Financial Standard vol19 n14

www.financialstandard.com.au

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AMP, Aware Super

Shannon Bernasconi WealthO2

NGS Super, FASEA

Feature:

Profile:

News:

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Product showcase: Fidelity International

Government shifts gears on retirement Kanika Sood

hen the government kicked off its quest W for better retirement income products for Australians, its wishlist of features was ambitious. Now, a new position paper has scaled back the criteria – but not entirely to the benefit of super funds.

In 2018, the government wanted superannuation funds to come up with Comprehensive Income Products for Retirement (CIPRs) that did three main things: provided income to retirees at levels greater than inflation, ensured this income lasted until the members died, and provided some flexibility on drawdowns.

CIPRs were met with backlash from industry participants who said the trio was unachievable.

Nearly three years later, on July 19 the government released a position paper on the Retirement Income Covenant which softens what it’s asking of super funds.

Super funds must still have retirement income products for all members by July 2022. But many of the government’s previous asks, such as longevity and flexibility, have been demoted to something to “consider”.

Frontier principal consultant David Carruthers says the new framework is much more workable for the industry.

“The new framework is much, much more focused on income and it is good that the government has moved away from the CIPRs framework which took a more prescriptive and product-based approach to a more memberfocused approach,” Carruthers says.

He says, in a way, the government has almost suggested a hierarchy where maximising ‘income’ is more important, ahead of longevity and flexibility.

“There is a lot more talk about ‘guidance’ and how do you actually help members choose better for retirement income [outside of] advice and soft defaults,” he says.

However, it’s not all smooth sailing for funds, with the position paper also floating the idea that super funds look at members’ Age Pension entitlements to consider ways of maximising retirement income.

It also wants funds to consider other income support payments such as the Disability Support Pension, Carer Payment, JobSeeker Payment and the Service Pension depending on its membership – either by collecting member data

or by drawing assumptions for member cohorts from sources such as Services Australia and the Australian Bureau of Statistics.

This is not data that many funds collect – and may be why funds have been slow to launch retirement income products.

“Age Pension is a critical element and number one consideration for most members. It does really impact retirement income outcomes, and is probably the reason why super funds haven’t spent enough time [so far] on developing solutions,” says SuperEd chair Jeremy Duffield, who previously called for the Age Pension to be included in the Covenant.

Association of Superannuation Funds of Australia (ASFA) director, policy Fiona Galbraith also highlighted the problem in considering member’s Age Pension statuses.

“ASFA has formed a working group to analyse and assess the position paper. One area of focus for the working group will be the expectation that trustees take into consideration members’ Age Pension eligibility, given a number of the factors that affect this largely are unknown to trustees, or at best are averages,” Galbraith says.

Australian Institute of Superannuation Trustees (AIST) chief executive Eva Scheerlinck also welcomed the move away from mandating annuities or CIPRs but said the Covenant needs to be considered alongside other regulation underway.

“AIST also calls for the development of retirement income strategies to be progressed in tandem with the forthcoming review into meeting financial advice needs, and for the government to progress a legislated definition of the objective of superannuation and the objective of the retirement income system,” Scheerlinck said.

Come June 2022, Carruthers and Duffield think funds might find account-based pensions are still useful but will have incentive to go beyond the traditional products.

“Super funds may find that account-based pensions may suit a lot of people, but at the minimum they will need to consider their drawdown strategies and provide some guidance or framework around it,” Carruthers says.

Referring to products like annuities that can have beneficial Age Pension treatment, he adds: “If you’ve got members that are on part Age Pension, the fund’s strategy has to look carefully at new products to maximise retirement income.” fs

26 July 2021 | Volume 19 Number 14 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Opinion:

News:

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Value investing

Allison Dummett ClearView, Matrix

MySuper fund performance soars Annabelle Dickson

Fiona Galbraith

director, policy Association of Superannuation Funds of Australia

MySuper options have delivered the best annual financial returns in over three decades, new research shows.

The latest data from Rainmaker Information’s Default MySuper Index recorded 2020/21 financial year returns of an average of 18%, after all fees and taxes.

According to Rainmaker, the last time the index recorded such high performance was in the 198687 financial year at 19%.

The returns were driven by listed property (33%), Australian and international shares (28%) and global infrastructure (20%).

However, on the other end unlisted direct property only secured returns of 3.6% followed by 0.2% from international bonds, 0% from cash and 0.8% from Australian bonds.

