.4%. Retail spending has been strong and most of the households and businesses that had deferred loan repayments have now recommenced repayments. The recovery is expected to continue, with the central scenario being for GDP to grow by 3.5% over both 2021 and 2022. GDP is expected to return to its end2019 level by the middle of this year.”

The Australian Bureau of Statistics’ (ABS) ‘National Accounts’ report gave credence to the central bank’s optimistic outlook. The report showed the economy expanded by 3.1% in the December 2020 quarter, a bit slower than the upwardly revised 3.4% quarterly rate in the three months to September 2020 but all the same the first time in history that the country posted backto-back quarters of 3%-plus expansion.

Australia’s GDP contracted by 1.1% in the year to the December 2020 quarter – a sharp improvement from 3.7% year-on-year decline at the end of September 2020 and the 6.3% plunge in the June 2020 quarter.

Just like its peers, the recent backup in bond yields over the past month hasn’t escaped the RBA… “The positive news on vaccines together with the prospect of further significant fiscal stimulus in the United States has seen longerterm bond yields increase considerably over the past month. This increase partly reflects a lift in expected inflation over the medium term to rates that are closer to central banks’ targets. Reflecting these global developments, there have been similar movements in Australian bond markets. Changes in bond yields globally have been associated with volatility in some other asset prices, including foreign exchange rates. The Australian dollar remains in the upper end of the range of recent years,” it said. …and like them, is pushing back…

“The Bank remains committed to the threeyear yield target and recently purchased bonds to support the target and will continue to do so as necessary…The Bank is prepared to make further adjustments to its purchases in response to market conditions…A further $100 billion will be purchased following the completion of the initial program and the Bank is prepared to do more if that is necessary.” …while at the same time pledging to maintain monetary policy support, i.e., “not increase the cash rate until actual inflation is sustainably within the 2-3% target range”.

This would not be “until 2024 at the earliest” when the RBA expects “significant gains in employment and a return to a tight labour market” to materially lift wages. fs

Monthly Indicators

Feb 21

Jan-21

Dec-20

Nov-20

Oct-20

Consumption Retail Sales (%m/m)

-

0.47

-4.06

7.11

Retail Sales (%y/y)

-

10.58

9.60

13.33

7.05

5.05

11.06

13.55

12.39

-1.50

Sales of New Motor Vehicles (%y/y)

1.79

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

-

29.13

50.04

90.00

180.37

7.24

2.63

8.74

14.30

11.92

-

6.35

6.60

6.83

6.99

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

-

-12.16

17.10

6.25

5.54

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

-

-19.37

11.97

2.25

6.15

Survey Data Consumer Sentiment Index

109.06

107.00

112.00

107.66

105.02

AiG Manufacturing PMI Index

58.80

55.30

-

52.10

56.30

NAB Business Conditions Index

-

7.16

15.79

8.04

3.17

NAB Business Confidence Index

-

10.05

4.71

12.55

4.13

Trade Trade Balance (Mil. AUD)

-

10142.00

7133.00

5707.00

6737.00

Exports (%y/y)

-

2.94

-7.61

-10.80

-12.64

Imports (%y/y)

-

-12.58

-13.36

-11.69

-20.74

Dec-20

Sep-20

Jun-20

Mar-20

Dec-19

Quarterly Indicators

Balance of Payments Current Account Balance (Bil. AUD, sa)

14.52

10.71

16.38

7.48

3.70

% of GDP

2.86

2.20

3.50

1.48

0.73

Corporate Profits Company Gross Operating Profits (%q/q)

-6.55

3.22

15.84

3.02

-3.71

Employment Wages Total All Industries (%q/q, sa)

0.67

0.08

0.08

0.53

0.53

Wages Total Private Industries (%q/q, sa)

0.52

0.53

-0.08

0.38

0.45

Wages Total Public Industries (%q/q, sa)

