Lonsec and SuperRatings are pleased to announce the nominations for this year’s Lonsec and SuperRatings Fund of the Year Awards. With 18 categories, the awards emphasise Lonsec and SuperRatings’ commitment to recognising the best providers across the managed fund and superannuation sectors.

Lonsec CEO, Mike Wright, comments, ‘As the pandemic has posed ongoing challenges across investment markets and operating environments, it is important that we recognise the contributions of strong funds that are helping their clients and members navigate this uncertainty.’

For the first time, Lonsec will present a full suite of nine managed fund awards, including an overall Lonsec Manager of the Year. Lorraine Robinson, Executive Director of Lonsec Research explains, ‘In previous years, the SuperRatings Awards have been a much-anticipated event and we decided it’s time that Lonsec Research further recognised the outstanding contributors to the managed fund market.’

This year’s awards will be the nineteenth for SuperRatings, recognising the best superannuation funds. Kirby Rappell, Executive Director of SuperRatings comments, ‘It is an honour to continue to recognise the best in the superannuation sector and award those funds who, in the last year, have helped their members to navigate a very difficult time. While this year’s event will be held virtually, the awards continue to be very real.’

An overall SuperRatings Fund of the Year winner will also be announced on the day. The full list of nominees for all categories is available at the bottom of this release.

The awards will be held at 3.00pm on Thursday, 28 October in a 1.5-hour online session to be enjoyed from the comfort of your home or office. As part of the awards program, Lonsec and SuperRatings will host a panel session, On the Road to Net Zero by 2050, to discuss the strategic considerations associated with the rising adoption of net zero by 2050 by companies and governments and what this means for investment portfolios.

The nominations for the Lonsec awards are:

Lonsec Manager of the Year

Finalists

First Sentier Investors
Franklin Templeton
Pendal Group

Lonsec Multi-Asset Fund of the Year

Finalists

Atrium Evolution Series – Diversified Fund AEF 9
BlackRock Tactical Growth
Pinebridge Global Dynamic Asset Allocation Fund

Lonsec Active Equity Fund of the Year

Finalists

GQG Partners Emerging Markets Equity Fund – A Class
Hyperion Australian Growth Companies Fund
T. Rowe Price Global Equity Fund

Lonsec Passive Fund of the Year

Finalists

BetaShares Asia Technology Tigers ETF – ASX: ASIA
ETFS Physical Gold – ASX: GOLD
VanEck MSCI International Quality ETF – ASX: QUAL

Lonsec Active Fixed Income Fund of the Year

Finalists

Ardea Real Outcome Fund
Macquarie Income Opportunities Fund
Pendal Short Term Income Securities Fund

Lonsec Property and Infrastructure Fund of the Year

Finalists

Australian Unity Healthcare Property Trust
ClearBridge RARE Infrastructure Income Fund (Hedged)
Quay Global Real Estate Fund

Lonsec Alternatives Fund of the Year

Finalists

Hamilton Lane Global Private Assets Fund (AUD)
Man AHL Alpha
Partners Group Global Value Fund

Lonsec Emerging Manager of the Year

Finalists

Daintree Capital Management
Eiger Capital
Sage Capital

Lonsec Innovation Award

Finalists

iShares Core Corporate Bond ETF (ASX: ICOR)
Magellan FuturePay
Robeco SDG Credit Income Fund (AUD Hedged) – Class B

 

 

SuperRatings Fund of the Year Award

Announced on the day.

 

 

 

 

 

SuperRatings MySuper of the Year 

Awarded to the fund that has provided the Best Value for Money default offering.

Finalists
AustralianSuper
Aware Super
CareSuper
Cbus
Equip
HESTA
Hostplus
QSuper
Sunsuper
UniSuper

SuperRatings MyChoice Super of the Year

Awarded to the fund with the Best Value for Money Offering for engaged members.

Finalists
AustralianSuper
Aware Super
CareSuper
Equip
Hostplus
Mercer Super Trust
QSuper
Sunsuper
UniSuper
Vision Super

SuperRatings Pension of the Year

Awarded to the fund with the Best Value for Money pension offering.