“These returns mean Australia’s 13.5 million super fund members earned $520 billion in investment earnings in the past 12 months, or almost $39,000 each,” Rainmaker Information Continued on page 4

Adviser checking prep underway Karren Vergara

ASIC released more information on what financial advisers can expect from the new reference checking laws, which take effect on October 1.

New protocols administered by ASIC require a licensee recruiting a prospective financial adviser to request a reference about the candidate from the referee licensee.

ASIC said it expects recruiting licensees to undertake appropriate background checks beyond reference checking before authorising new representatives.

“Licensees are subject to general conduct obligations which include taking steps to ensure that their representatives comply with financial services laws or credit legislation,” the regulator said.

A civil penalty applies for non-compliance. ASIC can also take administrative action if parties do not comply with the new protocol, which could include suspending or cancelling a licence or imposing licence conditions.

Continued on page 4

News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

Ian Silk to leave AustralianSuper

Editorial

Karren Vergara

T

Jamie Williamson

Editor

If this past fortnight is to be remembered for anything other than more COVID-19 restrictions and lockdowns, it might just be for being the fortnight with the most unexpected news.

First cab off the rank, AustralianSuper’s longstanding chief executive Ian Silk tendering his resignation.

Having been covering the financial services industry for five years now, Silk’s leadership of the nation’s largest super fund has come to be one of those universal truths nobody thinks twice about.

The sky is blue, water is wet, and Ian Silk is the chief executive of AustralianSuper.

But not for much longer, with Silk to step down at the end of the year and be succeeded by chief risk officer Paul Schroder, who has also been with the fund for 15 years.

It’s a long time, particularly with the one employer.

There were some mutterings about how a super fund of its size should have been compelled to conduct an external search for the top job. I’m not totally convinced. I understand the desire to see what’s out there, but it’s not as though Schroder is a carbon copy of Silk.

Schroder is younger and brings a different skill set to the role – but he arguably knows just as much about the fund.

The fund certainly hasn’t suffered for having had them both at the helm for so long, so why fix something that’s not broken?

Meanwhile, also unexpected was news that the corporate watchdog opted to not pursue criminal charges following its investigation into AMP and the fees for no service it charged for many years to orphan clients.

Maybe we’ve just become conditioned to AMP copping the karma for its past actions, or maybe it’s just difficult to believe there wasn’t enough evidence, despite the Royal Commission probing this very issue.

In response to ASIC’s announcement, AMP labelled it a deficiency in its historic processes – only it wasn’t. As reported by Financial Standard at the time, Royal Commission testimony from AMP in 2018 confirmed the charging of fees for 90 days after a client was thrown in the orphan BOLR pool was more policy than error.

I can only imagine AMP is counting its lucky stars; it’s one less investigation to worry about. Now it can better focus on the numerous others it’s the subject of currently.

Closer to home we’ve also had some news of our own, with Financial Standard’s publisher Rainmaker Information being acquired by Institutional Shareholder Services (pg.4). It’s an exciting milestone for the business and we look forward to seeing what the future holds.

Finally, also unexpected this past fortnight was the sheer increase in COVID-19 restrictions and lockdowns across the country. As we’ve learnt, no lockdown is easy and each one brings with it added pressure, especially for business owners.

The Financial Standard team wishes everyone who is feeling that pressure all the best in overcoming this latest wave – keep healthy, keep safe and keep going. fs

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The quote

The AustralianSuper board wishes to express our deep appreciation for the leadership and integrity that Ian has consistently displayed...

he chief executive of Australia’s biggest superannuation fund AustralianSuper will step down before the end of the year.

Having led the fund since its creation on 1 July 2006, Ian Silk is set to leave the super fund at the end of this year. Chief risk officer Paul Schroder will take over the top job, the fund announced.

When he began, the fund had $21 billion in funds under management following the merger of the Australian Retirement Fund and the Superannuation Trust of Australia and, under Silk’s watch, has grown to $225 billion with 2.4 million members.

Silk said: “It has been an amazing privilege to work with my colleagues across the fund to deliver the best possible financial returns for the more than 2.4 million members who trust us with their retirement savings. I look back with huge pride on what the team at AustralianSuper has achieved.”

Schroder joined AustralianSuper in 2007 and over the years has overseen the new entity’s growth agenda, insurance book, strategy, brand, sales and reputation.

“He is exceptionally well placed to lead the fund in its next phase as it moves towards being a profit-for-member $500 billion superannuation fund in the next five years, that uses the scale of the organisation to benefit members,” Silk said.