0.52

0.45

0.00

0.45

0.45

Inflation CPI (%y/y) headline

0.86

0.69

-0.35

2.19

CPI (%y/y) trimmed mean

1.20

1.20

1.30

1.70

1.84 1.50

CPI (%y/y) weighted median

1.40

1.20

1.30

1.60

1.20

Output Real GDP Growth (%q/q, sa)

News bites

Australia GDP The ABS ‘National Accounts’ show the Australian economy expanded by 3.1% in the December 2020 quarter, a bit slower than the upwardly revised 3.4% quarterly rate in the three months to September 2020 but all the same the first time in history that the country posted back-to-back quarters of 3%-plus expansion. Australia’s 1.1% contraction in the year to the December 2020 quarter beats America’s 2.4% fall, the Eurozone’s 5.1% decline and the UK’s 7.8% drop over the same period. Japan’s economy grew by an equal 1.1% but its economy remains mired in deflation which doesn’t bode well for future household consumption and private investment.

Speaking of which, household consumption and private investment were the biggest contributors to Australia’s December 2020 quarter growth, adding 2.3 percentage points and 0.7 percentage point, respectively.

Australia wages The latest ABS ‘Wage Price Index’ report shows total wages growth rebounded from 0.07% in the September quarter to 0.6% in the final three months of 2020 quarter – the fastest quarterly increase in nine quarters. According to Michelle Marquardt, ABS head of price statistics, the “December quarter’s moderate growth was influenced by businesses rolling back short-term wage reductions, returning wages to pre-COVID levels. The phased implementation of the Fair Work Commission annual wage review also had a small positive impact on wages.” The annual growth in total wages steadied at 1.4% in the December quarter as private sector wages growth accelerated to 1.4% from 1.2% while in the public sector, wages slowed to 1.6% from 1.8%.

RBA steady The RBA kept monetary policy settings unchanged, as it declared that: “The outlook for the global economy has improved over recent months due to the ongoing rollout of vaccines. While the path ahead is likely to remain bumpy and uneven, there are better prospects for a sustained recovery than there were a few months ago” and that “In Australia, the economic recovery is well underway and has been stronger than was earlier expected.” The RBA is conscious of the recent pick up in long bond yields while at the same time, promising to maintain monetary policy support “until 2024 at the earliest”. fs

3.13

3.40

-7.00

-0.30

0.44

Real GDP Growth (%y/y, sa)

-1.12

-3.70

-6.31

1.40

2.19

Industrial Production (%q/q, sa)

-0.30

0.20

-3.01

0.10

0.59

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa) Financial Indicators

3.03 05-Mar

-3.08

-5.51

-1.91

Mth ago 3mths ago 1yr ago

-2.51 3yrs ago

Interest rates RBA Cash Rate

0.10

0.10

0.10

0.75

1.50

Australian 10Y Government Bond Yield

1.83

1.20

1.00

0.78

2.75

Australian 10Y Corporate Bond Yield

1.65

1.30

1.30

1.64

3.17

Stockmarket All Ordinaries Index

6943.0

-2.39%

1.13%

7.27%

15.79%

S&P/ASX 300 Index

6691.6

-2.00%

1.19%

5.35%

14.23%

S&P/ASX 200 Index

6710.8

-1.90%

1.16%

4.93%

13.84%

S&P/ASX 100 Index

5542.8

-1.76%

1.39%

4.46%

14.20%

Small Ordinaries

3071.7

-3.72%

-0.23%

12.89%

14.39%

Exchange rates A$ trade weighted index

64.50

A$/US$

0.7664 0.7659 0.7433 0.6605 0.7748

63.00

61.50

57.00

63.60

A$/Euro

0.6435 0.6369 0.6122 0.5903 0.6286

A$/Yen

82.96 80.77 77.45 70.46 82.01

Commodity Prices S&P GSCI - commodity index Iron ore Gold WTI oil

491.43

450.61

388.55

365.27

447.54

173.12

153.90

141.53

90.12

75.70

1696.25 1802.95 1843.00 1659.60 1320.40 66.28

56.80

46.23

45.90

Source: Rainmaker Information /

62.49

Sector reviews

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

Figure 1. Real GDP growth

Australian equities

5.0

Figure 2. Household savings ratio 28

ANNUAL CHANGE %

0.0

23

-5.0

18 13

-10.0 Aus

US

Jap

UK

Euro

-15.0

Prepared by: Rainmaker Information Source:

