The annual Fund Manager of the Year Awards ceremony was held last night in Sydney, with more than 20 individual and group winners announced. The awards program comprehensively covers the industry’s top performers, including senior professionals, top fund managers, boutique funds, new entrants, as well as the rising stars and leaders of tomorrow.

As the research partner for the awards, we brought our expertise to judging the 18 group award categories, recognising the very best innovations and products and services that help improve the investment outcomes for Australians.

Congratulations to Lazard Asset Management Pacific Co for winning this year’s coveted Fund Manager of the Year award. Lazard was recognised for its breadth of quality products across numerous asset class categories, evidenced by the number of nominations it received in this year’s awards, as well as a strong heritage in the market as a proponent of a ‘value’ investment style.

Congratulations to all the finalists and winners and we look forward to doing this all again next year.

Full list of finalists and winners below. Winners in bold.

Australian Large Cap Equity Fund of the Year

  • Lazard Defensive Australian Equity Fund
  • Merlon Concentrated Australian Share Fund
  • CC Sage Capital Equity Plus Fund
  • Investors Mutual Equity Income Fund
  • Perpetual SHARE-PLUS Long-Short Fund

Australian Small Cap Equity Fund of the Year

  • OC Premium Small Companies Fund
  • Perpetual Smaller Companies Fund
  • Investors Mutual Australian Smaller Companies Fund
  • Pengana Emerging Companies Fund
  • Spheria Australian Microcap Fund

Global Equity Fund of the Year

  • GQG Partners Global Equity Fund – A Class
  • Arrowstreet Global Equity Fund
  • PM Capital Global Companies Fund
  • Lazard Global Equity Franchise Fund

Global Emerging Market Equity Fund of the Year

  • Robeco Emerging Conservative Equity Fund
  • GQG Partners Emerging Markets Equity Fund – A Class
  • Lazard Emerging Markets Equity Fund
  • Realindex Emerging Markets Value – Class A
  • Pendal Global Emerging Markets Opportunities Fund – WS

Australian Property Securities Fund of the Year

  • Macquarie Australian Listed Real Estate Fund – Class A Units
  • Zurich Investments Australian Property Securities Fund
  • Pendal Property Securities Fund
  • Martin Currie Property Securities Fund

Global Property Securities Fund of the Year

  • UBS CBRE Global Property Securities Fund
  • Resolution Capital Global Property Securities Fund
  • Dimensional Global Real Estate Trust Unhedged Class
  • Quay Global Real Estate Fund

Infrastructure Fund of the Year

  • Lazard Global Listed Infrastructure Fund
  • ATLAS Infrastructure Australian Feeder Fund AUD Hedged Class
  • ClearBridge RARE Infrastructure Value Fund — Hedged
  • Colonial First State FirstChoice Global Infrastructure Securities Fund

Australian Fixed Income Fund of the Year

  • Yarra Enhanced Income Fund
  • Perpetual Diversified Income Fund
  • Pendal Short Term Income Securities Fund
  • Betashares Active Australian Hybrids Fund (Managed Fund)
  • La Trobe Australian Credit Fund 12 Month Term Account

Global Fixed Income Fund of the Year

  • Colchester Emerging Markets Bond Fund – Class I
  • Bentham Syndicated Loan Fund
  • Invesco Wholesale Senior Secured Income Fund
  • PM Capital Enhanced Yield Fund
  • Janus Henderson Diversified Credit Fund

Multi-Asset Fund of the Year

  • Australian Retirement Trust – Super Savings – Growth
  • Perpetual Balanced Growth Fund
  • CareSuper – Balanced
  • Morningstar Growth Real Return Fund
  • ipac Income Generator (Class K)

Passive – Equity Fund of the Year

  • iShares Core S&P/ASX 200 ETF
  • VanEck Australian Equal Weight ETF
  • SPDR S&P World ex Australia Carbon Control Fund
  • Vanguard MSCI Index International Shares ETF
  • iShares S&P Mid-Cap ETF

Passive – Other Asset Class Fund of the Year

  • Vanguard Global Aggregate Bond Index (Hedged) ETF
  • Betashares Australian Bank Senior Floating Rate Bond ETF
  • iShares Government Inflation ETF
  • Vanguard Australian Corporate Fixed Interest Index ETF
  • VanEck Australian Floating Rate ETF

Responsible Investment Fund of the Year

  • Nanuk New World Fund
  • Bell Global Sustainable Fund – Unhedged Class Units
  • T. Rowe Price Global Impact Equity Fund – I Class

Alternatives Fund of the Year

  • Aspect Diversified Futures Fund – Class A
  • Schroder Specialist Private Equity Fund
  • Hamilton Lane Global Private Assets Fund (AUD)
  • Challenger IM Credit Income Fund – Class A
  • P/E Global FX Alpha Fund

