Welcome to the first in a new Lonsec Insights series called Manager in Focus. Manager in Focus aims to demystify the investment process and give access to the brightest minds in Australia’s investment community.

In this first Manager in Focus video, Peter Green, Head of Equities Research at Lonsec Research brings together Dushko Bajic, Head of Australian Equities, Growth at First Sentier Investors, Jared Pohl, Cofounder of ECP Asset Management and Stephen Wood, Principal and Portfolio Manager at Eiger Capital to discuss their qualitative research and investment processes, what they look for in target investments, how they have built and maintain their team and what they do when things don’t go as planned. Each of these managers run funds that have been rated as Highly Recommended by Lonsec Research in the recent Australian Equities review.

IMPORTANT NOTICE: This video is published by Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No. 421445 (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this video.
Disclosure as at the date of publication: Lonsec receives fees from fund managers or product issuers for researching their financial product(s) using comprehensive and objective criteria. Lonsec receives subscriptions for providing research content to subscribers including fund managers and product issuers. Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other advice. Lonsec’s fees are not linked to the product rating outcome or the inclusion of products in model portfolios, or in approved product lists. Lonsec and its representatives, Authorised Representatives and their respective associates may have positions in the financial product(s) mentioned in this video, which may change during the life of this video, but Lonsec considers such holdings not to be sufficiently material to compromise any recommendation or advice.
Warnings: Past performance is not a reliable indicator of future performance. The information contained in this video is obtained from various sources deemed to be reliable. It is not guaranteed as accurate or complete and should not be relied upon as such. Opinions expressed are subject to change. This video is but one tool to help make investment decisions. The changing character of markets requires constant analysis and may result in changes. Any express or implied rating or advice presented in this video is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. It does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s).
Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Where Lonsec’s research process relies upon the participation of the fund manager(s) or product issuer(s) and they are no longer an active participant in Lonsec’s research process, Lonsec reserves the right to withdraw the video at any time and discontinue future coverage of the financial product(s).
Disclaimer: This video is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this video, which is drawn from third party information or opinion not verified by Lonsec. Financial conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this video following publication. Except for any liability which cannot be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this video or any loss or damage suffered by the viewer or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Research Pty Ltd (ABN 11 151 658 561, AFSL No. 421445) (Lonsec). This video is subject to copyright of Lonsec. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth), no part of this video may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of Lonsec.

This video may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to Lonsec copyrighted material, applies to such third party content.

Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.

Increasingly, it is no longer enough for advisers to be reactive when clients ask about sustainable investing. It is vital that you have an ESG/Sustainable alternative as part of portfolio recommendations for your clients.

We have put together 5 questions you should be asking your clients when discussing sustainable investments ranging from how much clients now about ESG and sustainable investing to whether they need to see the sustainability credentials of underlying holdings.

  1. Do you want sustainable/ESG options?

An obvious first question but acting in the best interest of a client means delivering a solution that ties into a client’s interests. For some, it means investing sustainably, for others, it is not a factor. FASEA Code #6 states a solution must consider a client’s long term aims, which may involve investing sustainably.

  1. Do you know what ESG actually means?

This might seem like a simple question, but most investors are unaware that ESG is an investment process and not the means by which the “goodness” of a portfolio can be immediately assessed.

As an investment process, ESG takes into consideration the risk and downside potential of investing in a company (or investment) from an environmental, social or governance perspective. However, it does not mean that such an investment will not take place if the potential upside outweighs these risks. Understanding this difference is important to ensure you match investment suggestions with your client’s values.

  1. Do you want to make a difference to society through your investment choices?

Given that ESG is about investment process and doesn’t necessarily consider whether an investment delivers positively to society, unpacking this difference might narrow the selection of investment options. By narrowing these options, you will ultimately ensure that you are really acting in the best interest of your client by only suggesting solutions that match their views on sustainable investing.

The Lonsec Sustainable Managed Portfolios consider both ESG risk and sustainability measures. These sustainability measures focus on the goodness the funds included in the Portfolios and are underpinned by the United Nations’ 17 Sustainable Development Goals.

  1. Are there specific industries that you would prefer to exclude?

Each client is different and what one considers inappropriate could be appropriate for others Having a good understanding of what lines cannot be crossed is important and once you have this information, you can then identify a solution that meets your client’s requirements.

The filter tool in Lonsec’s iRate® platform allows you to exclude ten specific controversial industries from your product selection.  In addition, our Sustainability reports give in depth reviews of how products support sustainable outcomes and the extent to which any controversial industries are included in a portfolio. This way you can screen out any controversial industries that you client specifically does not want to invest in.

  1. Do you want to be able to see how much “good” your investment is delivering?

As the number of ethical and Sustainable products have grown, many are not as green or sustainable as they claim. With some solutions it is difficult to see exactly how they are delivering on their sustainability claims as the underlying holdings or progress against sustainable goals are not clearly reported.

If visibility of an investment’s sustainability promise is important to a client, you must identify solutions that report openly and clearly on these factors. Lonsec reports on its delivery against its Sustainable goals. The portfolios actively report against a number of factors such as reduction in CO2.