PERCENT

8

-20.0

3 -2

-25.0 2018

2019

2020

2021

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

The great Australian rebound Ben Ong

ustralia’s phoenix-like rise and rise from A the ashes of COVID-19 would forever be etched in this lucky country’s – and the world’s – history.

The Australian Bureau of Statistics’ (ABS) ‘National Accounts’ show the Australian economy expanded by 3.1% in the December 2020 quarter, a bit slower than the upwardly revised 3.4% quarterly rate in the three months to September 2020 but all the same the first time in history that the country posted back-to-back quarters of 3%-plus expansion.

In the words of Ol’ Blue Eyes, Australia’s now “A number one, top of the list, head of the heap, king of the hill…” He was, of course, singing about the Big Apple (New York) but comparing apples with apples, Australia’s 1.1% contraction in the year to the December 2020 quarter beats America’s 2.4% fall, the Eurozone’s 5.1%

International equities

decline and the UK’s 7.8% drop over the same period. Japan’s economy grew by an equal 1.1% but it’s economy remains mired in deflation which doesn’t bode well for future household consumption and private investment.

Speaking of which, household consumption and private investment were the biggest contributors to Australia’s December 2020 quarter growth, adding 2.3 percentage points and 0.7 percentage point, respectively.

Sure, sure, Australia was still in monetary and fiscal crutches at the time but as Australian federal Treasurer Josh Frydenberg notes: “In the December quarter, direct economic support from the federal government halved … Yet at the same time the economy grew by 3.1%, 320,000 new jobs were added and 2.1 million Australian workers graduated off JobKeeper.” …and it’s gonna get even better.

“With an additional $240 billion accumulated

Figure 1. FTSE-100 Index

on household and business balance sheets that was not there this time last year, there is substantial scope for the private sector to take advantage of the economic recovery,” Frydenberg said.

With Australia winning its battle against the virus – plus the vaccine roll outs – and the consequent easing of restrictions and reopenings, more of these savings will be spent going forward. The household savings ratio fell to 12% in the December quarter from 18.7% in September and a record high of 22.0% in June last year.

There’s still a lot of consumer spending coming before the household savings ratio return to its 30-year average of 5.1% Of course, as Reserve Bank governor (RBA) Philip Lowe warned in his statement following the conclusion of the bank’s March meeting, “the path ahead is likely to remain bumpy and uneven” and “recovery remains dependent on the health situation…” fs

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More manna from UK Treasury Ben Ong

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nother budget, another increase in government spending.

In his Budget speech on March 3, UK Chancellor of the Exchequer Rishi Sunak prefaced his delivery of more manna from the government by stressing the damage the coronavirus has done to the UK economy. It has “shrunk by 10% – the largest fall in over 300 years; and “since March, over 700,000 people have lost their jobs” despite the government’s unprecedented response, amounting to “over £280 billion” since.

The economy needs a top up.

“At this Budget we are announcing an additional £65 billion of measures over this year and next to support the economy in response to coronavirus,” he said.

“Taking into account the significant support announced at the Spending Review 20, this

means our total COVID support package, this year and next, is £352 billion.

“Once you include the measures announced at Spring Budget last year, including the step change in capital investment, total fiscal support from this government over this year and next amounts to £407 billion.”

According to Sunak, this will raise the UK’s budget deficit to £355bn this year (17% of GDP) – the highest level since WWII – with another £234 billion (10.3% of GDP) forecast for 2022.