Innovation Award of the Year

  • Five V Capital Pty Ltd
  • JPMorgan Asset Management (Australia) Limited
  • MLC Asset Management Pty Limited
  • Kohlberg Kravis Roberts & Co. L.P.
  • Centuria Funds Management Ltd

Unlisted Real Estate Fund of the Year

  • Australian Unity Healthcare Property Trust – Wholesale Units
  • Charter Hall Direct Industrial Fund No. 4
  • RF CorVal Property Fund

Emerging Manager of the Year

  • Palisade Investment Partners Limited
  • Five V Capital Pty Ltd
  • GAM International Management Limited
  • Kohlberg Kravis Roberts & Co. L.P.
  • Polen Capital Management, LLC

Fund Manager of the Year

  • Lazard Asset Management Pacific Co.
  • Perpetual Limited PM Capital Limited
  • Vanguard Investments Australia Ltd
  • GQG Partners, LLC

Disclaimer: Lonsec Research Pty Ltd (ABN 11 151 658 561 AFSL 421445) (Lonsec) are acting as a research partner for the Fund Manager of the Year Awards (Awards) issued by Momentum Media Group Pty Ltd on 13 June 2024 The Awards are determined using Lonsec proprietary methodologies, are solely statements of opinion, subjective in nature and must not be used as the sole basis for investment decisions. The Awards do not represent recommendations to purchase, hold or sell any products or make any other investment decisions. Investors must seek independent financial advice before making any investment decision and must consider the appropriateness of the information, having regard to their objectives, financial situation, and needs. Past performance is not an indication of future performance. Awards are current for 12 months from the date awarded and are subject to change at any time. Lonsec does not represent these Awards to be guarantees nor should they be viewed as an assessment of a fund or the funds’ underlying securities’ creditworthiness. Lonsec receives a fee from the financial product issuer(s) for researching the financial product(s), using objective criteria. Lonsec rating(s) outcome is not linked to the fee or the Award. Lonsec and its associates do not receive any other compensation or material benefits from product issuers or third parties in connection with the Award. Lonsec makes no representation, warranty or undertaking in relation to the accuracy or completeness of the Awards. Lonsec assumes no obligation to update the Awards after publication. The Award is for the exclusive use of the client for whom it is presented and should not be used or relied upon by any other person unless with express permission from Lonsec. 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 and any Award or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. ©Lonsec 2024. All rights reserved.

SuperRatings is pleased to announce the Super Fund of the Year Awards finalists.

This year’s event reflects our commitment to evolve with the industry as we have joined with Super Review and Momentum Media as the exclusive Research Partner to deliver an awards night dedicated to the superannuation industry.

Join us in celebrating those funds that have delivered outstanding outcomes for their members. Finalists across all award categories have shown great commitment to helping their members navigate a rapidly changing market and we are pleased to be able to help recognise their efforts across our most extensive range of awards yet. The judging criteria for the award categories are both quantitative and qualitative and have considered over 90% of the assets reporting to APRA as part of the process.

You can see the methodology for all awards here.

For a full list of the awards and finalists please visit the link below.

Congratulations to all finalists and we look forward to recognising those that continue to innovate, develop and deliver strategies that meet the changing needs of their members.


Winners will be announced at a black-tie gala event at Grand Hyatt, Melbourne on Wednesday, 25 October 2023.

 

 


SuperRatings Pty Limited ABN 95 100 192 283 AFSL No. 311880 (SuperRatings) are acting as a research partner for the Super Review Super Fund of the Year Awards (Awards) issued by Momentum Media Group Pty Ltd on 25 October 2023 .The Awards are determined using SuperRatings proprietary methodologies, are solely statements of opinion, subjective in nature and must not be used as the sole basis for investment decisions. The Awards do not represent recommendations to purchase, hold or sell any products or make any other investment decisions. Investors must seek independent financial advice before making any investment decision and must consider the appropriateness of the information, having regard to their objectives, financial situation, and needs. Past performance is not an indication of future performance. Awards are current for 12 months from the date awarded and are subject to change at any time. SuperRatings does not represent these Awards to be guarantees nor should they be viewed as an assessment of a Super Fund or the Super Funds’ underlying securities’ creditworthiness. SuperRatings receives a fee from the financial product issuer(s) for researching the financial product(s), using objective criteria. SuperRatings’ rating(s) outcome is not linked to the fee or the Award. SuperRatings and its associates do not receive any other compensation or material benefits from product issuers or third parties in connection with the Award. SuperRatings makes no representation, warranty or undertaking in relation to the accuracy or completeness of the Awards. SuperRatings assumes no obligation to update the Awards after publication. The Award is for the exclusive use of the client to whom it is presented and should not be used or relied upon by any other person unless with express permission from SuperRatings. Except for any liability which cannot be excluded, SuperRatings, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document and any Award or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. ©SuperRatings 2023. All rights reserved.