 


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

The upward trajectory in equity markets has continued unabated. Markets continue to be supported by low interest rates and central bank liquidity support. The US Federal Reserve’s recent comments that that they would continue their asset purchase program and that interest rates are not expected to rise anytime soon has added fuel to markets. This is despite growing concerns of rising inflation, which has been a major focal point for central banks and investors alike. One of our observations is that markets are disregarding any negative news which is of concern as this is typical behavior in the late stages of a bull market. Uncertainty also remains as to the playbook the pandemic will follow. The spike in the Delta strain of Covid-19 has highlighted the evolving nature of the virus and, as we have seen domestically, it has had a material impact on Australia’s ability to ‘open up’, which has had a detrimental impact on many households and small businesses. Furthermore, geopolitical risk continues to flare up with the recent retreat of the US from Afghanistan creating a power vacuum in that region.

Our asset allocation positioning has been positive for investors as we have maintained an overweight exposure to risk assets such as equities. We are seeing that asset valuations in some sectors are looking stretched as the market has extended its rally. We are looking at ways to further diversify our portfolios as well as looking at opportunities to take profits via portfolio rebalancing where appropriate. The main challenge from a portfolio construction perspective at the moment is that bonds and cash do not look particularly attractive, so the hunt for other diversifying assets is a focus for us. Within our multi-asset portfolios, we have incorporated a range of assets such as gold and alternative strategies to provide diversification from equities and bonds.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

The recently released Intergovernmental Panel on Climate Change (IPCC) Report made for sobering reading. Based on the most up to date, science-based understanding of the climate system and climate change, the report found that it “is unequivocal that human influence has warmed the atmosphere, ocean and land. “ According to the report, human influence has ‘very likely’ to ‘almost certainly’ contributed to global land and ocean warming, the retreat of glaciers, the decrease in Artic sea ice, rising sea levels and the increase severity and number of extreme weather and climate events that are occurring across every region across the globe.

The Lonsec Sustainable Managed Portfolios have a dual objective of delivering strong risk-adjusted returns while also making a positive contribution to the key environmental and social challenges facing society as measured by the United Nations Sustainable Development Goals (SDGs).

Climate change impacts a number, if not all, of the SDGs.

For example, changing weather patterns, more severe droughts, floods and tropical cyclones can significantly impact SDG 2 Zero hunger (and consequently SDG 3 Good health and well-being) due to increased food insecurity. SDG 1 No poverty will also be affected, as livelihoods, particularly in the agricultural sector, are lost. Climate change is also clearly impacting SDG 14 Life below water with coral bleaching events and ocean acidification on the rise and 15 Life on Land as decreased biodiversity, changing climate zones, and heatwaves threaten the extinction of many species.

The Lonsec Sustainable Managed Portfolios seek to address climate change in several ways;

  • We invest in strategies that are actively looking to solve the challenges of climate change. Impact strategies such as the Impax Sustainable Leaders Fund which invests globally in companies that are active in resource efficiency and environmental markets and the Pengana WHEB Sustainable Impact Fund which invests in sustainable investment themes including environmental themes such as cleaner energy, sustainable transport and water management. The Lonsec Sustainable Portfolios also have exposure to green and sustainable bonds through our fixed income strategies, where the proceeds of the bonds go directly towards funding climate solutions such as wind and solar farms.
  • We limit our exposure to fossil fuels, and in particular, thermal coal. As the highest emitting fossil fuel, coal is simply an exposure we want to avoid. Most of our underlying managers go further and exclude fossil fuels altogether which we strongly encourage as alternative technologies including renewables become more accessible. We monitor the portfolio’s exposure to each of the major fossil fuels (coal, gas, oil) using a third-party data provider to ensure that our exposures are low or zero and aligned with the goals of the Paris agreement, and we track the overall carbon footprint of the portfolio.
  • We invest in strategies such as the BetaShares Global Sustainability Leaders ETF (ETHI) that targets ‘climate leaders’. These are global large cap companies that have passed screens to exclude companies with direct or significant exposure to fossil fuels. 100% of the power generated by the companies in ETHI come from renewable sources.
  • We invest with managers that have strong Environment Social and Governance (ESG) integration, that is, they understand and incorporate the physical and transition risks of climate change into their financial analysis. They are managers that engage directly with companies around their climate disclosures and on their transition plans to net zero emissions. While targeting climate leaders and excluding fossil fuels can assist in keeping the carbon footprint of the portfolio low, it does little to reduce carbon emissions in the real-world – it simply passes the problem and emissions onto other investors. All companies, not just those focused on climate solutions, need to be part of the transition if we are to have a real-world impact. We want fund managers to work with all companies to reduce their emissions across the board and improve the carbon footprint of the entire market. In this regard, we see ESG integration as playing a critical role in delivering to the SDGs.

