A combination of macro-volatility and concentration risks has convinced Brighter Super that now is a great time to boost active management in its equity portfolio.
It is a dramatic shift for the $34 billion fund, which was created via the merger of Energy Super and LGIAsuper in 2021. It has held all of its listed equities assets in MySuper in passive strategies since then but will now move 30 per cent* to being actively managed by eternal asset managers.
Around half of the fund’s assets are invested in the default MySuper option.
Chief investment officer Mark Rider tells Investment Magazine that at an asset-class level Brighter Super wants to be broadly style neutral.
“We’ll have an element of lower alpha, lower tracking error quantitative strategies. We’ll also have managers who you could characterise as being probably style-neutral themselves,” he says.
“What we’re looking to do is have idiosyncratic risks generating that alpha, and we think that’s the best in best in way to do it, rather than having these [style] biases.
“We don’t want the portfolios simply to be generating positive alpha in one market environment, but badly in another. We wanted to be able to do that through the cycle.”
Rider says Brighter Super has long been a believer in active management, but it needs to be conscious of where to use it and whether it can get a return for it. It helps that the scale created by the merger gives the fund room in its fee budget to incorporate more such strategies.
The upcoming environment will be favourable for active managers as for one, Rider says, the fund is expecting uncertainties around inflation and interest rates, and around trade policies under the new Trump administration in the US.
“If you’ve actually got an environment where you’re not getting shocks left, right and centre – which we’ll be having through this period – and when the cross-sectional volatility of the market is narrow, you will find that that the alpha which has been generated is significantly less,” Rider says.
Secondly, active management will be a good mitigator of market concentration risks, Rider says. For example, the fund might only hold one or two of the Magnificent Seven stocks, and that is a decision Rider will leave to the managers.
But Brighter Super does not have a completion portfolio like many of its peers, and instead controls risks by working with managers whose track records it trusts.
“While the overall portfolio can be neutral, like we do have value and growth managers both across Aussie and global equities… you want to make sure that they are staying within the bounds of what your expectation is,” he says.
“You are, to an extent, dividing up the market… [even though] you do get times when you get big moves in the markets, and they do to come together somewhat.”
Elsewhere, on a fund portfolio level, Rider says Brighter Super will build up infrastructure and property allocations.
“You’ve got to make the most of the crisis which occurs,” he says of the latter asset class.
That allocation is being funded from the approximately $6 billion of liquid assets that came with the Suncorp Super merger in 2022.
The fund appointed Morningstar as its dynamic asset allocation adviser last year and will work closely with it to create a more meaningful DAA program.
“There may be a time as we roll through the year, where we want to actually be more deliberate in some of the tilts,” Rider says.
“We’ve been running some modest tilts in portfolios, but not of a large magnitude.”
*Correction: The figure was represented in the Investment Magazine newsletter on 22 January as a $10 billion shift, which was incorrect. Listed equities represented 56.5 per cent of Brighter Super’s $17 billion MySuper assets, and 30 per cent of it was moved to active management, which represents approximately $2.8 billion assets affected.