Congratulations to all the winners and nominees for this year’s Fund Manager of the Year Awards. For Lonsec and Money Management, these awards are a celebration of the very best of the funds management industry and we will recognise the very best innovations and products and services that improve the investment outcomes of Australians.

As research partner for the awards, we applied the same rigorous approach we take to researching and rating funds to evaluating the nominees and choosing winners in each of the 18 group award categories. It has been an honour to partner with Money Management for these awards and congratulations again to Franklin Templeton for being named Fund Manager of the Year.

Australian Property Securities Fund of the Year 

The nominees for the Australian Property Securities Fund of the Year highlight the variety in the sector by showcasing both A-REIT and ‘real asset’ mandates and differing investment styles. Nominated funds have all been well-rated by Lonsec over an extended period and have been able to deliver consistent risk-adjusted performance over the medium-term.  The nominees are:

  • Cromwell Phoenix Property Securities Fund
  • Martin Currie Real Income Fund – Class A
  • SGH Property Income Fund

Global Property Securities Fund of the Year

The nominees for the Global Property Securities Fund of the Year represent both Australian and off-shore investment firms. These funds, which have been well rated by Lonsec, have navigated a turbulent period for REIT markets well, allowing them to deliver a consistent level of risk-adjusted performance over the medium-term.

  • Ironbark Global Property Securities Fund
  • Quay Global Real Estate Fund – Unhedged
  • UBS CBRE Global Property Securities Fund

Infrastructure Fund of the Year

The nominees for the Infrastructure Fund of the Year are representative of the dynamism in the listed infrastructure space, both by investment style but also the underlying investment structures. The funds have all been well rated by Lonsec over time, with the managers delivering to investors the listed infrastructure premia during a volatile period in markets and meeting their investment objectives.

  • ClearBridge RARE Infrastructure Value Fund — Unhedged
  • CFS FC Global Infrastructure Securities Fund
  • Lazard Global Listed Infrastructure Fund

Unlisted Real Estate Fund of the Year

The nominees for the Unlisted Real Estate Fund of the Year are part of Lonsec’s universe of direct property funds that provide investors with access to a range of commercial and social property sectors. All nominated managers have built strong property capabilities and have demonstrated a commitment to sound capital management over time.

  • Australian Unity Healthcare Property Trust – Wholesale Units
  • Centuria Diversified Property Fund
  • Charter Hall Direct Industrial Fund No.4

Australian Large Cap Equity Fund of the Year

The nominees for the Australian Large Cap Equity Fund of the Year recognise those funds that have been well-rated by Lonsec over an extended period, and those managers that have been able to deliver consistent risk-adjusted performance in line with performance objectives over the medium-term.

  • Allan Gray Australia Equity Fund
  • Dimensional Australian Value Trust
  • DNR Capital Australian Equities High Conviction Portfolio
  • Lazard Select Australian Equity Fund (W Class)
  • Quest Australian Equities Concentrated Portfolio SMA

Australian Small Cap Equity Fund of the Year

The nominees for the Australian Small Cap Equity Fund of the Year recognise those funds that have successfully delivered on investment objectives, demonstrated superior stock selection and have been well-rated by Lonsec over an extended period.

  • First Sentier Wholesale Australian Small Companies Fund
  • OC Dynamic Equity Fund
  • Spheria Australian Smaller Companies Fund

Global Equity Fund of the Year

The nominees for Global Equity Fund of the Year have demonstrated ability to consistently meet their investment objectives, have a track record in applying their investment research and portfolio construction processes, as well as being rated ‘Recommended’ or higher by Lonsec.

  • Arrowstreet Global Equity Fund
  • Barrow Hanley Global Share Fund
  • Lazard Global Equity Franchise Fund
  • PM Capital Global Companies Fund
  • Realindex Global Share Value – Class A

Global Emerging Market Equity Fund of the Year

The nominees for Global Emerging Market Equity Fund of the Year have been sourced from Lonsec’s universe of Global Emerging Markets sector, including funds within the Regional Asia and India sub-sector. The award recognises funds that have been highly rated by Lonsec over the past three years, demonstrated asset allocation and security selection skills, and consistently delivered on its investment objectives.

  • Fidelity Asia Fund
  • FSSA Asian Growth Fund
  • Lazard Emerging Markets Equity Fund

Multi-Asset Fund of the Year

The nominees for the Multi-Asset Fund of the year recognise those products that have been well rated by Lonsec over an extended period of time, and those Managers that have been able to consistently apply their investment process, meet investment objectives through the cycle, and demonstrate portfolio management skill in asset allocation and security selection

  • Australian Retirement Trust – Super Savings – Growth
  • BlackRock Tactical Growth Fund – Class D
  • CareSuper – Sustainable Balanced
  • ipac Income Generator (Class K)
  • Perpetual Balanced Growth Fund

Passive – Equity Fund of the Year

The Passive Equity Fund of Year award recognises an equity based strategy that has demonstrated a strong track record of success with respect to its underlying index, a superior liquidity profile plus costs that are at least in-line with peers.