We believe the Lonsec Sustainable Portfolios are well positioned from a climate change perspective, however, more needs to be done. We will continue to work with fund managers and encourage more ambitious goal setting. At present we have 35% of FUM in the portfolio committed to net zero emissions by 2050 either through the Net Zero Asset Managers initiative or independent commitments. We want to see that number increase. It is important to Lonsec and important to our clients that we seek to urgently address climate change. We believe that addressing the impacts of climate change can help build more resilient portfolios and deliver more stable and higher long-term returns for our clients.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

With the growing dominance and potentially anticompetitive nature and conduct of big tech multinational players of the likes of Amazon, Facebook, Apple and Alphabet, there is bipartisan support behind the need for antitrust reform. US President Joe Biden’s appointment of staunch antitrust reform advocate Lina Khan as Chair of the Federal Trade Commission in June this year, reinforces the Biden administration’s firm intent to seek to address the broad range of antitrust concerns. In her role as Chair, Lina Khan will work with Congress on bills to limit the power of big tech companies, collaborate with European regulators on antitrust issues, and will be involved in deciding whether to launch antitrust investigations and court cases.1 Amazon is currently being investigated by the FTC for past acquisitions, treatment of third party sellers and its cloud services business. As evidenced by recent flurry of capital outflows in response to significant regulatory change targeting the technology and education sectors in China, regulatory and ESG risks can have a material impact on stock markets. This article discusses the rationale behind the need for antitrust reform which has been articulated by Khan and other advocates in the area, using the example of Amazon, to capture the reality of the anticompetitive risks that big tech companies present to society.

Amazon has an undeniably impressive long-term track record as a growth company. It has a substantial and growing addressable market, with promising businesses in AWS and Alexa, as well as value-add opportunities in Amazon Prime, grocery delivery and healthcare. As a result, it is often a ubiquitous and prominent holding in the portfolios of growth investment managers, which has proven to be a multi-bagger stock, and then some. AWS is a “scale as a service” platform, which delivers IT infrastructure services online. It has been transformational in making cloud computing more accessible and affordable to smaller companies, and its scale has enabled Amazon to invest more in the development and management of services than what would have otherwise been possible.2 Following Congressional hearings last year, the US House of Representatives’ Antitrust Subcommittee established that Amazon has “significant and durable market power in the US online retail market”, with monopoly power over third party sellers on its platform and suppliers.3 Amazon have developed a valuable service for vendors and consumers, built a strong market position and are entitled to a return on their substantial investment and innovation over the years. They have acted on a strategy of heavy reinvestment and research and development to produce a more competitive offering for consumers. However, there is growing recognition of the need for sufficient checks and balances to ensure that anticompetitive hazards are mitigated.

Theoretical Underpinnings of Antitrust Law

There has been a shift in approaching antitrust from economic structuralism toward consumer welfare. The current approach was introduced by Judge Robert Bork and supported by the University of Chicago Law school through the Chicago School of Antitrust framework. This approach narrows the scope and application of the law to focus solely on consumer welfare, specifically consumer prices, rather than the entire spectrum of market participants and implications to market power dynamics in the economy. Antitrust laws are centred on the objective of maximising consumer welfare, measured primarily through prices. Furthermore, the view is that consumer welfare is best achieved through market efficiency, in which firm size, structure and concentration are a result of market forces.4 Consistent with this theory, Amazon as a profit maximising actor, has a large market share and integrated supply chains. Its concentrated structure enables it to achieve lower prices and thereby maximise consumer welfare. This approach overlooks risks Amazon poses to competition and other market participants, and the multitude of other ways it can exploit market power. Market efficiency lies on the premise that rational economic actors will maximise profits by combining inputs in the most efficient manner. However, economic actors do not always act rationally and unchecked and without proper oversight have opportunities to act unfairly for the ultimate detriment of consumers. Monopolies and oligopolies increase barriers to entry, risks of collusion and price fixing, and lowers the pricing power of consumers, suppliers and even employees.5 Amazon has barriers to entry that assist the durability of its market power, including high switching costs for consumers to shop outside Amazon’s ecosystem and its fulfilment and delivery advantage through a large logistics network.6 In addition, network effects and data collection that cannot be easily replicated by new entrants, further increase these barriers.7 As Congresswoman Pramila Jayapal stated when questioning Jeff Bezos in the antitrust Congressional hearings in 2020, Amazon can monitor third party vendors on their platform so there is a risk competitors don’t get big enough so that they can never essentially compete.

Antitrust ideology in the 1960s centred on the theory of concentrated economic structuralism, which takes the view that concentrated market structures promote anticompetitive conduct. Markets with several small and medium sized companies are more competitive in structure than where it is concentrated among a few large players. Thus, the application of antitrust law was broader and took into consideration the interests of these stakeholders, including suppliers, employees, and competitors. Even if current interpretation of antitrust is correct in its focus solely on consumer welfare, consumer prices are only one measure of consumer welfare. This approach ignores the totality of consumer welfare including product quality, variety and innovation.8 These are best fostered through open markets and competition, rather than concentrated market structures with a few, large powerful companies.9 The aim of antitrust law should be to promote market competition and ensuring market power is appropriately distributed to achieve this, rather than consumer welfare.10 Practically, however, it is difficult to envisage that the application of this approach should result in the break-up of big tech companies. In the case of Amazon, the economies of scale arguments hold true, the vertical integration of business provide cost advantages to consumers that could not otherwise be achieved. However, closer regulatory oversight of big tech companies to prevent infringement upon interests of other stakeholders may be warranted.

