The live webinar was held on Wednesday at 10 AM AEST, 1st July, 2020

Overview

We were blown away by the response to the Lonsec Webinar Series, which saw over 3,000 people attend across five webinars. Unfortunately, given the range of topics and limited time available, we weren’t able to get to everyone’s questions. So for this webinar, we opened it up to the floor. Join our portfolio construction experts in an exciting panel discussion.

Moderator: Brook Sweeney, Senior Investment Consultant

Panel:

• Lukasz de Pourbaix – Chief Investment Officer
• Veronica Klaus – Head of Investment Consulting
• Dan Moradi – Portfolio Manager, Listed Products
• Deanne Baker – Portfolio Manager, Multi-Assets

 

If you attended our live webinar, please note that further instruction on how to receive the CPD Points will be delivered to your inbox in the next 5-10 business days. Whilst we aim to ensure every attendee receives CPD Points, it is within the guidelines provided that you are required to attend the full duration of the live webinar to receive your CE accreditation. Our technology platform collects data that reflects the duration and your full engagement during the live session.

 


The content, presentations and discussion topics covered during this event are intended for licensed financial advisers and institutional clients only and are not intended for use by retail clients. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented.
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, these presentations or any loss or damage suffered by the attendee or any other person as a consequence of relying upon the information presented.

This information is provided by Lonsec Investment Solutions as a corporate authorised representative of Lonsec Research Pty Ltd who hold an AFSL number 421445. This is general advice, which doesn’t consider your personal circumstances. Consider these and always read the product disclosure statement or seek professional advice prior to making any decision about a financial product. You can access a copy of our financial services guide at lonsec.com.au

This video is provided 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. Past performance is not a reliable indicator of future performance. This is general advice, which doesn’t consider your personal circumstances. Consider these and always read the product disclosure statement or seek professional advice prior to making any decision about a financial product. While care has been taken to prepare the content of this video, LIS makes no representation or warranty to the accuracy or completeness of the information presented, which is drawn from public information not verified by LIS. The information contained in this video is current as at the date of publication. Copyright © 2020 Lonsec Investment Solutions Pty Ltd ACN 608 837 583

The biggest challenge for investors in an environment such as the one we are experiencing now is that there is a lot of information, the environment is changing rapidly and there are many unknowns. In the past several weeks we have witnessed one of the fastest drops in markets in history, bond market liquidity has dried up, unemployment is rising, robust business models have unraveled with businesses such as Virgin Australia forced into administration and we have seen unprecedented levels of government stimulus. This follows an extended period where equity market returns were strong and volatility was at historically low levels.

Whether you are running an investment committee or speaking to clients in such an environment, going back to basics is warranted. Referring to your investment philosophy and the investment framework that underpins it is fundamental in periods such as this. Importantly, it will assist in avoiding making reactive investment decisions that can have an adverse impact on the long-term outcomes of your portfolios. This is particularly important in the current environment where there is a proliferation of news flow. On a client level, dusting off the investment philosophy and refocusing your client’s attention on your fundamental investment beliefs will help you deal with nervous clients and aid in preventing them from making kneejerk decisions relating to their investments.  If we cast our minds back to the GFC, we know that clients that were reactive and cashed out from a typical balanced portfolio locked in a loss of about 8.5% on average, whereas those that remained invested, benefitted from the subsequent rebound in markets.

At the core of Lonsec’s investment philosophy is our belief in a diversified portfolio approach across asset classes and investment strategies with a strong focus on risk management. We aim to do this through a combination of active asset allocation decisions focused on managing risk and active bottom-up investment selection focused on ensuring portfolio are diversified not only by asset class but also investment strategies. As a practical example, in the current environment our focus within asset allocation remains on valuation, cyclical and liquidity factors and market sentiment. This provides us a starting point for assessing the current environment.

From a bottom-up fund selection perspective, we remain focused on understanding the role that every fund plays in the portfolio recognising that during periods of severe market dislocation, our ‘risk control’ funds should provide some dampening against this volatility, whereas our ‘growth’ funds will more than likely suffer the full extent of any market moves.