  • Betashares Australia 200 ETF
  • iShares Core S&P/ASX 200 ETF
  • SPDR S&P World ex Australia Carbon Control Fund
  • VanEck Australian Equal Weight ETF
  • Vanguard US Total Market Shares Index ETF

Passive – Other Asset Class Fund of the Year

The Passive Other-Asset class Fund of Year award considers all the passive fixed income, commodities, or alternative strategies within the Lonsec universe. It recognises the Fund with a strong track record of success with respect to its underlying index, a superior liquidity profile plus costs that are at least in-line with peers.

  • Betashares Australian Bank Senior Floating Rate Bond ETF
  • Global X Physical Gold ETF
  • iShares Core Composite Bond ETF
  • iShares Global Bond Index Fund
  • VanEck Australian Floating Rate ETF

Australian Fixed Income

The nominees for the Australian fixed income category are well rated by Lonsec over an extended period of time. The award recognises managers who have the ability to deliver consistent returns while providing downside protection during challenging markets which are a testament to their robust research and risk management processes, skills and expertise.

  • Janus Henderson Australian Fixed Interest Fund
  • Macquarie Australian Fixed Interest Fund
  • Pendal Sustainable Australian Fixed Interest Fund
  • Perpetual Active Fixed Interest Fund (Class A Units)
  • Western Asset Australian Bond Fund – Class A
  • Yarra Enhanced Income Fund

Global Fixed Income of the Year

As with the previous Australian Fixed Income award, the nominees for the Global fixed income category are well-rated by Lonsec over an extended period of time. The award recognises managers who have the ability to deliver consistent returns while providing downside protection during challenging markets which is a testament to their robust research and risk management processes, skills, and expertise.

  • Bentham Global Income Fund
  • Brandywine Global Opportunistic Fixed Income Fund – Class A
  • Perpetual Dynamic Fixed Income Fund
  • PIMCO Income Fund – Wholesale Class
  • T. Rowe Price Dynamic Global Bond Fund – I Class

Alternatives Fund of the Year

The nominees for the Alternatives fund of the year recognise those products that have demonstrated a track record of success, offer several competitive advantages against their closest peers and have been rated highly by Lonsec for at least three review cycles. Further, over the long term, each of these Funds has met or exceeded their respective investment objectives, achieved favourable absolute returns in a risk-adjusted manner while providing diversification to investors’ broader portfolios

  • Australian Retirement Trust – Super Savings – Diversified Alternatives
  • CC Sage Capital Absolute Return Fund
  • Hamilton Lane Global Private Assets Fund (AUD)

Responsible Investment Fund of the Year

The nominees for the Responsible Investment Fund of the year recognise those products that have demonstrated a clear integration of ESG into their investment process and deliver a portfolio with a high alignment with the Sustainable Development Goals as well as having at least a recommended rating from Lonsec.

  • Ausbil Active Sustainable Equity Fund
  • Australian Ethical Emerging Companies Fund (Wholesale)
  • Candriam Sustainable Global Equity Fund
  • Impax Sustainable Leaders Fund

Innovation Award of the Year

The Innovation Award recognises a manager that has brought a differentiated product to the Australian market.  Differentiation can take the form of fee leadership, product structural evolution or additive capabilites to standard asset class products.

  • Betashares Capital
  • Generation Life
  • L1 Capital

Emerging Manager of the Year

The nominees for Emerging Manager of the Year have been selected by Lonsec’s team of Sector Managers. To be eligible for this award, nominees must have a track record of five years or less within the Australian intermediated market, and have at least one product that Lonsec has assigned a ‘Recommended’ or higher rating.

  • Aikya Investment Management
  • Fortlake Asset Management
  • Pzena Investment Management
  • Ruffer LLP
  • Skerryvore Asset Management

Fund Manager of the Year

To be eligible for the Fund Manager of the Year Award, Managers must have demonstrated a sound investment culture and good governance over an investment cycle and across a number of asset classes.