Finalists
AustralianSuper
Aware Super
Cbus Super
HESTA
Hostplus
QSuper
Spirit Super
Sunsuper
TelstraSuper
UniSuper

SuperRatings Career Fund of the Year 

Awarded to the fund with the offering that is best tailored to its industry sector.

Finalists
Cbus Super
HESTA
Hostplus
Mercy Super
TelstraSuper
UniSuper

SuperRatings Momentum Award

Awarded to the fund that has demonstrated significant progress in executing key projects that will enhance its strategic positioning in coming years.

Finalists
Active Super
Cbus Super
CSC
Equip
Hostplus
TelstraSuper

SuperRatings Net Benefit Award

Awarded to the fund with the best Net Benefit outcomes delivered to members over the short and long term.

Finalists
AustralianSuper
CareSuper
Cbus Super
HESTA
Hostplus
UniSuper

SuperRatings Smooth Ride Award

Awarded to the fund that has best weathered the ups and downs of the market, while also delivering strong outcomes.

Finalists
Aware Super
BUSSQ
CareSuper
Cbus Super
HESTA
QSuper

SuperRatings Infinity Award

Awarded to the fund most committed to addressing its environmental and ethical responsibilities.

Finalists
Active Super
Australian Ethical Super
Aware Super
Christian Super
Future Super
HESTA

Release ends
For more information, contact:
Rob Hardy
Robert.Hardy@lonsec.com.au
1300 826 395

August was another strong month for equity markets however some storm clouds have reappeared amidst the collapse of Evergrande, one of China’s biggest property developers, as the Chinese government sought to stem excessive borrowing leaving the heavily indebted company with over $400B in debt. The main concern is that the collapse may have a flow on effect on the Chinese property market, which has grown at an incredible rate, and ultimately impact the Chinese economy. We have seen some evidence of contagion reflected in high yield markets and other property markets such as Hong Kong. Markets are also watching what direction central banks will take on their asset purchases programs and whether they will seek to taper the programs and if so to what extent.

From an asset class perspective, we are still supportive of risk assets despite some of the risks mentioned earlier, as bonds, including government and corporate bonds, offer limited relative value in the current environment. However, we continue to see asset valuations rise notably in Australian equities. We continue to monitor valuations looking for opportunities to take profits where applicable.

We are also observing an increase in the dispersion in returns on an asset class, country and stock level. We believe that such an environment is increasingly supportive of an active approach to asset management. We also believe that ensuring that portfolios are diversified in their exposures will become more important in the coming 12 months. One of our main challenges is identifying diversifying assets in the current environment and Lonsec’s investment committees are working hard to identify appropriate assets.


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 assessment of performance of superannuation funds has gained traction over the past month, with the release of the government’s first superannuation performance test findings. When deciding to switch funds, it is easy to be swayed by investment returns, but there are other considerations that are as important. SuperRatings CEO Kirby Rappell says ‘Superannuation is bigger than just returns. It’s a good idea to consider a variety of factors such as fees, investment choices and insurance when deciding whether a fund is right for you.’

SuperRatings suggests you consider fees and returns in tandem as focussing solely on fees may mean that you miss out on higher account balances if a fund invests in more costly assets to generate greater returns. You should also look at total fees, which include both administration and investment fees to make sure you are comparing like with like.

Another key thing to consider when comparing super funds is investment choice. Mr Rappell says ‘make sure the funds you’re considering have investment options that suit you. This can range from ensuring the fund has an investment option that suits the level of risk you’re comfortable with to checking if there are specialist investment options such as a socially responsible option.’

One of benefits of super for many is the insurance available via a fund. As with any insurance product, it is important to work out what you want covered, the level of cover you need and if that cover is available in your comparison funds. Fees and returns, investment choice and insurance coverage all should be considered when deciding to move super fund. We suggest using the tools and calculators offered by funds to see what meets your needs and the impact switching funds could have – particularly on your insurance cover.

To ensure you have access to sufficient information to drive the best retirement outcomes, we suggest contacting your superannuation fund to find out what advice services are available to you. If wish to find a financial adviser, the Government provides information on how to select a financial adviser through the MoneySmart website.

Looking at returns, SuperRatings has seen balances continue to grow in August. The typical balanced option returned an estimated 1.6% over the month and 18.2% over the year.  The typical growth option returned an estimated 1.9% for the month and the median capital stable option also increased 0.7% in the month.

