Value managers have played a key part in handing Insignia Financial’s significant superannuation arm 2 per cent alpha in its global equities portfolio, despite the fund’s underweight position in technology stocks that many of its peers relied on to drive returns.
Reflecting on the financial year performance across the MLC, IOOF and ANZ Smart Choice suite, Insignia’s super and asset management business chief investment officer Dan Farmer says the global equities results shows the difference that good active managers can make on returns.
Value investing has been out of favour in recent years, especially in the US where a large part of the market is occupied by growth stocks like the Magnificent Seven. The Morningstar US Value Index has a 9.39 per cent 5-year trailing return, while the US Market Index has 14.8 per cent.
| MLC MySuper Growth | 9.82% |
| IOOF MySuper | 10.7% |
| ANZ Smart Choice MySuper (1980s) | 11.2% |
Source: Insignia Financial
Farmer tells Investment Magazine that value managers have been going through “a difficult period”, but to Insignia, global equities is not all about tech stocks.
“Our value managers have been able to be very stock specific – so there’s no particular set sector or any tilting, just bottom-up stock selection,” he says. “[They have] been able to continue to perform reasonably well, despite that technology headwind.
“We’ve been very happy with that up to 2 per cent alpha in global equities. I think that’s been a big differentiator.
“If you’ve got good active managers, there’s been enough stock selection out there, enough idiosyncratic risks, where we can capture good excess return above that index.”
Eggs in different baskets
With that said, Farmer says Insignia is still quite deliberate on having a mix of manager styles (value, growth and quality tilting) to ensure diversification within global equities.
The fund has a neutral weighting in both global and domestic equities – and is more cautious about the latter due to underlying economic conditions – although the MLC suite is looking to have more exposure to mid-cap Australian equities managers.
Insignia had $180 billion of super assets under management (AUM) at the end of last financial year, according to The Conexus Institute* analysis of annual APRA data, which makes it the biggest retail super fund and the third biggest fund overall in the country.
Looking ahead, Farmer says he is looking to leverage two areas where the fund has strong in-house expertise to generate attractive returns: insurance-related investments, and private credit.
The former mainly refers to weather risk reinsurance, during incidents like the Florida hurricane, Farmer says.
“We’re not taking the first lead of risk in those events, we’re taking remote risk,” he says.
“That insurance-related investment space has been very strong, and that weather-related risk portfolio has delivered returns of 16 per cent over the year.
“It’s been a very interesting space because a lot of capital has moved away from the weather insurance, so that’s part of the reason we’re getting very strong returns available…but also very low to zero correlation to the rest of the portfolio.”
Within private credit, the fund is thinking about capitalising on the commercial real estate bust in a different way.
“The size of our funds generally still allows us to be quite nimble and take advantage of opportunities as we see them,” Farmer says.
“At the moment, we’re seeing some private credit opportunities in Northern European distressed commercial property.
“We’re certainly not going back into commercial real estate across the broader portfolio, but we want to make sure we don’t miss specific opportunities as they arise. So that opportunistic private credit portfolio added about 10 per cent to our return over the year.”
The MySuper options across Insignia’s super suite have slightly different asset mixes. Famer says MLC MySuper Growth has around 81 per cent growth assets and relatively higher private equity and unlisted infrastructure allocations.
The IOOF MySuper is currently increasing allocation to private equity and diversifying its alternatives beyond just Australian private credit.
ANZ Smart Choice (which was almost entirely passively invested in listed equities when Insignia took over) is building out allocations to private equity, unlisted infrastructure, unlisted direct property and private credit.
Famer’s official title is chief investment officer of MLC Asset Management. Despite managing a multitude of super funds with different profiles and brands, Famer says the investment IP and philosophy still come from one “engine room”. The investment team has gone through a significant integration process since IOOF acquired MLC to form Insignia Financial.
Still, each of the funds has a dedicated portfolio manager for accountability purposes.
“The investment team structure, I won’t say it’s never going to change, because we always want to evolve, but it’s working well,” Farmer says.
*The Conexus Institute is a not-for-profit think-tank philanthropically funded by Conexus Financial, the publisher of Investment Magazine.
