AustralianSuper is seeing its decision to build a large internal management team vindicated, as in-house equity analysts have informed positions on currency hedging and opportunities arising from dislocations over fears on China and a slump in oil prices.

After two years of recruiting internal teams to run global equities, Australian equities, small caps stocks, infrastructure, property, plus loans and credit, the number in the investment team at AustralianSuper now totals 170.

The internal teams will manage up to 40 per cent of the fund’s $92 billion in assets by 2018, but the extra know-how is already having an impact on the entire portfolio.

Alistair Barker, co-head of macro and portfolio construction at the fund – whose thinking informs the fund’s asset allocation decisions – is finding such resources valuable when making sense of high volatility and fear in markets.

“Having a couple of analysts in-house on the equities team, who we can go straight to and ask ‘what is the story?’ is quite helpful when we are looking at the total portfolio, because we can get to some of those insights more directly,” he said.

Such stock analysis has also informed the fund’s position on the slump in oil prices, by emphasising oversupply and not low demand as the primary cause.

“It turns out the people who understand this more are those who are closest to the oil producers at an individual stock level,” said Barker, who believes the fall in oil prices will be sustained for a long period of time.

The access to bottom-up analysts who understand the fund’s portfolio and its strategies has complemented the top-down analysis carried out.

“It certainly has a strong bearing on our view of currency, where the sustained pressure on commodity prices has weighed on the Australian dollar,” said Barker. “It also gives a better sense in down markets when there is a good buying opportunity and where people see value at a stock level.”

The fund is limiting such analysis to what it identifies as the main two to three dominant macro-economic issues facing the fund at any one time.

The issues it currently identifies are fears over US growth, particularly after the tightening on rates by the Federal Reserve; the negative impact on emerging markets and banks from lower revenues for commodity prices; and investors’ loss of confidence in China after a period of sustained optimism.

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Along with other investors, Barker subscribes to the view that investment teams will need to work harder and faster in 2016 in order to make returns, and that the more options open to the investment team, the more potential for success they will have.

“It is about trying to identify as many levers as we think we can sensibly work to add value for members,” said Barker.

He notes a growing divergence in asset class growth after a long period of bonds, credit, equities, infrastructure and property all doing well from quantitative easing.

“We are going through a period where there is more divergence of returns between asset classes so that should provide more opportunity to add value, but that is not to say it is easy either,” he said. “Our attitude is you need to be prepared to be active if an opportunity arises.”

AustralianSuper’s strategy will involve actively allocating capital at a stock level and tactically moving between different parts of markets. One big area of opportunity is the timing of when investors should move from an underweight to an overweight position in emerging markets after a high US dollar and lower commodity prices have hit countries such as Russia and Brazil particularly hard.

“The timing of when you might re-enter might be one of the definitive issues for adding return to your portfolio over the next couple of years,” said Barker.


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