There is broad support for the view that the Supreme Court’s interpretation of legislative intent behind the Sherman Act as a consumer welfare prescription is inaccurate. The genesis of antitrust was based on several aims, including to control and distribute the power of large industrial trusts and ensure that they did not impinge upon the opportunities for newer entrants in the market.11 In fact in the 1960s the Supreme Court specifically highlighted that the legislative intent of antitrust was to prevent concentrations of economic power,12 which reduced economic competition and gave rise to the potential for significant political control.13 Congressional debates by Senator Sherman himself highlighted one of the purposes of Congress during the 1890s was to protect an industry structure of small units which effectively compete with each other.14 Whilst this was the legislative intent of the 19th and 20th centuries, intent of Congress is an important basis for courts in interpreting and applying legislation.

Predatory Pricing

Whilst companies are entitled to competitively price and discount goods and services, predatory pricing to eliminate competition is illegal. However, the distinction between the two can be difficult to determine. In 2009, Quidsi, a growing e-Commerce business declined Amazon’s acquisition offer. Amazon subsequently aggressively reduced prices on product categories sold by Quidsi including diapers and baby products. Amazon used its data advantage, with pricing bots monitoring and following any price cuts made by Quidsi. Amazon’s product manager admitted to a strategy to match prices no matter what the cost.15 Ultimately, this resulted in the sale of the business to Amazon, after which Amazon raised the prices on products that were previously discounted. Arguably Amazon used its market power to undermine competition. Advocates may argue that this is the type of conduct which the Clayton Act was designed to prevent, as articulated in Congressional debates ‘by the use of this organized force of wealth and money the small men engaged in competition with them are crushed out; and that is the great evil at which all this legislation ought to be aimed.’16 On the other hand, it may be argued that this is an example of competitive pricing. Companies often compete on prices to attract and gain customers. Amazon thus could at best be said to have engaged in a pricing war with Quidsi on similar products, which ultimately resulted in Quidsi’s sale. In a general sense mergers and acquisitions can aid platforms in achieving scale, gain functionality to provide to its large user base as well as obtaining talent and resources for innovation.17 However, even if we are to look at antitrust through the lens of the consumer welfare standard, Amazon’s conduct significantly reduced the degree of competition and choices in the market when in Amazon’s own view it believed that Quidsi was its largest short term competitor.18 This seems to meet the FTC’s guidance on predatory pricing in that it harmed consumers by allowing a ‘dominant competitor to knock its rivals out of the market and then raise prices to above-market levels for a substantial time.’19

Amazon’s significant size and influence enables losses from aggressive pricing strategies to be offset and recouped through other avenues, including charging publishers higher fees for services.20 In an incident termed the “Gazelle Project”, small book publishers, dependant on Amazon for sales, were subjected to unfavourable treatment if they did not agree to more favourable terms during contract negotiations.21 Similar instances were highlighted by the US House of Representatives’ Antitrust Subcommittee, such as Amazon threatening retaliation if publishers would not accept contractual terms that limited their ability to work with Amazon’s rival e-book retailers.22 Publishers are at a structural disadvantage in negotiations not only because they rely on Amazon for distribution and marketing, but also because Amazon is vertically integrated into publishing and may promote its own content over external publishers.23

Advocates argue that predatory pricing laws should be more strongly enforced to reflect the uncertainty surrounding predatory pricing. Predatory pricing cases are rarely brought in the US. The Clayton Act of 1914 prohibited large companies from reducing prices below the cost of production to eliminate competitors and make their business unprofitable, and with the aim of becoming a monopoly.24 Similarly, the Robinson-Patman Act of 1936 aimed to prevent conglomerates and large companies from using their buying power to obtain discounts from smaller companies to destroy competition.25 However, the Supreme Court has adopted the view that rather than predation, there is a greater risk of price competition being misclassified as predation (Matsushita Electric Industrial Co v. Zenith Radio Corp). This is because the success of predation schemes of predatorily low prices is uncertain in the long-term. The Chicago School’s critique of predatory pricing was that below cost pricing is irrational, unsustainable and rarely occurs.26 Economics is not an exact science and the Chicago School’s argument is not an unbreakable principle of law.27 The Chicago School undermined the idea that price discrimination could be used to create monopolies, which they argued was the premise of the Robinson-Patman Act. Indeed, Amazon uses below cost pricing as a systematic and highly effective strategy, and whilst prima facie irrational, below cost pricing can nonetheless prove to be sustainable in the long term and enabler of gaining market share. This is not necessarily conclusive that Amazon engages in predatory pricing but evidences the outdated thinking behind predatory pricing and the need for this to be revisited.

Amazon have developed a valuable service to consumers, third-party vendors and publishers on its eCommerce platform. As a result of significant and continuous reinvestment into the company it has earned its strong market position and are entitled to a return on investment. However, the dominant business structure and power imbalances of third-party vendors elevates risks of anticompetitive harm. Closer regulatory oversight may be needed to protect the interests of these broader groups of stakeholders albeit the market will be very wary of the impact such regulations may have on the earnings power of Amazon and other big tech companies.