The strength of having an investment framework will assist navigating through uncertain times as it helps understand performance drivers and ‘where to from here” scenarios. Additionally, it ensures that conversations we have with clients on expectations of portfolio performance are clear and easily understood.

For more information about how Lonsec can help you with your investment philosophy and process, please contact us on 1300 826 395 or info@lonsec.com.au.

Sadly, the title of our Symposium now seems all too prophetic.

Following the advice of the Australian government and health authorities, we’ve decided that the best option is to cancel the event.

Over 900 people were already registered to attend, but we all need to help ‘flatten the curve’ and prevent the spread as much as we can.

At this stage we’re not planning to re-schedule, but we’re working to make the content available to everyone who registered. We’ll provide further information on how to access these materials as it becomes available.

Who knows, we may all have plenty of time at home to watch and read!

We’d like to thank our event sponsors, AllianceBernstein, Fidante, Fidelity, Investors Mutual, Legg Mason, Pendal Group, Schroders and Talaria, and we look forward to continuing to work with them to keep you informed.

Feel free to put the Lonsec Symposium 2021 (Thursday 29th April 2021) in your diaries, and we look forward to seeing you all there, if not before.

Although the secrets of a long life remain a mystery, there are now over 300,000 centenarians across the globe and the numbers are rising. Most of us will not survive to 100 no matter how many green vegetables we eat, but there is no doubt life expectancy is increasing. In Japan, 2.5 times more adult than baby diapers are sold. Australian life expectancy from birth is among the highest in the world with the average man living to 80.7 and 84.9 for a woman. It assumes no improvement in healthcare which can increase life expectancy further.

Lonsec has partnered with AMP to make its Retirement Managed Portfolios available via MyNorth Managed Portfolio.

The portfolios harness the depth and breadth of Australia’s leading research provider, allowing users to build high-quality retirement solutions incorporating Lonsec’s best investment ideas. Underpinning the portfolios is Lonsec’s strict quality criteria, requiring funds to be rated ‘Recommended’ or higher by its investment research team.

“Our managed portfolios give financial advisers access to investment solutions supported by one of Australia’s largest investment research and consulting teams,” said Lonsec CEO Charlie Haynes.

“Being able to draw on our investment selection and portfolio construction expertise is a real plus, and we’re proud to be able to extend this access via the North platform users.”

Lonsec’s Retirement Managed Portfolios are objectives-based and focused on delivering an attractive and sustainable level of income while generating capital growth through a diversified portfolio of managed investments.

Lonsec offers three Retirement portfolios: Conservative, Balanced and Growth. Each are designed to achieve different risk and investment objectives over various timeframes. They are constructed using a range of funds that play a specific role, such as income generation, capital growth and risk control, and backed by Lonsec’s rigorous governance and review processes.

“Our Retirement Managed Portfolios have been constructed to manage the risks most relevant to investors in the retirement phase,” said Lonsec’s Chief Investment Officer Lukasz de Pourbaix.

“By diversifying across asset classes, managers and return sources, we aim to manage risks such as capital drawdown, which can materially impact the longevity of a retirement portfolio, particularly in the early stages of transitioning from superannuation to the pension phase of investing.”

“We’re very excited to be working with AMP to make these portfolios available to AMP’s North wrap users.”

Inclusion on North further expands the distribution of Lonsec’s Managed Account offering, following its existing availability on the BT, Macquarie, HUB24, Netwealth and Praemium platforms.

Lonsec’s retirement portfolios have been constructed to meet the income and capital objectives of investors in the retirement phase as well as to manage risks that are specifically relevant to retirees.

AMP’s North platform offers advisers flexible and efficient access to a range of investment products, which now include Lonsec’s retirement portfolios, giving advisers the tools they need to meet their clients’ goals.

For consumers, 2019 was a year best forgotten as negative economic news created an almost perpetual drag on sentiment and global uncertainty resulted in repeated bouts of volatility. But for investors, including Australia’s 15 million super fund members, it was a year that saw a sizeable accumulation of wealth, driven by share market gains as well as some savvy investment decisions by the top-ranking funds.

Even with the high expectations set during a year that saw share markets rally ever higher, several super funds were able to translate this favourable environment into exceptional gains for members.