Accumulation returns to August 2021

  Monthly 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SR50 Balanced (60-76) Index 1.6% 18.2% 8.0% 8.6% 8.1% 9.0%
SR50 Capital Stable (20-40) Index 0.7% 7.8% 4.6% 4.6% 4.8% 5.5%
SR50 Growth (77-90) Index 1.9% 22.1% 9.3% 9.9% 9.1% 10.1%

Source: SuperRatings estimates

Pension returns were also positive in August. The median balanced pension option returned an estimated 1.7% over the month and 19.7% over the year. The median pension growth option returned an estimated 2.0% and the median capital stable option also increased an estimated 0.7% in the month.

Pension returns to August 2021

  Monthly 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SRP50 Balanced (60-76) Index 1.7% 19.7% 8.6% 9.3% 8.7% 9.9%
SRP50 Capital Stable (20-40) Index 0.7% 8.5% 5.1% 5.3% 5.2% 6.1%
SRP50 Growth (77-90) Index 2.0% 23.9% 10.0% 10.8% 9.9% 11.3%

Source: SuperRatings estimates

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.

According to a report in Bloomberg recently, while Vanguard data show a portfolio with 60 equities/fixed income mix returned an average 9.1% a year from 1926 to 2020, JP Morgan Asset Management recently estimated it will return just 3.7% over the next decade. Why? In a world where 85% of developed-market government bonds are yielding below 1%, the likely returns from the fixed income component of the portfolio has plunged, as shown in Figures 1 and 2.

Figure 1

Figure 2

So, this raises a question that we are getting asked by our clients – why even bother having fixed income within my portfolio?

When answering this question, it is important to think about what the reasons were for including fixed income in your portfolio in the first place.

At Lonsec, we believe that fixed income generally can play three roles in a portfolio:

1. As a diversifier to equities – bonds dampen overall portfolio volatility when held in a portfolio with riskier assets such as equities;
2. As a defensive asset that “will not go down” – so may be suitable for the risk averse investor with a primary objective being the preservation of capital; and
3. As a provider of a steady income stream – regular income payments from bonds provide a stable income stream for retirees

Figure 3 shows the rolling three year returns for global equities and global bonds and serves to highlight the relatively low volatility of global bonds compared to global equities.

Figure 3

However, when faced with the prospect of challenging returns, the reasons for inclusion tend to fall by the wayside and we start to focus on where to find better returns. As a result, we have seen many investors move out of fixed interest securities, especially longer term government bonds, in favour of equities or a taking a bar bell approach by investing in the extremes of lower quality investment grade bonds and short duration cash like securities. This is a dangerous proposition especially for those in retirement.

Becoming a victim of short-termism and negative momentum can shift your portfolio greatly to one that effectively eradicates each of those objectives we listed above. Why?

1. When we increase our allocation to equities or riskier assets, we are reducing our diversification. This will significantly increase the volatility of the portfolio.
2. Whilst the short duration assets will act has a buffer during times of market volatility, we have seen time and time again, that lower quality investment bonds will typically have their correlation to equities rise to 1 during periods of market stress and produce a very significant negative return that effectively wipes out any ‘buffering’ that the short duration assets may have provided.
3. During periods of economic stress, the stability of income from equities can change quickly. We saw this last year when many banks cut their dividends for a short period of time to ensure their books were able to withstand the changing economic landscape.
4. For retirees, unless the income provided through dividends and higher yielding fixed income securities is sufficient enough to live on, the impact of falling markets when in drawdown can be catastrophic to the long term viability of a retirement portfolio.

The question around the validity of longer duration bonds in portfolios is a valid one. Fund managers have been able to lean on these as performance enhancers as dovish central banks have overseen 20 years of falling interest rates. This, coupled with the relentless demand for safe haven assets from investors, especially during times of equity market stress, has seen abnormally high returns being achieved in this end of the market.

A fact that we all quickly forget about volatility is that with riskier assets not only do you have a greater probability of producing higher returns, you also have a greater probability of producing lower returns.