Author: Asha Rahman, Associate Analyst
Approved by: James Kirk, Manager – Global Equities & Alternatives


1. The Economist, ‘Joe Biden appoints Lina Khan to head the Federal Trade Commission’, 19 June 2021 < https://www.economist.com/united-states/2021/06/19/joe-biden-appoints-lina-khan-to-head-the-federal-trade-commission>.
2. Baillie Gifford, Portfolio Construction Forum 2021.
3. Subcommittee on Antitrust, Commercial and Administrative Law of the Committee of the Judiciary, US House of Representatives, Investigation of Competition in Digital Markets, Majority Staff Report and Recommendations (2020) 254.
4. Lina M Khan, ‘Amazon’s Antitrust Paradox’ (2017) 126 Yale Law Journal 710, 720.
5. Ibid.
6. Subcommittee on Antitrust, Commercial and Administrative Law of the Committee of the Judiciary, US House of Representatives, above n 3, 260.
7. Khan, above n 4, 772.
8. Ibid 737.
9. Ibid 739.
10. Ibid 737.
11. Ibid 740.
12. Greenfield B Leon, Lange A Perry and Nicole Callan, ‘Antitrust Populism and the Consumer Welfare Standard: What are we Actually Debating?’ (2019) 83(2) Antitrust Law Journal, 2.
13. Darren Bush, ‘Consumer Welfare Theory as an Ethical Consideration: An Essay on Hipsters, Invisible Feet, and the “Science” of Economics’ (2018) 63 The Antitrust Bulletin 509, 511-12.
14. Ibid 513.
15. Sarah Oh, ‘Is there evidence of antitrust harm in the house of judiciary committee’s hot docs?’ (2021) 37 Santa Clara High Tech Law Journal 193, 199.
16. Sandeep Vaheesan, ‘The Profound Nonsense of Consumer Welfare Antitrust’ (2019) 64 The Antitrust Bulletin 479, 481.
17. D Daniel Sokol and Marshall Van Alstyne, ‘The Rising Risk of Platform Regulation’ (2020) 62(2) MIT Sloan Management Review, 3.
18. Ibid.
19. The Federal Trade Commission, ‘Predatory or Below-Cost Pricing’ <https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost>.
20. Khan, above n 4, 765.
21. Business Insider Australia, ‘Sadistic Amazon Treated Book Sellers “The Way a Cheater would Pursue a Sickly Gazelle”’, 23 October 2013, <https://www.businessinsider.com.au/sadistic-amazon-treated-book-sellers-the-way-a-cheetah-would-pursue-a-sickly-gazelle-2013-10?r=US&IR=T>.
22. Subcommittee on Antitrust, Commercial and Administrative Law of the Committee of the Judiciary, US House of Representatives, above n 3, 269.
23. Khan, above n 4, 766.
24. Ibid 723.
25. Ibid 724.
26. Ibid 727.
27. Bush, above n 13, 511.

IMPORTANT NOTICE: This document is published by Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No. 421445 (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document.
Disclosure as at the date of publication: Lonsec receives fees from fund managers or product issuers for researching their financial product(s) using comprehensive and objective criteria. Lonsec receives subscriptions for providing research content to subscribers including fund managers and product issuers. Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other advice. Lonsec’s fees are not linked to the product rating outcome or the inclusion of products in model portfolios, or in approved product lists. Lonsec and its representatives, Authorised Representatives and their respective associates may have positions in the financial product(s) mentioned in this document, which may change during the life of this document, but Lonsec considers such holdings not to be sufficiently material to compromise any recommendation or advice.
Warnings: Past performance is not a reliable indicator of future performance. The information contained in this document is obtained from various sources deemed to be reliable. It is not guaranteed as accurate or complete and should not be relied upon as such. Opinions expressed are subject to change. This document is but one tool to help make investment decisions. The changing character of markets requires constant analysis and may result in changes. Any express or implied rating or advice presented in this document is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. It does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s).
Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Where Lonsec’s research process relies upon the participation of the fund manager(s) or product issuer(s) and they are no longer an active participant in Lonsec’s research process, Lonsec reserves the right to withdraw the document at any time and discontinue future coverage of the financial product(s).
Disclaimer: This document is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by Lonsec. Financial conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.
Copyright © 2021 Lonsec Research Pty Ltd (ABN 11 151 658 561, AFSL No. 421445) (Lonsec). This document is subject to copyright of Lonsec. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth), no part of this document may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of Lonsec.
This document may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to Lonsec copyrighted material, applies to such third party content.

In 2020 Lonsec introduced ESG assessment scores for all its managed fund reviews. More than just a simple style classification, Lonsec reviews the actual implementation of ESG through the investment process and incorporates that assessment as one of the factors that determine a fund’s final investment rating. Now well into the second year of our enhanced review process we have noticed some clear actions by managers over the last twelve months to improve their overall ESG implementation.

The most immediately obvious change, year over year, has been an increase in the public provision of ESG policies by managers and a clear improved trend in reporting on proxy voting and engagement. Importantly, though, ESG policies are improving in quality, clarity and commitment. Lonsec favours policies with clear ESG objectives and beliefs, and board or CEO signoff and buy-in. Lonsec is pleased to note an overall improvement in proxy voting policies, with more of them referencing ESG as important considerations and leading policies clearly stating how a manager might be expected to address and vote on particular issues.