AustralianSuper chair Don Russell said Silk had discussed his move with the board over a number of months.

Russell said that he was “pleased that the board’s work with Silk on succession planning, including a board review of external candidates, had enabled the appointment of such a highcalibre internal candidate”.

The board had unanimously decided that Schroder was the best person to lead AustralianSuper through its next phase. This includes leading the fund through its latest merger partner, the $7.4 billion LUCRF Super.

“The AustralianSuper board wishes to express our deep appreciation for the leadership

and integrity that Ian has consistently displayed throughout his tenure and in building an organisational culture that always puts the long-term financial interest of members first,” Russell said.

“Under Ian’s leadership the fund has always been ambitious for members and this has played a vital role in ensuring AustralianSuper has been able to use its size and scale to be the number one performing fund across multiple time periods. The fund has no other objective than to work in assisting members to achieve their best financial position in retirement.”

On his appointment, Schroder commented: “Serving members and helping build their retirement balances is central to our purpose and ingrained in our culture. I look forward to working with my colleagues and key stakeholders to continue to deliver on that vision.”

Speaking with Financial Standard last year about his career, Schroder said: “I have had the privilege of working for member organisations.

When I look back, there is a clarity, simplicity and purpose in that, which is very energising.

Everywhere I have worked there is always the purpose of achieving member outcomes.”

After university, Schroder’s first job assisted migrants and refugees in settling into the workforce and learning English on the job. He then went into rehabilitation work, joining the Victorian Trades Hall Council, where he worked closely with a young David Atkin, Cbus’ former chief executive and now the deputy chief executive of AMP Capital.

Under Schroder’s leadership as chief risk officer, a newly created role he was appointed to in October 2019, the fund’s commitment to combatting cybersecurity and other threats to its framework and data was ramped up.

His bid to arm the fund with the necessary protections saw the four risk departments expand to include hiring a lead for its financial crime, security and resilience unit.

“We are in the business of helping members grow and protect their growing assets,” he said. fs

ASIC releases findings of review into grandfathered arrangements The corporate regulator said it was pleased with how the financial advice industry ended conflicted grandfathered arrangements, with 96% of product issuers complying with the new law that took effect at the start of the year.

ASIC found that 1227 financial products terminated their grandfathered conflicted remuneration (GCR) during its review period dated between 1 July 2019 to 31 December 2020.

Some 4% or 46 products however, failed to terminate GCRs prior to the deadline of 1 January 2021.

These eight product issuers plan to rebate an estimated $24.4 million. ASIC said it will contact these product issuers to ensure that they understand their legal obligations. Under the rebating framework, conflicted remuneration for advice that remains payable on or after 1 January 2021 must be rebated by a product issuer to a product holder instead of being paid to an AFS licensee or its representatives.

During the review period, 89 product issuers paid $760.5 million in GCR relating to 1273 products. But this amount reflects the fact that most arrangements were only terminated

towards the end of the review period, ASIC found.

ASIC said financial advisers changed the way they charged clients during the set time it held the review. Where appropriate, they moved clients to other fee arrangements – for example, charging an ongoing fee, an hourly rate or a fixed price or an asset-based fee, it found.

The financial services Royal Commission recommended an end to the grandfathering of conflicted remuneration paid to financial advisers as soon as practicable under Recommendation 2.4.

ASIC was tasked with reviewing how the industry transitioned away from grandfathered conflicted remuneration in releasing the findings today in the report Ending grandfathered conflicted remuneration.

ASIC sought to determine if industry participants abided to their legal obligations in ending the GCRs and if they passed on any grandfathered benefits or rebates where necessary.

“Overall, the findings of our investigation were very pleasing.

Nearly all product issuers ended GCR arrangements before 1 January 2021,” ASIC said. fs

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News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

01: Christopher Page

MySuper fund performance soars

managing director Rainmaker Information

Continued from page 1 executive director of research and compliance Alex Dunnin said.

“This is three-times the amount of all the money everyone contributed into their superannuation accounts through the year, six-times the amount of all the compulsory Superannuation Guarantee contributions or 17-times what was paid in fees.”

Cbus highlighted Super financial year returns were the highest in the fund’s 37-year history at 19.34%.

Cbus chief investment officer Kristian Fok puts the result down the fund’s approach to its strategy throughout the pandemic.