  • BlackRock Investment Management (Australia)
  • Franklin Templeton Australia
  • Lazard Asset Management
  • Macquarie Asset Management
  • VanEck

Disclaimer: Lonsec Research Pty Ltd (ABN 11 151 658 561 AFSL 421445) (Lonsec) are acting as a research partner for the Fund Manager of the Year Awards (Awards) issued by Momentum Media Group Pty Ltd on 22 June 2023 The Awards are determined using Lonsec proprietary methodologies, are solely statements of opinion, subjective in nature and must not be used as the sole basis for investment decisions. The Awards do not represent recommendations to purchase, hold or sell any products or make any other investment decisions. Investors must seek independent financial advice before making any investment decision and must consider the appropriateness of the information, having regard to their objectives, financial situation, and needs. Past performance is not an indication of future performance. Awards are current for 12 months from the date awarded and are subject to change at any time. Lonsec does not represent these Awards to be guarantees nor should they be viewed as an assessment of a fund or the funds’ underlying securities’ creditworthiness. Lonsec receives a fee from the financial product issuer(s) for researching the financial product(s), using objective criteria. Lonsec rating(s) outcome is not linked to the fee or the Award. Lonsec and its associates do not receive any other compensation or material benefits from product issuers or third parties in connection with the Award. Lonsec makes no representation, warranty or undertaking in relation to the accuracy or completeness of the Awards. Lonsec assumes no obligation to update the Awards after publication. The Award is for the exclusive use of the client for whom it is presented and should not be used or relied upon by any other person unless with express permission from Lonsec. 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 and any Award or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. ©Lonsec 2023. All rights reserved.

As we look to the future of service delivery in the administration space, we believe supporting funds to enhance their operational efficiencies and drive down costs, the ability to integrate with non-core administration systems, technological capability and adaptability, strong contact centre capabilities, where applicable, and capacity in a merger-heavy operating environment, are key elements impacting successful administration service delivery.

Scott Abercrombie, Head of Superannuation Consulting


Any advice that SuperRatings provides is of a general nature and does not take into account an individual’s financial situation, objectives or needs. Because the information that SuperRatings receives about superannuation and pension financial products is from a number of sources, it is not guaranteed to be completely accurate. Because of this, individuals should, before acting on the information, consider its appropriateness having regard to their own financial objectives, situation and needs and if appropriate, obtain personal financial advice on the matter from a financial adviser. Before making a decision regarding any financial product, individuals should obtain and consider a copy of the relevant Product Disclosure Statement from the financial product issue.

Lonsec’s Head of Sustainable Investment Research explains how Lonsec reviews the ESG capabilities of Fund Managers. This webinar explains the core elements of the Lonsec review process for ESG, how it is used in our overall rating, and how it differs from our Sustainability Score.

 

 


Tony Adams

Head of Sustainable Investment Research, Lonsec

 

Tony joined Lonsec in March 2019 and is responsible for the ESG assessment of funds across all sectors and as well broad oversight of the assessment of sustainable, ethical, ESG and impact capabilities across managers. He is responsible for Lonsec’s sustainability reporting framework (Lonsec’s BEE’s) for funds.

Prior to joining Lonsec, Tony has had 30 years’ experience in global fixed interest markets, most recently as Head of Global Fixed Interest and Credit at Colonial First State Global Asset Management, where he developed the firm’s global credit capability and oversaw the implementation of ESG across portfolios.

Can lifecycle MySuper products deliver on their promise of a lower risk position at retirement coupled with competitive returns over a member’s lifetime? Find out how we compare the universe of MySuper products irrespective of whether they follow a lifecycle or single-default strategy.

Bill Buttler, Senior Manager, Consulting

Camille Schmidt, Market Insights Manager, SuperRatings


Please see below a further insight by SuperRatings

‘Making Sense of MySuper Investment Options’

 

Can lifecycle MySuper options really deliver a Magic Pudding or is it all just pie in the sky?

Experience working with members and employers suggests a real lack of understanding of the difference in approach between a lifecycle product and the alternative ‘single strategy’ product type. Yet in a future environment where legislation such as Your Future, Your Super is designed to encourage members to compare performance and determine whether they should potentially change funds, it is fundamental that members should understand and be able to compare the two product types. Particularly, since 37% of the 75 MySuper products registered with APRA as at 31 March 2022 were designated as ‘lifecycle’ products.

The challenges of owning a ‘balanced’ portfolio consisting of equities and bonds is front of mind given the broad market volatility that has occurred in 2022. ‘Balanced’ portfolios can differ in the proportion of growth assets they hold, anywhere from 50% – 70% growth and 30% to 50% defensive assets. For the purposes of Lonsec’s analysis in this thought piece, we have used 60% growth and 40% defensive assets as the benchmark portfolio, consisting of 30% S&P/ASX 200 TR Index, 15% MSCI AC World Index ex Australia NR Index (AUD Hedged), 15% MSCI AC World Index ex Australia TR Index (AUD), 20% Bloomberg AusBond Composite 0 Year Index AUD, and 20% Bloomberg Global Aggregate TR Index (AUD Hedged). This represents a broad and fairly vanilla exposure to 60% equities and 40% bonds.