Unfortunately, there remains a clear gap, however, between voting expectations and actual outcomes. Lonsec is concerned that actual voting decisions, particularly for ESG and Sustainability labelled funds, might not align with the expectations of fund investors, particularly with respect to environmental, Paris agreement based and diversity issues. For this reason, Lonsec places a high level of importance on clear, reporting of voting decisions, with leading fund managers providing clear rationales for why they have voted in a particular way. This is especially important where client expectations are likely to be aligned a to a certain perspective, given the type of fund invested in. There have been a few clear leaders in this respect with some delivering improved functionality and transparency of voting intentions and rationales for contentious decisions, published prior to the AGM’s and votes being lodged. Lonsec sees this as a is a very positive move and would encourage its widespread adoption.

Engagement is also a key ESG implementation approach where managers have improved their overall policies and reporting. Assessment of engagement activities by Lonsec however, remain difficult. As most managers prefer to engage “behind closed doors”, a thorough review of the passion, commitment and position being taken by managers is difficult to assess. Disappointingly a recent interview with Man Group CEO indicated that many of his largest institutional shareholders, who claim engagement as a key plank of their stewardship activities, don’t actually engage on key issues like remuneration policies, even when his company tries to engage with them! For this reason, Lonsec’s process looks for the manager to deliver clear proof points where strong engagement is claimed.

These broad improvements have meant that, overall, managers are scoring higher than they were a year ago on Lonsec’s proprietary scoring models. As a result, the “the bar is being lifted” and managers who’s ESG approach is static are likely to slip in our relative rankings.

Lonsec does note, however, that there is still considerable room for improvement by many managers on the transparent integration of ESG into their investment processes. While an increasing number of managers are utilising external ESG ratings and data, or proving their own ESG research, there remains room for improvement in articulating how said research actually impacts investment decisions. Overall ESG risk measurement at the portfolio level and clear feedback loops to portfolio decisions are largely missing from most managers processes.

Lonsec is also keen for managers to be more transparent about the nature of their ESG styles and how that might impact security selection. There is a wide variety of approaches to ESG integration, not all of which naturally align with broad investor expectations. Lonsec would welcome simpler descriptions of the ESG approach being adopted rather than the common, more generic, “ESG is integrated into our research/investment process” with an explanation of how this actually works.

All in all, Lonsec is pleased to report improving policy and reporting transparency from managers and is looking for continued improvements on investment process descriptions and robustness.

Author: Tony Adams

Issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Warning: Past performance is not a reliable indicator of future performance. Any advice is General Advice without considering the objectives, financial situation and needs of any person. Before making a decision read the PDS and consider your financial circumstances or seek personal advice. Disclaimer: Lonsec gives no warranty of accuracy or completeness of information in this document, which is compiled from information from public and third-party sources. Opinions are reasonably held by Lonsec at compilation. Lonsec assumes no obligation to update this document after publication. Except for liability which can’t be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error, inaccuracy, misstatement or omission, or any loss suffered through relying on the document or any information. ©2021 Lonsec. All rights reserved. This report may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited. 

Lonsec’s complete suite of managed accounts is now available on Macquarie’s wrap platform with the addition of the new Sustainable portfolios. The Sustainable portfolios provide greater choice for clients seeking investment strategies that align with their personal values and demonstrate strong environmental, social and governance (ESG) practices.

Recognising the growing demand for responsible investment solutions, Lonsec developed the Sustainable portfolios’ Balanced, Growth and High Growth risk profiles with a unique philosophy that looks through both lenses of ESG, which focus on the underlying managers’ process, approach and integration of ESG factors, along with Sustainability measures, which focus on the funds’ positive impact on the world.

To measure the portfolios’ contribution to society and the environment, we assess funds against the UN’s Sustainable Development Goals (SDG) framework. We look at the activities of the companies held in a fund and net the positive contributions to the 17 SGDs against the negative impact of exposures to controversial industries.

Deanne Baker, Portfolio Manager for the Sustainable portfolios said, ‘The Sustainable portfolios now have a 6-month track record and, not only have the outperformed the Benchmark over the last 3 and 6 months, but they have also made positive contributions across a number of the SDGs including SDG 11 Sustainable Cities and Communities, 3 Good Health and Well Being, SDG 1 No Poverty, SDG 5 Gender Equality, SDG2 Zero Hunger and SDG 7 Affordable and Clean Energy. With the addition of our Sustainable portfolios on Macquarie, we are thrilled to offer an investment solution that aligns with the needs of our clients and can have a positive impact on the planet”.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

The recent increased number of Covid-19 cases in Australia and in some parts of the globe highlights how quickly things can change and why it is critical that your portfolios are diversified and have some protection.

Markets have continued to be buoyed by strong performance and despite continuing concerns regarding inflation, the markets had some relief as bond yields pulled back over the quarter. Key Central banks have taken the view that much of the rise in CPIs is attributed to supply/demand imbalances caused by Covid, these imbalances will diminish and alleviate some of the current inflationary pressures. Lonsec’s base case in aligned to this view and while we expect inflation to rise over the next six months, we believe that it will subside.

Policy setting also remains conducive to equity markets, with interest rates remaining low as inflation subsides. In addition to supportive monetary policy, fiscal support also remains a continuing theme. Economic indicators such as employment figures, PMIs and consumer confidence all suggest that the economic recovery in well on track, with some indicators exceeding pre Covid levels.