But he has a plan. Sunak plans “future changes to strengthen public finances” – read, tax rises – the biggest since 1993 – that includes freezing of personal tax allowances and lifting the corporate tax rate from 19% to 25% in 2023. “…because of the steps I am taking today, borrowing falls to 4.5% of GDP in 22-23, 3.5% in 23-24, then 2.9% and 2.8% in the following two years.

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].

CPD Questions 1–3

1. What was Australia’s GDP growth rate in the three months to December 2020? a) -3.4% b) -3.1% c) +3.1% d) +3.4% 2. In year on year terms, which country produced the fastest growth in the December 2020 quarter? a) US b) Eurozone c) UK d) Australia 3. Australia’s household savings ratio fell below its 30-year average in the December 2020 quarter. a) True b) False

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CPD Program Instructions

Australian equities

Figure 2. UK 10-year bond yield

INDEX

29

The FTSE-100 index rose by 0.9% on the day of the budget announcement but fell by 0.4% the following day. This year to date, the FTSE-100 has advanced by 2.9% but still way off from recovering the 14.3% lost last year.

The rise and fall in the FTSE reflect the truism in Sunak’s words: “…while our borrowing costs are affordable right now, interest rates and inflation may not stay low for ever; and just a 1% increase in both would cost us over £25 billion.”

Inflation worries and the consequent spike in US bond yields have lifted sovereign bond yields almost everywhere.

The yield on UK gilts have risen to a high of 0.80% this year. This is already 73 percentage points higher than the 0.07% low recorded last year and 60 basis points up from 0.20% at the end of 2020. fs

International equities CPD Questions 4–6

4. How much in extra spending measures did the UK Chancellor of the Exchequer announced in the Budget 2021 for this year and next? a) £35 billion b) £45 billion c) £55 billion d) £65 billion 5. What is the UK’s expected budget deficit to GDP estimate for 2021? a) 10.3% b) 15.3% c) 17.0% d) 19.0% 6. UK bond yields have risen to a high of 0.80% so far this year. a) True b) False

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Sector reviews

Fixed interest CPD Questions 7–9

7. Which sector will be affected by higher borrowing costs? a) Government b) Business c) Household d) All of the above 8. Which central bank/s declared intent to intervene to counteract rising bond yields? a) Bank of Japan b) European Central Bank c) Bank of Korea d) All of the above 9. The RBA is among the central banks pushing back against rising bond yields. a) True b) False Alternatives CPD Questions 10–12

10. What’s behind the recent step up in oil prices? a) Dwindling supply b) Strike at Saudi Arabia’s oil production facility c) OPEC+ decision to extend oil production cuts d) Increased demand from America 11. What was the Baker and Hughes rotary oil rig count as at February 26? a) Zero b) 172 c) 309 d) 887 12. The increase in oil rigs shouldn’t significantly lift oil supply in the near term. a) True b) False

Fixed interest

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All answers can be submitted to our website.

Figure 1: 10-year US benchmark bond yield

Figure 2: 10-year benchmark bond yields

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Central banks fight back Ben Ong

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hat’s the point of increased transparency and forward guidance if financial markets – the bond market, in this case – the Fed and other central banks’ crystal clear promises for continued monetary policy accommodation?

Yes Virginia, it’s the rise and rise in US bond yields – that’s infected most yields around the world – spooked by rising inflation expectations, I speak of, that, in turn, have sent equity markets in a tailspin.

It’s a logical reaction. For you, I and Irene very well know that higher interest rates lead to higher borrowing costs – for governments, companies, investors and consumers – lower stockmarket valuations and increased attraction to (now) higher yielding bonds relative to undulating company stock prices and their dividend payouts.

But hold your horses! Major world central banks, led by the Fed, are singing the chorus

Alternatives

from Cher’s classic, “I really don’t think you’re strong enough now…”

In his semi-annual testimony before the US Congress recently, Fed chair Jerome Powell stressed that it would take some time before the central bank could make “substantial further progress” towards employment and inflation targets while at the same time that any resurgence in inflation is transitory.

The European Central Bank’s also fighting back, announcing that it would intervene to short-circuit rising bond yields. So has the Bank of Japan (BOJ) and the Bank of Korea (BOK).