Topping the leader board in 2019 was UniSuper, whose balanced option delivered a return of 18.4% over the year and is among the top performers over 10 years with a return of 8.9% per annum. Over one year, UniSuper was followed by AustralianSuper – Australia’s largest fund – which returned 17.0% in 2019 and 9.0% over 10 years. However, it’s Hostplus that remains in first place over 10 years with an annual return of 9.2%.

Top 10 balanced options (return over 1 year)


*Interim return
Source: SuperRatings

Top 25 balanced options (return over 10 years)


*Interim return
Source: SuperRatings

UniSuper came out on top in a crowded field, in which the top 10 funds delivered an average return of 16.3%. It was a tight race over longer time periods, and while markets have certainly provided a tailwind, there’s no doubt that skilful management plays a role in squeezing out additional returns.

While returns may appear narrowly spread at the top, this hides some significant differences in asset allocation and investment strategies pursued by different funds. What was interesting to see was the diversity of approaches that funds take, even at the top of the leader board. While most funds have benefited from strong equity markets, the nuances among the top performers are where there has been strong value added for members.

In the case of UniSuper, the fund continues to pursue an active management strategy with exposures predominantly to Australian and International Equities, as well as significant cash and fixed interest exposures. Allocations to illiquid assets such as infrastructure and private equity are not a key component of their strategy.

Meanwhile, Hostplus has significant allocations to illiquid assets, with these being a key driver of its performance outcomes for Property, Infrastructure and Private Equity assets. AustralianSuper has also benefited from material unlisted asset exposures, as well as fee savings generated from its in-house investment structure.

Top pension funds

One of the key challenges super funds face is the current low-yield environment, which is making it harder for funds to generate income for members. This challenge is likely to be felt more acutely by those in the post-retirement phase, who rely on the income generated by their pension product to fund living expenses.

In this environment, picking the right pension fund and option can be critical. The below chart shows how capital stable pension options (20–40% growth assets) stack up over 10 years, and while there is some dispersion in the results, every option in the top 25 by performance exceeded the typical CPI plus 3.0% target. AustralianSuper’s Stable option is the best performer, returning 7.6% p.a. over ten years, followed closely by TelstraSuper’s Conservative option and Hostplus’s Capital Stable option.

Top 25 capital stable pension options (return over 10 years)


Source: SuperRatings

Understanding risk is critical for consumers

Most consumers can’t define risk, but they know it when they experience it. For superannuation members, risk can mean the likelihood of running out of money in retirement, or not having enough cash to pay for holidays, car repairs, or an inheritance for their kids.

For young members starting out in the workforce, short-term market falls might not matter too much because their investment horizon is relatively long. But for members nearing retirement, the timing of market ups and downs can have a significant effect on the wealth they have available in the drawdown phase.

For a young worker with a relatively low super balance, being exposed to riskier assets is less of a problem – in fact, it can help them accumulate wealth over their working life. However, for members approaching retirement (aged 50 and over), an unexpected pullback in the market can mean the difference between living comfortably and having to cut back in order to get by.

For this reason, it’s important to consider not only the return that a fund delivers but also the level of risk it takes on to achieve that return. In this context, risk means the degree of variability in returns over time. Growth assets like shares may return more on average than traditionally defensive assets like fixed income, but the range of return outcomes in a given period is greater.

The table below shows the top 25 funds ranked according to their risk-adjusted return, which measures how much members are being rewarded for taking on the ups and downs.

Top 25 balanced options based on risk and return

Fund option name 7 year return (% p.a.) Rank
QSuper – Balanced 9.1 1
CareSuper – Balanced 9.8 2
Cbus – Growth (Cbus MySuper) 10.3 3
Hostplus – Balanced 10.5 4
BUSSQ Premium Choice – Balanced Growth 9.6 5
Sunsuper for Life – Balanced 10.0 6
Catholic Super – Balanced (MySuper) 9.4 7
HESTA – Core Pool 9.6 8
CSC PSSap – MySuper Balanced 9.0 9
MTAA Super – My AutoSuper 9.5 10
Media Super – Balanced 9.4 11
Intrust Core Super – MySuper 9.8 12
AustralianSuper – Balanced 10.5 13
Mercy Super – MySuper Balanced 10.0 14
Rest – Core Strategy 9.0 15
First State Super – Growth 9.7 16
QANTAS Super Gateway – Growth 8.3 17
TWUSUPER – Balanced 8.8 18
Energy Super – Balanced 9.3 19
Local Government Super Accum – Balanced Growth 9.0 20
AMIST Super – Balanced 8.9 21
VicSuper FutureSaver – Growth (MySuper) Option 9.8 22
Club Plus Super – MySuper 8.9 23
NGS Super – Diversified (MySuper) 8.9 24
LGIAsuper Accum – Diversified Growth* 8.9 25