Whilst historically it has been easy to forget about fixed interest as the asset class has taken a backseat to the action packed excitement of the sharemarket, we cannot do this anymore, especially if you are approaching or in retirement. This is the stage where preservation of capital with a guaranteed income stream becomes the most important goal.

For those especially, bond investors now have three choices:

1. Take on more risk to generate higher yields;
2. Lower return expectations for the short to medium term; or
3. Accept low rates as something they cannot change.


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.

With half the country in what seems never ending rounds of lockdowns and pandemic fatigue setting in, one of the last things most Australians want to do is look at their Superannuation balances and investment options. That is, however, exactly what SuperRatings is wanting us to do, as neglecting your super or responding to short term market moves can have a detrimental effect on your super balance.

SuperRatings Executive Director Kirby Rappell says, ‘We looked at the impact of switching out of a balanced or growth option and into cash at the start of the pandemic and found that those with a balance of $100,000 in January 2020 and who switched to cash at the end of March would now be around $22-27,000 worse off than if they had not switched.’

This effect of switching into cash as a response to market turmoil is also seen when looking at returns over the past 15 years. In this period, a typical balanced Super option has risen substantially, with a balance of $100,000 in July 2006 accumulating to $247,557, more than doubling in size. Those members investing in a growth option have experienced an even stronger result, with a similar starting balance growing to $254,006. Share focused options have delivered the highest returns, with the median Australian shares option growing to $276,099 and the median international shares option growing to $271,051, though these types of options involve greater risks. Over the same period, a $100,000 balance invested in cash would only be worth $151,158 today.

When considering your Super options, you don’t need to go it alone as many Super funds provide advice and tools to their members. Says Mr Rappell, ‘Most funds will offer scaled advice for free or at a low cost, with members able to get advice on topics such as contributions, investment options, insurance in the fund and the transition to retirement.’ Scaled advice is general in nature so you will need to check if your situation and goals align with the advice.
Continues Mr Rappell, ‘For members who want more tailored advice, some funds will offer comprehensive advice that will also take into account your financial assets outside of superannuation.’ While there will be a cost associated with this comprehensive advice, most funds will allow the cost of the advice to be deducted from the superannuation account, just make sure you check any costs and how they can be paid before agreeing to get the advice.
Looking at more recent returns, balances continued to grow in July. The typical balanced option returned an estimated 1.3% over the month and 18.5% over the year. The typical growth option returned an estimated 1.3% for the month and the median capital stable option also increased 0.9% in the month.

Accumulation returns to July 2021

FYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SR50 Balanced (60-76) Index 1.3% 18.5% 7.9% 8.4% 8.0% 8.6%
SR50 Capital Stable (20-40) Index 0.9% 7.8% 4.5% 4.5% 4.8% 5.3%
SR50 Growth (77-90) Index 1.3% 22.7% 9.2% 9.5% 8.9% 9.6%

Source: SuperRatings estimates

Pension returns were also positive in July. The median balanced pension option returned an estimated 1.3% over the month and 20.0% over the year. The median pension growth option returned an estimated 1.5% and the median capital stable option also rose an estimated 0.9% in the month.

Pension returns to July 2021

FYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SRP50 Balanced (60-76) Index 1.3% 20.0% 8.4% 9.1% 8.5% 9.5%
SRP50 Capital Stable (20-40) Index 0.9% 8.6% 5.2% 5.2% 5.2% 5.9%
SRP50 Growth (77-90) Index 1.5% 24.4% 9.7% 10.3% 9.8% 10.6%

Source: SuperRatings estimates

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.

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.

Following Lonsec’s Asset Allocation Investment Committee meeting in June, we asked Chief Investment Officer Lukasz de Pourbaix to give us an update on his views of the current market drivers and challenges, and how these impacted Lonsec’s latest dynamic asset allocation views.

The main topic of discussion at this meeting was inflation – is it transitory or are we seeing a structural shift up in inflation? Lonsec’s current view is that whilst inflation will continue to rise in the short-term, after that, it’s still questionable whether we will see a structural rise in inflation. One of the other matters we’re focused on is wage growth. We have not seen a material rise in wages, which is important in the context of looking at inflation.

