Megan Pham, chief investment officer of AMIST Super, talks through the logic of her fund’s asset allocation and manager selection.
Like a few other super funds in the region of $1-2 billion in assets under management, AMIST Super is sensitive to the accusation that it might not have the scale to outperform or do the best for its members.
“The market probably views smaller funds as having a difficult time going forward and I would say size is not the most important thing,” says Megan Pham, who is sceptical of the wisdom of seeking to have the largest funds under management or the largest number of members. “We have got directors who have first-hand exposure to our members and know what our members want better than others,” she says.
The fund’s relative outperformance measure means the advent of MySuper league performance tables luring members away on short term performance trends is not front of mind. “We have outperformed the median over 10 years and we continue to have solid performance over shorter periods,” she says.
One way in which the fund reflects members’ tastes is in having a relatively cautious 50 per cent allocation to equities and a high weighting to property of 15 per cent. Pham reasons this downside protection is needed because AMIST’s membership has lower balances on average ($26,000), so it is harder for them to build it back from big losses. However, risk is being adjusted owing to the poor value for money that is being offered across fixed income and as such the 50 per cent allocation to equities will increase.
Generally, Pham’s take on the market is that returns are expected to be reasonable over the medium term with an increase in volatility due to concerns about global growth, consumer confidence and the effectiveness of monetary policies. The funds market tilt, which is formally reviewed every two months at board meetings, is to international equities.
AMIST Super takes a purely active approach to Australian equities where it has outperformed its benchmark over 1, 5, 7 and 10 years, but it has a mix of active and passive approaches to international equities.
The fund’s three Australian equity managers follow growth and value styles with an overall small cap tilt. One of its best performing is Ausbil Dexia in which it has placed the largest chunk of its domestic equity allocation. This has been fortunate as Ausbil’s emerging leaders fund is now closed to new investors, but still open to existing investors. Its style is growth with considerations for adding value through predicting the market cycle.
“Ausbil is a good manager which has demonstrated it can do well no matter what the style of the market over the long term,” says Pham. Its other managers are Coopers Investors and Vinva Investment Management.
Pham views the fund’s bet on Australian equities as one of its most solid investments. “I cannot forsee the major banks and major mining companies not generating a reasonable profit in the future compared to other investment types,” she says, adding that the recent volatility in the market has been a good time to add to the exposure. Furthermore, with an average 5 per cent yield plus franking credits, the 7 per cent yield on Australian equities makes it one of the highest yields in the world.
In international equities, AMIST Super uses Vanguard for passive, Longview Partners Investments for a value approach and Harding Loevner for a growth approach, plus emerging equity markets exposure through Delaware Investment Advisers and T. Rowe Price, which Pham says have done well. Pham says that selecting Vanguard gives AMIST Super performance in line with the global equity market allowing most of the fee budget to go to active managers.
Generally, Pham says the fund’s approach to equity managers is to invest for the long term and not to turn over managers if they underperform over one year.
AMIST Super has a relatively high property allocation of 15 per cent, much of it with ISPT, has generated significant value. But buying more in Sydney and Melbourne is costly and more opportunities are being sought in the regions. “At the moment our property managers would say there is more competition and it is harder to find good value, so we are looking at other property styles to add to our property exposure,” says Pham.
There is a similar story in infrastructure, where AMIST uses IFM for unlisted domestic infrastructure and Rare for listed global infrastructure manager, but is competing against a growing pool of investors. “It is harder to maintain because prices are relatively high and you are seeing more people appreciate the value of infrastructure assets,” says Pham.
Due to these log-jams the fund has broadened out to use a multi-asset manager as a way of spotting short term investment opportunities in a dynamic way. The UBS dynamic alpha strategy has been awarded a $70 million allocation to invest in a variety of listed assets with the ability to use futures contracts. The manager’s target return is a UBS bank bill plus 3.5-5.5 per cent per annum over three to five year time horizon.
Pham says UBS is not expected to do better than its Australian equity managers, but it is a smart strategy in a market where lots of other assets are expensive. There is
a continuous review process of the fund to see if it is worth increasing its allocation.
The modest returns from cash and fixed income over the last few years, coupled with a similarly disappointing outlook have led to AMIST moving up the risk spectrum in search of returns. Early in 2014, the fund appointed Brandywine Global Investment Management to a fixed income portfolio designed to outperform regardless of what the rest of the market is doing and with the ability to go short or long on fixed income securities. Its active style is also designed to better capitalise on the market movements that follow from the US decision to end quantitative easing.
The fund’s other managers in defensive assets include AMP Capital Investors and ME Portfolio Management in Australian fixed interest and cash, as well as Apostle Asset Management in international fixed interest.