Suzanne Branton, CIO of the $20 billion CareSuper tells Investment Magazine investors are still adjusting to the new regime of higher inflation and interest rates and investors can no longer rely on the equity markets to give double digit returns.
While there would be “periodic bouts of strong performance”, she says, investors would “not be able to count on equities to be a reliable source of double digit return,” as fundamental drivers of margins and multiples were “no longer clearly favourable”.
Deciding on the right weight of equites in a portfolio would be a “high maintenance issue” of the future for investment managers.
She also sees opportunities in investments of shorter duration.
“At the moment we see opportunity in a range of shorter duration, higher yielding assets across debt markets,” she says. “Beyond current events the outlook could favour credit asset classes.”
Markets are still adjusting to the rapid rise in interest rates and the failures of Silicon Valley Bank and Signature Bank is evidence of this.
“There is a lot of adjustment occurring at the moment with markets to the rapid rise in rates which we would see as only partly done,” she says.
She says the stresses now evident in the US banking system have “revealed a lot about practices and structures which are designed for a low and benign rate environment. They are being exposed with more systemic consequences which authorities are having to manage.”
And as the stresses continue to unfold in the US banking system and elsewhere, “markets are trying to get a read on some key things including trying to understand and anticipate the shape of the next peak in the interest rate cycle,” says Branton.
“How this is going to pan out is very tricky.”
She believes there is the potential for more rate rises to come which has implications for the investment outlook for shares and other investments.
“We see the adjustment to significantly higher base rates across asset classes as incomplete,” she says.
Branton said her team were “strategic medium investors.”
There was a “structural break” in the environment which meant that returns and risks were “likely to be quite different” from the recent past.
Merger talks with Spirit Super
Established in 1986, CareSuper has its origins in the clerical and administrative sector but became an open offer fund in 1999.
With more than 220,000 members, its membership now takes in workers in the professional, managerial, administrative and service occupations.
The fund is currently in discussions about a potential merger with Spirit Super, which was established following a merger of Tasplan and MTAA Super in 2021, with assets of $25 billion and 324,000 members.
If the merger goes ahead, it would create a combined fund of more than 500,000 members and assets of more than $45 billion − well above APRA’s suggested minimum of $30 billion viability for super funds in the Australian market.
In the meantime, the two funds are being run separately while negotiations continue.
Branton, who has had 30 years’ experience in funds management joined CareSuper in early 2015. She started her career in investment management at Goldman Sachs-owned JB Were and then working in investment for EquipSuper.
She currently oversees a team of some 25 investment professionals, a team which has steadily expanded over her time at the helm.
While most of the fund’s managers are external, she describes the approach as being “hybrid.”
“There are elements of the investment program we would regard as more internal,” she says.
Branton says there are different definitions about “internalisation” of investments from fund to fund.
“While we are predominantly still leveraging external managers, we would regard our approach as a more hybrid. We have added different capability internally through time.”
“We see the model of what we do ourselves, versus what we get external parties to do, as something which is adaptable and evolving. As we do different things, that model will evolve and change.”
While Branton does not want to discuss the implications of the merger, given that discussions are still underway, having a larger asset base could pave the way for more functions to be brought inhouse.
Branton says her own investment philosophy lined up with that which prevailed at CareSuper’s before she got there – a strong commitment to being an active manager.
She says the continuity of approach has helped underwrite continued strong returns.
“Our approach to investing is at the active end of the spectrum,” she says. “Apart from one small part, our entire program doesn’t have any passive investments.
“We don’t have any index or index-like investments. We select managers which have highly active portfolios… [and] more concentrated portfolios. We like more specialist, niche managers. We are more likely to invest in capacity constrained strategies and sector specific strategies.”
The net result has seen a strong period of performance for the fund with up to 80 per cent of its membership currently in the default option.
Care has won two awards from SuperRatings last year- the MySuper of the Year Award for the best default offering and the Smoother Ride Award for consistent achievement of high returns with lower risk.
Branton is particularly pleased with the Smoother Ride award which she sees as a “direct recognition of the value of our distinctive investment approach and how successful it is.”
At the same time, Branton says Care is also committed to take action to reduce the volatility of returns.
“We care about the volatility of returns. We are a more defensive fund. Being an active investor allows us to make adjustments to the portfolio to contain downside.”
“There aren’t that many funds around that have that high defensive element and are able to achieve high returns with lower volatility. This is the hallmark of the CareSuper approach.”