Despite these positives, risks remain – one of the biggest being complacency. While we believe that risk assets continue to offer a suitable return relative to bonds and cash, the increasing divergence in asset and security returns suggests not all boats will float equally. Some of our indicators suggest that the threat of a ‘tail risk’ event is on the rise. Policy error, geopolitical tensions or the path of the pandemic taking an unexpected turn are all plausible. Therefore, ensuring portfolios are diversified remains important.

We have positioned our Dynamic Asset Allocation model to reflect our belief that portfolio diversification remains important. The July Investment Outlook Report summarises the outlook for each asset class included in our asset allocation framework.

Our Dynamic Asset Allocation model is available to iRate subscribers via the quarterly Investment Outlook Report. To access the latest Investment Outlook Report, sign up for a two-week trial of iRate, our market leading research platform.

MPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

The 2021 financial year saw a rapid recovery from the economic downturn, followed by ongoing growth as confidence soared on the back of the development of COVID-19 vaccines. This led to the hope of a return to a more normal lifestyle, with superannuation funds riding the market highs to deliver some of the best returns members have seen since superannuation was introduced.

With super funds finalising their reporting for June 2021, the strength of the market rebound is clear. The top 20 performing balanced options all returned over 18% to their members over the year, a result that nobody would have predicted 12 months ago.

According to data from leading research house SuperRatings, QANTAS Super Gateway – Growth was the top performing fund over the 2021 financial year, returning 22.0%. This was followed by BT Panorama Full Menu – BT Wholesale Multi-manager and Hostplus whose balanced options returned 21.4% and 21.3% respectively.

Top 20 balanced options over 12 months


Source: SuperRatings 

While extraordinary performance over the last 12 months is to be acknowledged, long-term returns are what really count. Here is where members can see which funds have consistently delivered quality returns.

The top performers over ten years were AustralianSuper, whose balanced option has returned 9.73% p.a. over the last decade, followed closely by Hostplus – Balanced and Cbus – Growth (Cbus MySuper) returning 9.67% and 9.6% respectively.

Top 20 balanced options over 10 years


Source: SuperRatings 

COVID-19 introduces market downturns to the next generation of investors

Before the impact of the COVID-19 pandemic, the globe had seen the longest run of growth in its history. As a result, the market crash in February 2020 would have been the first time younger investors experienced such a significant and sharp fall in their wealth. Increasingly, investors are acknowledging the importance of not only the return that an option delivers but also the level of risk it takes on to achieve that return.

One way to examine this is looking at the ups and downs in returns over time. Growth assets like shares may return more on average than traditionally defensive assets like fixed income, but this comes with a bumpier ride.

The table below shows the top 20 funds ranked according to their volatility-adjusted return, which measures how much members are being rewarded for taking on the ups and downs.

QSuper’s balanced option return of 8.1% p.a. over the past seven years is below some of its peers, but it has achieved this with a smoother ride along the way, meaning it has delivered the best return given the level of volatility involved.

Top 20 balanced options over 7 years ranked by risk and return

Option Name Risk Ranking 7 Yr Return (p.a.)
QSuper – Balanced 1 8.1%
BUSSQ Premium Choice – Balanced Growth 2 8.5%
Prime Super – MySuper 3 8.7%
CareSuper – Balanced 4 8.7%
Cbus – Growth (Cbus MySuper) 5 9.2%
Spirit Super – Balanced (MySuper) 6 8.7%
Catholic Super – Balanced Growth (MySuper) 7 8.4%
Aware Super – Growth 8 8.6%
VicSuper FutureSaver – Growth (MySuper) Option 9 8.6%
AustralianSuper – Balanced 10 9.6%
Mercy Super – MySuper Balanced 11 8.3%
CSC PSSap – MySuper Balanced 12 8.0%
Media Super – Balanced 13 8.3%
Sunsuper for Life – Balanced 14 8.9%
Hostplus – Balanced 15 9.5%
NGS Super – Diversified (MySuper) 16 8.1%
Vision SS – Balanced Growth 17 8.8%
HESTA – Balanced Growth 18 8.5%
Active Super – Balanced Growth 19 8.0%
Equip MyFuture – Balanced Growth 20 8.5%

Source: SuperRatings

Sustainable options keep pace with the market recovery

Sustainable investments are becoming increasingly appealing to a broad range of investors, as the impacts of businesses on people and places becomes more widely accepted.

While a relatively recent addition to many funds’ portfolios, long-term returns remain crucial when looking at sustainable options. The table below shows the top 10 sustainable balanced options ranked according to their 5 year return.

SuperRatings data shows that HESTA’s Sustainable Growth option provided the highest return to members over 5 years for a dedicated sustainable option, with a return of 11.8%. This was 1.2% more than the highest balanced option return over the same period. This was followed by the UniSuper Accum (1) – Sustainable Balanced and VicSuper FutureSaver – Socially Conscious options which returned 10.2% and 9.8% respectively.

Top 10 sustainable balanced options over 5 years


Source: SuperRatings

“Overall, returns for the 12 months to June 2021 should provide everyday Australians with confidence that super funds have capitalised on the market recovery, while also performing well during the sell-off in March 2020”, said SuperRatings Executive Director Kirby Rappell.