“Cbus was one of a small group of funds to achieve a positive result (0.75%) during the previous 2019/20 financial year. To then have the confidence to get back in the market is testament to the people and structures that we have put in place over the last five years,” Fok said.

“We managed our cashflow exceedingly well during the initial COVID-19 volatility which meant that we could invest for our members on the upswing.”

In addition, Cbus now manages 35% of assets in-house which has led to fee reductions and therefore better outcomes for members but it may be hard to sustain the high performance.

“We have reduced investment fees by $400M since 2017 which has helped add to our returns,” Fok said.

“Obviously we would love to see strong doubledigit returns like this every year but indications are that conditions will become tougher.” fs

Adviser checking prep underway Continued from page 1 The new rules are covered by the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 and ASIC’s Reference checking and information sharing protocol, which both take effect on October 1.

ASIC has provided a reference request template that asks for information about a candidate spanning the past five years. This includes asking about unresolved inquiries or investigations a candidate is involved in, and the results of compliance audits that relates to personal advice provided by the candidate.

Commissioner Kenneth Hayne found that AFSLs did not do enough to communicate between themselves about the background of prospective advisers.

To address these issues, he recommended that AFSLs undertake rigorous reference checking and information sharing for financial advisers similar to the way the Australian Banking Association conducts reference checking.

Mortgage brokers are also subject to the same new regulation.

The Financial Planning Association of Australia believes reference checks should be extended to general advice and to anyone that has the ability to influence the financial advice process.

ASIC first consulted on the reference checking reforms in November last year, which saw concerns raised around whether responsibility for accessing the required information should rest with the adviser or the recruiting licensee. fs

Institutional Shareholder Services to acquire Rainmaker Information Michelle Baltazar

The quote

The Rainmaker team is thrilled to join ISS MI and continue our efforts to deliver market leading solutions to our clients that empowers them to grow their business.

R

ainmaker Information (Rainmaker), publisher of Financial Standard, this month signed a definitive agreement to be acquired

by Institutional Shareholder Services (ISS), a leading provider of corporate governance and responsible investment solutions, market intelligence, fund services, and events and editorial content for institutional investors and corporations, globally.

Founded in 1992, Rainmaker’s service offerings include a market leading combination of proprietary datasets, industry benchmarking, research, and sales and asset market share reporting, all fully integrated and accessible through the RainmakerLive software platform.

Rainmaker also has a significant media, events and awards business operated under its key mastheads: Financial Standard, FS Sustainability, Industry Moves, the Good Guide series and Money magazine.

Led by founder, Christopher Page 01, and its existing leadership team, Rainmaker will join ISS Market Intelligence (ISS MI), the critical data, insights and workflow solutions unit of ISS. Under the deal, Rainmaker will continue to focus on the expansion of its product suite and client engagement.

“The Rainmaker team is thrilled to join ISS

MI and continue our efforts to deliver market leading solutions to our clients that empowers them to grow their business,” said Page.

“ISS’ global platform and established data capabilities provides significant opportunities to scale our solutions further – both domestically and across the region – as well as to accelerate the delivery of new research, analytics and insight capabilities to our clients.”

As part of ISS MI, Rainmaker will benefit from new capabilities, consistent with the group’s product offerings across multiple global markets.

“Rainmaker’s leadership in the Australian market – with a broad and diversified client base and well-integrated platform of data, research, analytics and media specific to this market – will be a great addition to our suite of offerings and provide material value to our clients,” said Ben Doob, head of ISS MI. ISS is majority-owned by Deutsche Börse Group, along with Genstar Capital and ISS management. It has 2200 employees worldwide across more than 30 global offices in 15 countries. Rainmaker Information is a privately-held Australian company with 70 employees in Sydney and Melbourne.

The acquisition is expected to close later this year, pending necessary approvals. fs

Good year for active managers in fixed income Active fixed income managers outperformed their indexed peers in COVID-19, according to Zenith’s review of the universe.

In the 12 months to April end, the Bloomberg Ausbond Composite Index (0+years) returned a net return of -1.19%.

The median manager in Zenith’s Australian Fixed Income (Bonds) category returned 0.30% over the same period.

“Most of the outperformance was secured during the period immediately following the COVID-19 crisis, as credit markets stabilised and spreads tightened aggressively,” Zenith said in its 2020 AFI review.

Zenith said the negative benchmark returns came as government bond yields traded in a wide range and experienced volatility.

