NZ Super awards its first factor mandates

The state fund is the latest institution to incorporate factor investing into its long-term strategy. CIO Matt Whineray shrugs off concerns some have raised about smart-beta trades getting crowded.
NZ Super awards its first factor mandates

The NZ$30 billion ($21.6 billion) New Zealand Superannuation Fund has appointed Northern Trust Asset Management (NTAM) to manage two new factor investing mandates.

The $216 million low-volatility strategy and NZ$216 million value-investing portfolio, will use funds investing passively in global equities on behalf of the state retirement institution. 

They will be managed according to a factor investing, or smart beta, approach, which systematically constructs an alternative portfolio according to pre-determined factors (value and low volatility being the most popular among investors generally).

Matt Whineray, chief investment officer of NZ Super, said: “Value and low-volatility factor strategies are well suited to our beliefs and advantages as a long-term investor.”

He played down the concern in some quarters that too much money was flowing into these trades.

While smart beta is gaining traction with institutional investors in Asia Pacific, doubts have been raised about crowded trades adversely affecting smart-beta performance. The main argument is that investors have been chasing returns by investing more into factors such as low volatility and that a sharp reversal of this trend is likely to hurt portfolios.

Whineray told AsianInvestor this was not a concern for NZ Super: “The structural and persistent nature of these factors is what we are interested in. We recognise that there will be times when they are over- and under-valued, but as a long-term investor we do not seek to time the market. We have a high level of confidence in the suitability of these strategies over the horizon of interest to our fund.”

As well as embracing a smart-beta approach, the fund is also focusing on how its different strategies interact and fit together, Roland Winn, NZ Super’s head of investment analysis, has told AsianInvestor. For example, it would like to obtain a deeper understanding of the degree to which active investments load up on common factors such as China risk or the hunt for yield.

The investment team is also aiming to optimise NZ Super’s portfolio to account for disruptive themes such as technology, regulation and the impact of climate change.

NTAM maintains that style factor exposures can outperform traditional benchmarks with lower levels of risk. Bert Rebelo, head of NTAM in Australia and New Zealand, noted: “We continue to see an increasing interest in factor investing strategies as asset owners look to exploit investment opportunities most efficiently in a low-return environment.”

Other regional asset owners to have implemented factor strategies recently include $25.8 billion Melbourne-based Cbus Super and Hong Kong’s $7.2 billion Hospital Authority Provident Fund Scheme, as reported.

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