Mr Rappell continued “while we saw funds that had a high exposure to equity markets fall dramatically when the pandemic first hit markets in February, these were the same funds that then rebounded strongly as markets recovered.

In saying that, it has been the year of domestic and global shares and listed property as key drivers of performance.”

The funds that have performed well on a 10 year basis followed a range of approaches. We have seen funds pursuing alternatives continue to perform well, although we expect to see a greater emphasis on asset allocation in coming years as funds look to drive down costs over the long term.

Mr Rappell commented, “a really interesting trend has been the evolution of funds’ sustainable options. In the past, the average sustainable option’s return tended to lag the standard balanced option. However, in more recent times, these options have performed well with the top performing options surpassing their typical balanced style counterparts in some cases.”

The key message here for funds and members is to take the time to think about your long-term strategy. The recent pandemic has reinforced the importance of setting up your super in the best way, to ensure you are on track for your retirement. Volatility will come and go, but having a long-term strategy is what will give you the comfort and confidence to ride it out.

Release ends

Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the merits of the superannuation or pension financial product(s) alone, without taking into account the objectives, financial situation or particular needs (‘financial circumstances’) of any particular person. Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If SuperRatings advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each superannuation or pension financial product before making any decision about whether to acquire a financial product. SuperRatings research process relies upon the participation of the superannuation fund or product issuer(s). Should the superannuation fund or product issuer(s) no longer be an active participant in SuperRatings research process, SuperRatings reserves the right to withdraw the rating and document at any time and discontinue future coverage of the superannuation and pension financial product(s).

Copyright © 2021 SuperRatings Pty Ltd (ABN 95 100 192 283 AFSL No. 311880 (SuperRatings)). This media release is subject to the copyright of SuperRatings. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth.), no part of this media release may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of SuperRatings. This media release may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to SuperRatings copyrighted material, applies to such third party content.

Superannuation funds are under increasing pressure to drive down fees. While investment fees and costs are a key driver of the amount members pay for their superannuation, demonstrating the relationship between cost and value remains challenging.

SuperRatings has analysed how investment fees have changed since 2011. The chart below shows the median annual cost for investment based on a member with a $50,000 account balance invested in a balanced (60-76) investment option.

Note: Investment fees and costs include investment management fees (incl. performance-based fees), indirect cost ratios and taxes, but exclude any percentage-based administration fees, member fees and applicable employer rebates.

From 2011 to 2016, investment fees declined overall as not-for-profit funds maintained their investment costs and the retail master trust sector steadily reduced their fees. However, in 2017, the new fee disclosure requirements introduced under ASIC’s Regulatory Guide 97 resulted in a reset of funds’ disclosed fees and costs. This resulted in fee positioning by sector flipping, with not-for-profit funds reporting higher investment costs than their retail master trust counterparts. This was driven by greater look-through of costs impacting many unlisted and alternative asset classes. This clearly highlighted the disconnect we often observe between fees and value, with many higher cost providers outperforming over the longer term. After the initial change in disclosures, investment fees again converged until 30 June 2019 when the median investment fee across sectors sat at 0.77%.

However, this fall has been hastened by an increase in the number of funds offering passive investment options aimed specifically at members looking for low-cost investment options, as well as a regulatory landscape strongly focused on fees.

2021 has seen investment fees and costs remain flat. Although final costs including potentially higher performance fees as a result of the strong rebound in equity markets are not likely to be fully disclosed until after the end of the financial year. We may also see greater volatility here in coming years depending on market performance. We also expect further disruption to the accepted level of investment fees, with funds closely monitoring performance tests, as well as the risk that a focus on fees emerges over net benefit delivered to member accounts.

Changes to fee disclosures are ongoing, with revised requirements under RG97 required to be implemented by 30 September 2022. Funds have the option to adopt the new standards from 30 September 2020 and it is pleasing to see some early movement.

Despite ten years of declining investment fees, the change in disclosure requirements in 2017 means a member looking at their statement today would see a very similar investment cost on their 2011 statement. This underlines the challenge and opportunity facing funds as they seek to demonstrate relevance to members.

As funds seek to grow and drive scale, we will continue to monitor the fee outcomes delivered to members. We note the increased regulatory environment and consumer pressures, yet believe funds must ensure a clear focus remains on the value delivered to members’ accounts. While leveraging scale to drive down fees is crucial, lower costs do not always mean better value, with a holistic view on all aspects of member outcomes vital in any assessment of success.

Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the merits of the superannuation or pension financial product(s) alone, without taking into account the objectives, financial situation or particular needs (‘financial circumstances’) of any particular person. Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If SuperRatings advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each superannuation or pension financial product before making any decision about whether to acquire a financial product. SuperRatings research process relies upon the participation of the superannuation fund or product issuer(s). Should the superannuation fund or product issuer(s) no longer be an active participant in SuperRatings research process, SuperRatings reserves the right to withdraw the rating and document at any time and discontinue future coverage of the superannuation and pension financial product(s).

Copyright © 2021 SuperRatings Pty Ltd (ABN 95 100 192 283 AFSL No. 311880 (SuperRatings)). This media release is subject to the copyright of SuperRatings. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth.), no part of this media release may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of SuperRatings. This media release may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to SuperRatings copyrighted material, applies to such third party content.

Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.