The so called ‘death of the 60/40 portfolio’ has been raised many times following the GFC. That being said, this portfolio has performed exceptionally well over this period. The average calendar year return from 2009 to 2021 has been 9.3%, with the highest returning year being 17.8% (2019) and the lowest returning year being -0.5% (2018). With volatility mostly at the lower end of historical norms, risk adjusted returns have also been strong. Those adopting a buy and hold, static approach to portfolio construction have generally been well rewarded.

That has all changed this year. ‘Balanced’ portfolio returns have been challenged by the war in Ukraine and central banks that have pivoted more quickly than expected to raising interest rates in response to inflation. Figure 1 shows the extent of the sell-off in 2022. For the calendar year until the end of May, the ‘Balanced’ portfolio is down -7.1%. This is the worst start to a calendar year over the 20-year period assessed. Of course, 2002 and, in particular, 2008 ended with deeper drawdowns and at this stage it is highly uncertain how the rest of 2022 will shape up.

Figure 1

Source: Lonsec iRate, data is calendar year returns for a 60/40 portfolio consisting of 30% S&P/ASX 200 TR Index, 15% MSCI AC World Index ex Australia NR Index (AUD Hedged), 15% MSCI AC World Index ex Australia TR Index (AUD), 20% Bloomberg AusBond Composite 0 Year Index AUD, and 20% Bloomberg Global Aggregate TR Index (AUD Hedged). YTD 2022 as at 31 May 2022.

What is different in the 2022 sell-off is the performance of bonds and the breakdown in diversification benefits that they typically offer to a balanced portfolio. While the concept of diversification, the idea of not putting your eggs all in one basket, is fairly well understood, the concept of correlation is less so. If the returns of two asset classes are correlated it means they move up and down together. If assets are negatively correlated it means when the value of one asset rises, the other falls. Ideally, portfolios should be made up of asset class constituents that have a low correlation to each other so that when parts of the portfolio fall in value, other areas of the portfolio rise in value. A negative correlation between risky assets, such as equities, and risk-free assets, such as bonds, has tended to hold for much of recent history, especially in market stress events. However, in 2022, the correlation between equities and bonds has been positive. As depicted in Figure 2, both asset classes have sold off together this year, whereas in 2002 and 2008, bonds offered diversification benefits to falling equity markets.

Figure 2

Source: Lonsec iRate, 2022 correct as at 31 May 2022.

While the negative correlation between equities and bonds is often written about as if a universal law of investing, figure 3 shows that correlations between the two asset classes certainly aren’t static through time and can be highly sensitive to changes in market conditions and regimes. Rolling one-year correlations have been quite volatile over the 20 year period under assessment. A more medium-term representation, as shown by the rolling three year correlation, shows that the two asset classes were generally negatively correlated in the period from 2002 to 2012, but turned more positive in the last several years and spiked early in 2022. The takeaway from this is that positive correlations between equities and bonds are not necessarily anything new, rather the correlations are time varying in nature. Of course, a positive correlation between the two asset classes is less acceptable when markets are falling as they have been this year.

Figure 3

Source:  Lonsec iRate, for the period January 2022 to May 2022. Equities consists of 50% S&P/ASX 200 TR Index, 25% MSCI AC World Index ex Australia NR Index (AUD Hedged), 25% MSCI AC World Index ex Australia TR Index (AUD). Bonds consists of 50% Bloomberg AusBond Composite 0 Year Index AUD, and 50% Bloomberg Global Aggregate TR Index (AUD Hedged).

What does the future state hold? ‘Regime change’ has become the topic de jour, a term used to describe a structural shift in the economic environment. For much of the last 20-30 years, the environment has been dominated by low inflation (and falling interest rates) and moderate growth, an environment which, all else equal, is favourable for both equities and bonds. Importantly, bonds have been a great diversifier while delivering positive returns.

Conversely, a backdrop of higher inflation (and rising interest rates) and low growth is less favourable for equities and bonds. It is this environment that is dominating markets this year. The duration of these changes is never certain and one can never be certain how long a certain regime will persist. High valuations in both equity and bond markets at the start of this year had certainly made markets more susceptible to a correction when sentiment turned. That being said, markets can be fast moving and naturally reset themselves after periods of extreme market performance. 10 year bond yields in the US and Australia have already priced in a number of rate rises and some multi-asset managers, after a period of little exposure to bonds, are now talking about them offering better value in some circumstances.

While stress in financial markets can be worrying, it is important to focus on your long-term investment strategy and ensure portfolio asset allocations are aligned with your goals and objectives. Figure 5 shows that the variance of shorter-term returns can be wide, however the range of potential outcomes tends to narrow over longer-term time horizons. This highlights the time diversification inherent in many multi-asset portfolios.