Risk/return ranking determined by Sharpe Ratio
*Interim return
Source: SuperRatings

QSuper’s return of 9.1% p.a. over the past seven years is slightly below the average of 9.7% across the top 10 ranking funds, but it has the best return to risk ratio of its peers, meaning it delivered the best return given the level of risk involved. Funds such as CareSuper, Cbus and Hostplus were able to deliver higher returns, but for a slightly higher level of risk.

Real estate offers potential diversification away from traditional stocks and bonds, stable income, the possibility of capital appreciation and has historically offered inflation protection. The average Australian retiree is likely to have exposure to domestic residential real estate – through the family home, an investment property or holiday home – but these assets are likely concentrated in geography and in the residential sector. Commercial real estate can present geographic diversification to the US, Asia and Europe, and sector diversification into offices, shopping centres and industrial parks. The following article explores the investment choices for the commercial real estate asset class across the risk/return spectrum.

  • Real estate may provide investors with the potential to generate attractive long-term returns through possible asset appreciation and current income
  • Real estate also may serve as a hedge against inflation and offer diversification versus traditional stocks and bonds

Anyone who has purchased a home is a real estate investor — but there’s a big difference between taking on a mortgage and investing in office buildings, malls or industrial parks. In this blog, we explain the basics of real estate investing, the potential benefits, and the ways that individuals can add real estate exposure to their portfolio.

To find out more about this article, please contact:

Sam Sorace

Director, Wholesale Sales

Invesco Australia

Direct   +61 3 9611 3744

Mobile  +61 413 050 909

sam.sorace@invesco.com

Markets continued their upward trajectory in November. When you look at the returns across key asset classes over the last 12 months most asset classes have generated double digit returns. Growth assets such as equities and listed real assets generated over 20% for the year ending 30 November, while bonds generated high single digit to double digit returns. This has been a great outcome for investors and certainly well above Lonsec’s long-term expected returns for asset classes.

Part of what has fuelled these high returns, post markets getting the wobbles after the US yield curve inverted in August, can be attributed to markets pricing in the avoidance of a recession and the expectations of a potential recovery in growth. We have witnessed such ‘mini-cycles’ in the past, in 2013 and 2016, however what is different this time is that EPS growth is more muted and other factors which contributed to previous mini-cycles, such as the US or Chinese fiscal stimulus, are less likely to have an impact.

So what does this mean for markets? We think markets may experience a short-term upswing as the ‘mini-cycle’ plays out. We have therefore slightly adjusted our dynamic asset allocation tilts deploying some of the excess cash in our portfolios towards Australian equities. Our overall asset allocation continues to have a defensive skew with the objective of diversifying the portfolios by asset type and investment strategy. This positioning reflects our broader view that asset prices are stretched and that while some economic indicators have stabilised, we believe we are closer to the end of the cycle.

Veronica Klaus Head of Lonsec Investment Consulting spoke on a panel at the Professional Planner Researcher Forum in Sydney last week.

Veronica discussed the inconsistency and confusion around asset class definitions, which is one of the biggest issues confronting the industry. The way in which assets are defined as growth, defensive, etc. often lacks transparency and ultimately makes it harder for financial advisers to make the right recommendations for their clients.

However, as Veronica explains, the superannuation funds aren’t necessarily the ones to blame for the problem.

