Radical changes helped turn performance around at Austalian superannuation fund Media Super, as AsianInvestor outlined on Monday.
In 2014, the Melbourne-based superannuation fund’s board oversaw a root-and-branch review of its investment oversight, asset allocation, manager selection and strategy implementation. It worked well: in the Australian research house SuperRatings’ SR50 Balanced fund survey for December 2016, Media Super’s MySuper Balanced option ranked as the third-best performing fund for the financial year (returning 6.72%) and was in the top 10 for calendar 2016 (with 8.73%).
In the first part of this article, chief executive Graeme Russell set out how that turnaround was achieved, including a strong tilt toward equities and exposure to foreign currencies. Today, he discusses the short- and long-term outlook for the fund.
Q How do you plan to keep this good performance going?
The first question we ask is: ‘Where can we make money in the next 12 months?’ [This is] in an environment where you still have low interest rates and we consider there are still too many risks in the bond market.
Because our asset allocation is mid- to long-term, we have to ask ourselves whether equity markets are overvalued. The answer will be a little different for the US market compared to Europe or Asia. I think we will probably pull back our overweight to equities.
We are not ‘glass half empty’, but we are concerned that the major research agencies are all talking about a US recession in 2018 or 2019. So we need to create a smoother profile and manage the downside risk. And if we back-scale our equities that will reduce the global exposure. It will need to be a judgment call on the asset allocation and the ability to invest.
Q How is your long-term allocation likely to change in terms of sector focus?
A specific instruction our board has given us is to increase our investment in renewable energy. We are looking in Australia at the moment for suitable investments, and the whole energy issue is the number one hot topic at the moment.
We’ve already got quite a bit in wind investments, and there’s a lot of wind power development in Australia. What’s happened in the last 18 months is that for the first time there are several large solar farm projects, where two years ago there was only one, now there are maybe eight on the go in different parts of the country.
Another related sector is mass battery storage, so I will be interested in a combination of those two. If we can get a large-scale solar farm with battery storage, that would be interesting, because the key energy reliability issue right now is the renewables coming in and out of supply depending on whether the wind’s blowing or the sun’s shining.
Q What lessons have you learned from your experience of investing through different market environments?
It is important to have a firm long-term strategy, and long term for us is 10 years, because that’s one of our statutory obligations. And [it's also important] to look though the market cycles.
We have made that dynamic asset allocation call, but we aren’t going to tinker. If we make a change during the course of this year, it will be based on looking forward to 2018 and 2019 and the potential impact of four interest rate rises, which I am not that negative on. I think that’s a return to normality.