Figure 4

  Rolling one-year returns Rolling three year returns p.a. Rolling five year returns p.a. Rolling 10 year returns p.a.
Average annualised return 8.07% 7.77% 7.51% 7.60%
Best annualised return 24.62% 15.82% 12.94% 10.00%
Worst annualised return -20.26% -4.21% 1.29% 5.31%

Source: Lonsec iRate using monthly time series of 60/40 Balanced portfolio from 2002 to May 2022 consisting of 30% S&P/ASX 200 TR Index, 15% MSCI AC World Index ex Australia NR Index (AUD Hedged), 15% MSCI AC World Index ex Australia TR Index (AUD), 20% Bloomberg AusBond Composite 0 Year Index AUD, and 20% Bloomberg Global Aggregate TR Index (AUD Hedged).

Note, the average annualised return of the ‘Balanced’ portfolio is between 7.5% and 8.1% p.a. over each rolling timeframe. For those investors with shorter term time horizons, the range of potential outcomes has been exceptionally wide. An investor withdrawing in November 2008 after one year invested experienced a loss of -20.3%. Somewhat unsurprisingly the strongest 12-month return was in the aftermath of the financial crisis in February 2010 with a return of 24.6%. While an obvious lesson here is that investors tend to be well rewarded for investing at the bottom of the cycle (notwithstanding the difficulties of picking the bottom), a major takeaway is that those invested over longer time horizons have a much narrower range of potential outcomes (somewhat easier than picking when to invest). Rolling 10-year periods over the 20 year time period assessed were in the range of 5.3% and 7.6% p.a. The 5.3% p.a. return was for the 10-year period ending December 2011 and included the drawdowns of 2002 and 2008, highlighting that staying the course can be a valuable strategy in itself when correctly aligned to your risk profile and overall objectives.

The multi-asset universe is exceptionally broad consisting of static asset allocation approaches as referenced in the analysis above, in addition to those taking active asset allocation and/or active security selection decisions. If the forward-looking environment continues to be challenged, multi-asset managers will have to lean on these asset allocation and security selection levers to enhance the risk and return profile of their portfolios. Many multi-asset funds have the flexibility in their mandates to tilt portfolios away from their reference asset class benchmark, in addition to introducing other asset classes within their portfolios to support diversification benefits. Forward looking scenario testing and testing of correlation assumptions may also be part of their investment process. Theoretically, this increases the level of diversification and potential return sources available and allows active managers to be more dynamic in responding to changing market conditions or regimes. Funds with greater asset allocation tools can be useful for investors who require greater certainty in outcomes, are close to or in retirement, or have a specific goal suited to the fund in question.

Key takeaways for multi-asset investors

  1. Investing in the right asset allocation for your risk profile and goals is highly important. This may well be a static asset allocation approach, as is the one described in our analysis, or one that is much more dynamic and tactical in its approach.
  2. Return outcomes over shorter term time horizons can be wide. Investors who are willing to invest over the longer term have tended to be well rewarded for taking risk.
  3. The correlation between equities and bonds is time varying and dependent on market regimes. To date, 2022 has been an exceptionally unusual year in the last 20 years with both equities and bonds selling off together.

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 © 2022 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.

Market volatility has persisted as markets are continuously recalibrating to price in forward looking inflation and the subsequent impact on interest rates and economic growth. We believe that this market volatility will persist until there is evidence that inflation has peaked and bond yields have stabilised. Bond yields have been rising, with US 10 year treasuries trading above the 3% mark and Australian 10 year bond trading above 4% in mid-June 2022 and we expect yield volatility to continue of over the next six months.

With interest rates rising, there has been increased attention on the risk of recession. The risk of recession has increased as central banks tread the fine line between trying to curb inflation and trying not to strangle economic growth. To date, economic growth remains positive, but some of the cyclical indicators are softening, indicating that the global economy is slowing. The main issue for the central banks is that monetary policy is a very blunt tool and while raising rates will most certainly curb demand, it will do little to address the supply side issues global economies are facing as supply chains remain stressed by the pandemic. A good example is China where the hard stance on Covid lockdowns have essentially brought Chinese ports to a standstill. Additionally, the war in Ukraine has driven commodity prices up including crude oil and agricultural products such as wheat, fertilizer and canola oil. Ukraine and Russia combined contribute 12% of the world’s total calories and are key suppliers of grains to Africa and the middle east. Therefore, whether we head into a recession will be dependent on the two key factors of easing of supply chain issues and central banks not overplaying their cards by raising rates too high. At this stage, our base case for Australia is that we will avoid a recession and if we do go into recession, it will not be a deep recession.

However, it is not all bad news when it comes to recessions and markets. The relationship between market returns and economic growth is inconsistent, meaning that low economic growth does not always mean low market returns and vice versa. Historically, markets have tended to lead the economy which is what we are seeing now as markets seek to price in where interest rates will go to. We have already seen markets fall around 20% as they try to price in inflation and implications on economic growth. Markets have historically recovered strongly from recessionary environments and downmarkets have tended to be short and sharp, followed by a strong rebound.