 

James Syme, Portfolio Manager, Pendal Global Emerging Markets Opportunities Fund

After five tough years, we think the combination of a more benign US monetary outlook and some extremely compelling valuations makes for some powerful opportunities in the emerging market (EM) domestic demand space.
We see domestic demand — the sum of household, government and business spending in an economy including imports but not exports — as the primary area of opportunity in EM, particularly after the 2018 sell-off.
We emphasise an exciting combination of supportive top-down conditions, good quality companies and attractive valuations.

India in favour
India is currently our most favoured market, despite economic growth recently falling to a six-year low.
We like a number of domestic names there including mortgage lenders. Now that the global liquidity outlook has eased, there is the prospect of the Reserve Bank of India continuing to cut rates even as Indian credit growth recovers.
India, unusually in EM, has not had a credit cycle in the last ten years, so the current pick-up in credit could be enduring.
Alongside that, India has ongoing demand for 5-10m residential units per year that need financing.

Mexico and UAE good value
Elsewhere, Mexican equities look markedly cheap relative to history, despite growth being decent, implying some excessively negative market expectations for the political environment.
We also like property stocks in the United Arab Emirates (UAE), particularly in Dubai.
Through its currency peg, the UAE effectively imports US monetary policy. Higher US rates coincided with oversupply of development properties to push real estate prices and related stocks down significantly.
As the Fed’s more accommodative stance improves financial conditions in Dubai, and helped by rising tourist numbers, the prospects for attractively valued Dubai property stocks look good.

South Korea and China
Turning to South Korea, the ongoing corporate governance revolution there is one of the main reasons for our overweight position.
China is a slightly separate story and continues to disappoint.
It has tightened monetary policy significantly in the last two years as the strength of the US dollar has put pressure on the Chinese renminbi, which has been a constraint on the People’s Bank of China’s ability to act.
Activity indicators remain soft, and we think that more stimulus through faster credit creation remains key to a recovery in China.

We’re bullish about:
• The EM domestic demand space offers an exciting combination of supportive top-down conditions, good quality companies and attractive valuations
• A more benign US monetary policy outlook

We’re bearish about:
• Potential for escalation in the US / China trade conflict
• Chinese growth continues to disappoint

Why allocate to Emerging Markets?
As cash rates head below 1%p.a. in Australia, the need for returns from growth assets to offset lower returns from income assets becomes very important for retirees. However in terms of portfolio construction, trying to improve returns without increasing risk becomes very important, due to the increased concerns of retirees around drawdowns. ‘

We believe that a discrete allocation to Emerging Market equities can assist retiree portfolios to achieve these goals because:
• Emerging markets tend to higher GDP growth than developed markets (DM) – and higher equity market returns (+2.46% pa over 20 years^)
• Despite this, emerging market countries are under-represented in most global equity portfolios
• The different growth profiles between DM and EM bring the benefits of diversification to a global equity allocation, without the need to try and time shifts between them.

Figure 1 demonstrates that a simple 50/50 split between MSCI World and MSCI Emerging Markets would have delivered a significantly higher return, at a very small increase in risk, than a purely developed market portfolio over the last fifteen years.

  • Figure 1: Risk-return profile since 1 Jan 2001

^ Calendar year performance of MSCI World and MSCI EM indices in AUD over 20 years to 31 December 2018.

Hear more about emerging markets as London-based portfolio manager Paul Wimborne of J O Hambro Capital Management presents an update in Sydney and Melbourne in November
Sydney (Nov 14)
Melbourne (Nov 12) 

DISCLAIMER
This communication has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 for the exclusive use of advisers and the information contained within is current as at 21 October 2019. It is not to be published, or otherwise made available to any person other than the party to whom it is provided.
PFSL is the responsible entity and issuer of units in the Pendal Global Emerging Markets Opportunities Fund (Fund) ARSN: 159 605 811 (formerly BT Emerging Markets Opportunities Fund). A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1800 813 886 or visiting www.pendalgroup.com. You should obtain and consider the PDS before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund referred to in this presentation is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.
This communication is for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their or their clients’ objectives, financial situation and needs. This information is not to be regarded as a securities recommendation.
The information in this communication may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information in this communication is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information.
Where performance returns are quoted “After fees” then this assumes reinvestment of distributions and is calculated using exit prices which take into account management costs but not tax you may pay as an investor.

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.