AustralianSuper’s investment chief Mark Delaney has warned that if the federal government withdraws its fiscal support before a full rebound in employment it would be “disastrous” to the economic recovery.

Delaney, who oversees around $180 billion in retirement assets, said that while the government’s first stimulus package to address the pandemic was “a bit unimpressive,” its follow up policies including the $130 billion JobKeeper scheme had “done a good job” at offsetting a complete collapse in income.

He was speaking at Investment Magazine’s Fiduciary Investors Digital Symposium after a jump in the jobless rate in April to 6.2 per cent and amid reports that Prime Minister Scott Morrison may cut or phase out the JobKeeper payment faster than expected.

“The real risk is if they pull (the stimulus) too early before the economy is really back to full employment,” Delaney told delegates. “That will be quite disastrous.”

The CIO of Australia’s largest superannuation fund said the market needed to spend more time analysing the action of the government’s response and fiscal policy, rather than that of the central bank.

“What stomach does the government have to continue to support a soft economy?” he said at the conference. “We don’t want to be pegged to the 1930s whereby they were okay for a while and then tightened too early. I think that is what we will have to get our mind around.”

Delaney also said the market had rebounded “a little stronger” than anticipated, driven by the virus which had generated the economic downturn and the policy response.

“I think the market is implicitly expecting more sectors to normalise by the end of 2021,” he said. “And if this thing drags on longer than that, I think there could be a reconsideration.”

Also speaking at the symposium, QIC’s deputy state chief investment officer Allison Hill said that while government policy had reflated asset prices, there was a disparity between those with “assets and the reflation of wealth and those without and potentially no income.” She added that the income shock and future uncertainty would be confronting for many.

“How does the consumer come back from this?” she said. “We have a significant fiscal policy at the current point in time but how long does it go for? Does it go far enough? That is going to be a major variable in terms of how these things play out.”

Hill, who helps manage more than $80 billion for the Queensland government, said with interest rates low for a very long time and the uncertainty around the economic recovery, spikes in volatility made portfolio diversification more important than ever. She said the sector winners would continue to be health care and IT, while other areas would suffer as a result of shifts in society.

“As asset owners, we look to try and invest in ways that have positive expected real return and positive risk-adjusted return but also look to do that with an ESG lens,” said Hill, whose team was also involved in the potential bid for Virgin airlines. “ESG will continue to be as important now as it was before.”

The QIC executive said the investment team had spent time analysing alternatives as a possible defensive play as well as options as a way to skew the portfolio’s exposure.

“If you have less defensive assets what does that mean for how many growth assets you have?” Hill said. “So we have been thinking about compositional issues of the portfolio.”

Delaney said the Australian dollar served as a good defensive asset for the super fund, because it was anti-cyclical, along with investing in companies with strong underlying cash flow and low gearing. As for whether government bonds could still be considered defensive? “Who knows,” he said.

Sarah Jones is the deputy editor of Investment Magazine. She previously worked for Bloomberg News in London for more than 12 years covering equity markets and global asset management. Prior to moving to the UK, she worked for Australian Associated Press in Sydney covering economics and monetary policy.
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