As part of our dynamic asset allocation process, we also look at a number of key factors: valuation (are assets cheap or expensive), where we are in the business cycle, and policy (such as monetary policy) and liquidity. In this video, Lukasz looks into each of these factors and explains how these were considered to determine Lonsec’s current asset allocation

Transcript

Inflation and its implication for asset allocation

Hello, my name is Lukasz de Pourbaix, I’m the CIO of Lonsec Investment Solutions. Today, I’ll be providing an update on our latest takeouts from our asset allocation Investment Committee, which is responsible for our dynamic asset allocation views. Now we hold that committee every quarter.

The main topic, really this investment committee was inflation, and whether inflation is transitory in nature, or whether we are seeing a structural shift up in inflation. And certainly, we’ve seen CPI numbers go up, most recently in the US announced the significant jump in CPI to levels we haven’t seen since 2008. And so, as part of that discussion, part of the narrative was, is this driven by supply/demand issues as a result of COVID? Or is there genuinely an inflation increase? And it’s fair to say that the market at the moment does believe that it’s transitory in nature, we are seeing significant disruptions to supply chains, which has impacted a range of assets. If you look at things like some of the commodities, Lumber (LBS), the one that suddenly is sort of focused on, through the microchips to make computers, mobile phones, etc. We’ve seen prices certainly spike up in a lot of these areas. And our view would be that once we get spending come back to pre-COVID levels, inflation will continue to rise in the short term, but after that, it’s still questionable whether we will see structural rise inflation.

Our base case at the moment is that it is likely to be transitory in nature, but that it will rise in the shorter term. One of the other aspects that we’re certainly focused on in that context is wage growth. Today, we haven’t seen a material rise in wage growth. It is a lagging indicator. However, it is important in the context of looking at inflation and while we have seen pockets of rises in wage growth, if anyone’s been out to try to hire staff in places like cafes, restaurants, fruit pickers, we all know that there’s shortages there, but across the board, we haven’t seen wage growth right rise and certainly that would be an area that we would be keen to focus on.

What changes were made in June to Lonsec’s Asset Allocation positions?

As part of our dynamic asset allocation process, we look at a couple of key factors that we think determine the direction of where different asset prices will go into the future. And those are valuation – so are assets cheap or expensive. Where are we in the business cycle, and then policy and liquidity.

If we take those three metrics in isolation, from a valuation perspective, it’s probably fair to say that most assets from an absolute perspective look pretty expensive. However, we are in the game of allocating capital. And so we have to look at things from a relative perspective. If we look at asset classes, from a relative perspective, we’ve continued to think that risk assets such as equities are favorable compared to things like bonds and cash, where know there’s you’re getting little reward for that risk. From an equity perspective, we probably have a bias towards emerging markets and Australian equities over some developed markets, particularly the US, from a pure valuation perspective. So overall picture is that from a relative perspective, risk assets are still looking attractive, you’re still being rewarded for risk from a valuation perspective. If you look at other indicators, and one of those is cyclical indicators – so where are we in the cycle? Cyclical indicators continue to look positive. A lot of economic data that’s been coming out, whether it’s looking at PMIs, whether it’s looking at job growth, all of them pointing in the right direction.

From our economic perspective, we’ve clearly seen a recovery and continue to see a recovery, those indicators are looking positive. Finally, from a policy perspective, if we think about monetary policy, and my earlier reference to inflation, the two are obviously related. Policy, however, does remain supportive of risk assets, interest rates remain low. Central Banks, in our view, aren’t going to pull the trigger anytime soon. They will want to see evidence of growth, and more evidence that if this inflationary environment is transitory, they’ll probably be a bit more standoffish in pulling the trigger on rates. But as it is at the moment, that environment in terms of policy does remain supportive of risk assets. We are also seeing material fiscal support. So net net if you think about those longer-term indicators, such as valuation, which is very much longer term indicator is supportive of risk assets. The policy settings continue to be supportive of risk assets. And then obviously, liquidity is there supporting markets as well, all things pointing to risk assets from an overall directional perspective, we do like risk assets over some of the more defensive assets. Having said that, we do think we’re in an environment where we are seeing a lot more dispersion between returns within asset classes. We do think that being selective within asset classes, be it equities or bonds, is becoming much more important. And we do think that dispersion between winners and losers will be wider going forward than it has been in the past.