BOJ governor Haruhiko Kuroda told Japan’s Diet – the parliament not the keto or paleo or vegan or intermittent fasting ones, to name a few – that: “The BOJ has no intention of pushing up (10-year bond yields) above its target of around 0% … “It’s important now to keep the entire yield curve stably low as the economy suffers the damage from COVID-19”.

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So too has the Bank of Korea (BOK). In its latest statement, the Korean central bank declared it will buy five trillion Korean Won (US$4.5B) worth of government bonds additional by June to support the government’s plans to issue more debt in its fight against covid.

But we don’t have to go so long and faraway for our very own Reserve Bank of Australia (RBA).

Our dear central bank has increased debt purchases in efforts to keep interest rates low.

According to Reuters, the Australian central bank has “launched an unscheduled offer to buy A$3 billion ($2.36 billion) in three-year debt” last week in its efforts to get yields back down to its 0.10% target.

These are good moves. For each and every other country central bank know what’s at stake – a premature tightening of financial conditions that’ll negate all the efforts they have thrown at the COVID-19 pandemic crisis.

Not on their watch. fs

Figure 2: US oil rig count

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Oil is hot Ben Ong

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Go to our website to

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

rude oil remains on the up and up with prices soaring to 14-month highs.

This year to date, the price of Brent oil has surged by 30.5% to US$66.85 per barrel and that of the WTI soared by 31.2% – more than making up for the full-year 2020’s loss of 24.4% and 20.9%, respectively.

The recovery in oil prices has been initially underpinned by the cold weather in the US and in Asia at the start of the year, along with declining rates of coronavirus infections and vaccine optimism that have allow the resumption of business activity in many parts of the world.

The latest tailwind driving the oil market is the unexpected decision by the OPEC+ oil producers to extend its oil production cuts by another month to the end of April.

Clearly, the global economy is past its worst, which is good news for oil.

But as the International Energy Agency

(IEA) warned in its February Oil Market Report: “The rebalancing of the oil market remains fragile in the early part of 2021 as measures to contain the spread of COVID-19, with its more contagious variants, weigh heavily on the nearterm recovery in global oil demand” as it revised down its 2021 global demand forecast by 200 kb/d to 96.4 mb/d.

At the same time, the IEA expects only moderate growth in total world supply in 2021 as OPEC+ maintains its current production policy to “eliminate the massive oil stock overhang that built up last year” while at the same time forecasting that “total non-OPEC+ supply will rise by 830 kb/d in 2021 versus an annual decline of 1.3 mb/d in 2020”.

However, the recent rise and rise in the price of oil is beginning to make drilling for the black stuff profitable again.

As the IEA notes: “Outside of the OPEC+ group, producers are responding to higher pric-

es, albeit cautiously and from a low level. Led by the prolific Permian Basin, US drilling and completion rates have risen steadily in recent months.”

As at February 26, the Baker and Hughes rotary oil rig count has reached a nine-month high of 309 rigs – up by 17.0% so far this year and by a whopping 79.7% since it dropped to a 15-year low of 172 rigs in August last year (in response to the drop in crude oil prices).

Then again, the current rig count remains significantly below the most recent peak of 887 rigs recorded in December 2018 and shouldn’t significantly affect supply in the near term.

The ASX is also looking good on the back of higher prices. Oil Search, Origin Energy, Woodside Petroleum and Santos all jumped higher on March 12.

However, it wasn’t good news all round. On the same day global benchmark Brent futures fell 0.6% and US equities also declined. fs

Sector reviews

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: CoreLogic

ustralian home values are rising at the fastA est rate seen since August 2003, having surged by 2.1% in February this year.

With property values rising month-onmonth across every capital city and state region, CoreLogic said the current situation is a synchronised growth phase not seen for more than a decade.

“The last time we saw a sustained period where every capital city and rest of state region was rising in value was mid-2009 through to early 2010, as post-GFC stimulus fueled buyer demand,” CoreLogic research director Tim Lawless said.