Markets are likely to be choppy over the coming six months as they try to digest inflation and the magnitude of any future rate rises. For the Lonsec Managed Portfolios, it is time to hold the line and not make big directional plays. The easy money from active asset allocation has been made and our overweight to growth assets and underweight to fixed income has served us well over recent years. However given the change in environment, we believe a more neutral asset allocation position is warranted. Despite the pull back in markets, prices are generally not in the cheap range, with the exception of emerging markets with growth continuing to be impacted by China’s covid zero policy. While bonds have been highly volatile, and no doubt have caused investors grief, there is a bright side with yields approaching levels where bonds start to look attractive. From an investment perspective, we also believe it is prudent not to be over exposed to one part of the market. Over recent years high growth stocks such as tech companies have performed extremely well, however in the coming months, having a blend of growth stocks coupled with strong cash generative quality companies will be important.


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 © 2022 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.

After years of low inflation and low interest rates, we have finally entered a new period in the economic environment of higher inflation and higher interest rates. But how high will inflation be and by how much will interest rates rise? Periods of transition from a market perspective increase uncertainty and subsequently increase market volatility.

From a dynamic asset allocation perspective, over a number of years we have built up our exposure to real assets and have included alternative assets such as gold, as inflation risk was growing. While we have maintained an underweight exposure to fixed interest, we have ensured that our exposure to the sector has been diversified which has become increasingly important as bond yields continue to rise. The rise in bond yields will means that at some point the yields on offer will become attractive again and warrant an increase exposure. It is fair to say that we believe the coming period will be one where bottom up investment selection will be a key contributor to performance compared to the recent past which has been dominated by low interest rates and ample liquidity which supported a strategy of being long equities and short bonds, which drove performance for many strategies.

From a bottom up perspective, we have seen extreme market activity. On the equities side, the winners have been largely concentrated to those parts of the market that are expected to benefit from a higher inflation environment such as energy and resources. This market environment has seen value style managers outperform growth style managers in recent months, as any long duration investments such a growth equity stocks, which are priced for future growth, have been sold down irrespective of their quality. While the performance of growth style investments has been disappointing, we don’t think it is the time to throw the baby out with the bath water. The market has already pulled back and provided companies are supported by earnings and have solid balance sheets, a long term allocation to growth is still warranted as part of a diversified portfolio. Similarly, on the fixed interest side, bonds have sold off as bond yields have risen. Clients are rightly nervous about their portfolio bond allocation, however if we look forward, bonds are looking much more attractive now on a forward-looking basis than they have in a while.

In volatile times, when returns can look ugly, it is tempting to be reactive and want to sell the ‘losers’ however markets are forward looking and it is important to consider what is already priced into the market. Challenging times ahead but history tells us that market pull backs tend to be sharp but also generally don’t last long.


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 © 2022 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.

Years of accommodative monetary policy combined with ample liquidity from central banks, remnants of the global financial crisis of 2008, may be coming to a gradual end. We are arguably entering a transition period in the economic environment from one of low inflation, low interest rates backed by unconventional monetary policy (quantitative easing), to one of higher inflation and the potential of higher interest rates. Adding fuel to inflationary pressures has been a global pandemic where supply chains have been disrupted like never before, heightened geopolitical risks with the Russian invasion of Ukraine, known as the breadbasket of Europe, putting price pressures on everything from crude oil, wheat to sunflower oil, and globalisation, the accepted mantra for economic growth for decades, which is now under increased scrutiny with talk of a deglobalised world.

Periods of transition from a market perspective are always challenging. They are characterised by increased uncertainty and subsequently increased market volatility. In such environments it is a balancing act between defense and offence. In recent years, an offensive game has been a clear winner, however defense has become increasingly important. While we do not have a crystal ball on how high inflation will be and by how much interest rates may rise, the likely trend is up. With this in mind, considering assets that can assist in navigating a higher inflation environment is important. While there is no perfect hedge for inflation there are assets that can benefit from a higher inflation environment. Some of these include real assets such as infrastructure and property, commodities including gold, floating rate notes and inflation linked bonds.

Within Lonsec’s portfolio suite, we have built up our exposure to real assets for a number of years and have included assets such as gold as inflation risk was growing. Within fixed interest we diversified sovereign bond exposures with short-dated bonds and credit exposures. Given the nature of the Australian equity market, domestic investors will also have a structural exposure to commodities via the market. In such environments it is important not to swing the pendulum too far in terms of focusing solely on defense. In uncertain times and periods of market volatility, opportunities do arise. With this in mind we have retained a bias to growth assets and we think that the ability to generate positive active returns has increased and greater price dispersion in markets will provide more attractive entry points for quality assets that may have previously been out of reach due to excessive valuations.

The winds of change may be coming but markets are always evolving and reviewing your game plan is prudent.


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 © 2022 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.

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.