Overall, the outcome of our dynamic asset allocation committee has been to make no change at this point. From our last quarter, we do remain positive on risk assets, underweight, Fixed Income, underweight Cash, we continue to have a neutral position to Alternatives. We are looking at if there are others? Potentially at some point, do we review that allocation to alternatives? Do we potentially increase that? From a portfolio perspective, we already have some exposure. Some of you will note will have we’ve had exposure to Gold, which has seen a significant increase in price over recent months. And if we do see that inflationary environment be more than just transitory those type of assets can contribute to helping protect the portfolio in that environment. So overall, there are some risks out there. Some inflation is probably the number one risk at the moment. But net net, we think that the environment is still conducive to risk assets.



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.

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The yield curve shows how yields for bonds of the same credit rating, typically government bonds, differ based on maturity date. It sounds simple and yet from this curve one can glean insights into market expectations of inflation, economic growth, and future central bank policy. As such, those who follow fixed income markets pay close attention to movements in the curve. In February 2021, the curve’s shape changed by an amount so large in magnitude that a similar shift has not been seen since the 1994 bond market meltdown.

The conventional measure of the ‘steepness’ of the yield curve is the difference between the yields of 10-year and 2-year Government Bonds. In Australia, this gap was 1.04% at the beginning of February. During the month, this gap rose to a high of 1.80%. The driver of this was a sharp increase in yields of 10-year, and other longer duration Australian Government Bonds (AGBs), while yields for 2-year and other shorter duration bonds stayed relatively static. Throughout February yields for 10-year AGBs rose from an initial value of 1.15% to a high of 1.92%. Movements of this size might be common in equity markets, but in the world of government bonds such shifts in recent years have been rarely seen. For context, February 2021 was the Bloomberg AusBond composite index’s worst month since 1994, as surging bond yields throughout the month were mirrored with a corresponding decrease in prices. Not all news is bad however, as a steeper curve allows for additional fixed income investment strategies to be utilised, including those which involve purchasing longer duration bonds and picking up price increases as they “roll down” the yield curve.

This historic shift was caused by a combination of increased inflationary expectations, and a more optimistic outlook of economic growth in the medium term. The component of the increase due to inflation expectations can be tested for directly by comparing the change in yields for 10-year AGBs with the change in yields for 10-year Australian Treasury Indexed Bonds (TIBs), which offer returns that are adjusted in-line with inflation. Throughout February yields for TIBs rose by approximately three quarters as much as for AGBs. This suggests that approximately one quarter of the increase in the yield for AGBs was due to inflation expectations, as, if the entire increase were due to inflation there would have been no movement in the yield for TIBs. The remainder of the increase in AGB yields implies a combination of a more positive economic outlook, and expectations of the Reserve Bank of Australia (RBA) adopting tighter monetary policy sooner than expected. While there is no way to test for either of these, due to; vaccine rollouts, a decreasing unemployment rate, and soaring commodity prices, an optimistic economic outlook is expected post last year’s recession. The first since the early 1990s. The conundrum is RBA policy, as the central bank has moved to directly counter the increase in yields by expanding its quantitative easing program, which involves purchasing 10-year AGBs on the open market. The announcement of this policy led to a dip in yields, but the upwards trend has since resumed. Given the better-than-expected economic recovery to date, the market may have doubts as to the RBA’s conviction in keeping yields low moving forward.

Moving forward, February’s increase in yields could mark the beginning of a return to normal after the COVID induced recession of 2020. While the increase in 10-year AGB yields was extremely large, even after the increase, yields remain low compared to historic norms. The gap between 10-year and 2-year yields remains large however, but this can also be closed from an increase in rates at the lower end of the curve, possibly brought about by the RBA ending its yield curve control program, in which it is targeting yields for 3-year AGBs at 0.1%, the same level as the Cash Rate. The main cause of problems would be in the case that the strong economic conditions that are implied by the increase do not manifest, whether due to a resurgence of COVID, falling commodity prices, or an unrelated reason. If signs of such an occurrence appear it is likely that yields would fall again. Unfortunately, there is no way to be certain of which outcome will occur, but regardless of the specifics of future economic outcomes, February’s events will remain a focal point in discussions of fixed income market outlooks for some time.

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