Sydney and Melbourne are among the strongest performing markets, recording a 2.5% and 2.1% lift in home values in February, respectively. However, on a quarterly basis, smaller cities come out on top; Darwin housing values rose 5.5% over the past three months, Hobart values rose 4.8% and Perth was up 4.2%.

Whether the growth in Sydney and Melbourne can be sustained is unclear however, Lawless said.

13. During 2020, the primary source of demand for Australian properties came from: a) Corporate professionals b) Investors c) First-home buyers d) Successful business owners

Home values at 17-year high Jamie Williamson

“Both cities are still recording values below their earlier peaks, however at this current rate of appreciation it won’t be long before Australia’s two most expensive capital city markets are moving through new record highs,” he said.

“With household incomes expected to remain subdued and stimulus winding down, it is likely affordability will once again become a challenge in these cities.”

Regional markets have also continued to show a higher rate of capital gain relative to the capital cities on the back of COVID-19, however the performance gap has narrowed compared with the earlier phase of the growth cycle, CoreLogic said.

Housing values in regional areas also didn’t decline so much at the peak of the pandemic in 2020 either.

The rising values are not deterring investors either, with Australian Bureau of Statistics Lending Indicators for January found the number of loan commitments for investors increased 9.4% over the month and soared a whopping 22.7% over the year.

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The value of those loan commitments are also up. For example, in New South Wales, they rose 6.7% to be the highest since June 2018.

In addition, where 2020 saw most properties going to first-time home buyers, the trend for 2021 has shifted and it’s now predominantly investors in strong financial positions doing the buying.

“Corporate professionals and successful business owners are restarting their investment plans now that the uncertainty of 2020 is behind them,” Grant Foley Property director and buyer’s agent Grant Foley said.

With property values skyrocketing at the moment, many are also now feeling confident to reuse some of their equity by starting, or growing, their strategic property investment portfolios, he said.

“Many investors also have additional cash at their disposal after being forced to reduce their discretionary spending over the past year and some have also withdrawn funds from the stock market to invest in property rather than shares,” Foley said. fs

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Profile

www.financialstandard.com.au 22 March 2021 | Volume 19 Number 05

MAKING THE RIGHT CALL It was an exercise in good judgement when Julia Lee went out on her own to establish Burman Invest. She shares with Karren Vergara what led to that moment.

hen Julia Lee was in her early twenties, W she began trading options and became so adept at it that she took on something more sophisticated – naked put options.

Naked put options are highly risky and have enormous upside and downside potential. The investor typically sells a put option without a position in the underlying stock and doesn’t have the necessary reserves to purchase the underlying security in the event the option is exercised.

In one day, Lee lost $15,000 on two separate contracts or about $30,000 in total.

“That was a huge learning experience, especially for a 23-year-old. One year later, I recouped all my losses and was able to earn enough to pay for a deposit on my first unit,” she says.

That experience led to her biggest lesson about investing: the importance of risk management.

“So much of investing is about longevity underscored by risk management,” she says.

Before dabbling in options trading, the Burman Invest founder and chief investment officer’s passion for investing traces back to equities.

“I started off with fundamental investing until I started trading options, which was when I realised that because of the short-term nature of options it is hard to trade them on fundamentals.

That is where technical analysis came in, using charting for entry and exit points,” she says.

Lee points to academic research, which shows that combining technical analysis rather than using one strategy over the other “gives a much stronger signal”.

“Fundamental works well for a longer-term perspective – but I do appreciate the short-term perspective. One of the challenging things I’ve had to adapt to as a fund manager is the shortterm nature of how returns are judged. So, the technical aspect has come into play in entry and exit points,” she says.

One pearl of wisdom Lee received in her early days of investing was to buy the names that she knew and trusted.

She invested in South Corp because she loved wine and doubled her money in about a month.

Lee then came across North Limited.

“I thought, ‘well, I don’t want my shares to go south, I want them to go north’. That company got taken over and so my investment doubled,” she says.

Next was Julia Mines which she bought into during the tech boom – for her namesake.

“The experience was enough to get my interest to learn more about what it takes to invest in shares. I started a trading diary, writing about why I bought certain shares – what worked out and what didn’t work out,” she says.

An avid reader from an early age, Lee’s parents did not let her watch television, so books were a form of entertainment. Psychology and science fiction are her favourite genres.

One of her favourite books is called The Name of the Wind, a heroic fantasy trilogy written by Patrick Rothfuss.

The author dissects silence in three parts: a hallowed silence that’s quite obvious in the face of something lacking; the second type counterpoints the first in which people act in a way that makes noise but try to avoid doing so; and the final aspect is not so easy to notice.

“I think it is like most things in life, including investing. There’s the obvious, not so obvious and the rest is not so easy to notice. You almost need to dig through more than one layer of reasoning to gain an edge,” Lee explains.

Prior to launching Burman, Lee came at a crossroads: she could either build something that was her own or work for someone else.

She spent over 12 years at Bell Direct and after having two children during that time, Lee felt it was the right time to back herself and set out on her own.

“I have always wanted to build something bigger than myself, which is why I didn’t name the company after myself. I named the company after one of the major shareholders,” she says.

Burman launched in September 2019, as a high-conviction active fund manager, embodying her investing philosophy.

Its flagship Australian Concentrated Shares Fund returned 23.8% (wholesale class) and 21.9% (retail class) in the six months to December 2020, well above the benchmark’s 16.1%.

Sims Metal, Challenger, Mineral Resources and Bendigo and Adelaide Bank are some of the top portfolio holdings.

The fund manager assesses investments via the lenses of micro and macro factors, and the company and technical level.

At the moment, macro or bond yields are driving the market stimulus, Lee says.

“I think that will continue to be the case.

There is a lot of volatility, so to help insure the portfolio we use put options,” she explains.

“Volatility also means there are shorter timeframes when looking at potential investments, even though I prefer to invest medium to long term. It’s adjusting to the nature of the markets.”

The recent half-year reporting season saw many analysts upgrade several earnings-growth expectations.

“The fact that the Australian share market is in an upgrade cycle is exciting and this is driven by the banks and miners at the moment – particularly on the dividend side,” she adds.

At the effect of COVID-19, demand for travel and hospitality remains constrained and when things go back to normal, Lee expects demand to spring up, normalise and then come back down.

Lee’s over 20 years of experience in financial markets has unfolded before the media. While she is a natural in front of the camera, she chuckles at the thought of this, recalling how she fell into presenting and becoming a widely recognised financial expert across major news outlets.

These days, Lee also shares her investing journey and helps others with their financial wellbeing at numerous industry conferences and events.

“I did my first share-market presentation and television in-

I don’t mind if I am not good at something, as long as I enjoy what I am doing I will keep at it.

Julia Lee

terview in 2001. I am anything but a natural,” she recalls.

Lee was 22 at the time and the youngest member of a team of about 10 at CommSec – around the time that retail investing was taking off in Australia.

The team would present in front of overflowing conference rooms.

“I would for example, present inside and my co-worker would present in the foyer of the hotel. It was a phenomenal time in the markets.

We talk about the boom in retail investors in the markets now, but back around 2000 it was also huge,” she says.

“We travelled around Australia to places like Mt. Isa, Dubbo and Toowoomba. It was an amazing experience to teach other people about the share markets.”

The training involved polishing up their presentation skills for about three months. After that, they had to present in front of executives, who gave the final go-ahead to determine who gets to travel across the country.

Everyone passed except for Lee and a colleague who ended up moving to another role. It took her another three months or so to make the cut.

“But I decided to keep at it; I even took out the video camera and practised on my own. I thought they would fire me because I was so bad at it,” she says.

“The thing is, I don’t mind if I am not good at something, as long as I enjoy what I am doing I will keep at it.” fs