Active managers had it rough in October 2020 but benefited from the spike in inflation

expectations that contributed to a repricing of risk and steeping of sovereign yield curves.

The report included observations from 111 Australian fixed income funds, of which six were highly recommended, two were index highly recommended, 45 were recommended, two were index recommended at April end.

A further 10 were approved, two were under review (both AMP Capital funds) and 44 were not rated.

During the period, Zenith upgraded five funds, but the majority (44) did not see a rating change.

The six highly recommended funds were: Legg Mason Western Asset Australian Bond Trust Class A, Macquarie Australian Fixed Interest Trust, PIMCO’s Australian Bond Fund (Class A) and Australia Bond Fund (wholesale class) , Metrics Direct Income Fund and MCP Master Income Trust. fs

News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

Platforms see major growth

01: Deanne Stewart

chief executive Aware Super

Annabelle Dickson

Platforms have seen strong increases in funds under management over the year to March 2021, new research shows.

Plan For Life’s latest analysis of wraps, platforms and master trusts revealed the leading market players all saw a rise in FUM. BT took out the top spot in terms of total FUM, jumping 19.8% to $169.6 billion. This was followed

by AMP, up 9.7% to $140.5 billion.

Rounding out the top five were Colonial First State which rose 16.3% to $137.2 billion, MLC which was up 14.4% to $120.5 billion and Macquarie which gained 28.2% to $100.1 billion.

IOOF also recorded an increase of 12.3% to $77.3 billion, while Netwealth recorded 50.1% growth to $41.8 billion and Mercer was up 17.9% to $26.3 billion.

Elsewhere, Praemium recorded 223.7% growth to $16.9 billion and HUB24 was up 135.7% to $35.6bn a result of their mergers with Powerwrap and Xplore Wealth respectively.

Despite the strong growth, the platform industry recorded net outflows of $55.1 billion compared to $41.4 billion in inflows.

Overall, masterfunds ended the year to March 2021 up 18.7% to a total $915.4 billion. This is attributed to the global market recovery from COVID-19.

The latest data comes as Netwealth ended the June quarter with a 12% increase in funds under administration (FUA) and a 102% increase in inflows.

The platform recorded $47.1 billion in FUA, up from $41.8 billion in March and a 49.6% increase to the previous corresponding period. fs

Dexus to develop Atlassian HQ Dexus entered into binding terms with Atlassian to provide a framework to fund, develop and invest in its new Sydney headquarters.

The property site, located adjacent to the Central Place Sydney development, spans 3487 square metres and will comprise a sustainable 40-level office tower with retail amenities and new YHA accommodation space at its base.

Dexus will act as development manager and take responsibility for delivering the project, fund 100% of the $1.4 billion project costs during construction, and retain a long-term equity interest in the asset with Atlassian. Atlassian will take a 15-year lease.

Dexus will fund the costs of the development through debt facilities and will consider third party capital into the project prior to completion.

“The Atlassian tower is a great example of the future of workplace and is aligned with our purpose of creating spaces where people thrive.

We look forward to welcoming Atlassian as a new customer and co-owner onto our platform and building out our developments within the Tech Central precinct,” Dexus chief executive Darren Steinberg said.

The agreement is subject to planning and other government approvals which are expected to be satisfied by December 2021. Construction is expected to commence in early 2022 and completed in early 2026. fs

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Aware Super hits $150bn milestone, expands team Elizabeth McArthur

A

The quote

We know that size and scale are critical drivers to delivering better long-term retirement outcomes for our members.

ware Super has hit a new milestone, passing $150 billion in members’ retirement savings. The fund also confirmed a new hire in its ESG team.

Celebrating the milestone, the fund said it aimed to pass on the benefits of scale to members - most crucially in the form of fee cuts.

Those accumulation members who came to Aware through its merger with VicSuper have already seen a 20% reduction in admin fees, the fund said.

“We know that size and scale are critical drivers to delivering better long-term retirement outcomes for our members,” chief executive Deanne Stewart said.

“As we grow, we are able to leverage our scale to drive down costs to members, maintain our record of top performance and expand the range of products, guidance, advice and education services that we can provide. Through our increased scale we are also in a position to in-source our member administration and deliver market-leading digital services to ensure our members can access simple, streamlined support.”

Aware chief investment officer Damian Graham added that the fund is also building out

its internal investment capabilities, growing its team in Australia and overseas.

“Recent changes to our Lifecycle products, where we are better aligning our investment approach to our members’ age and risk tolerance, demonstrate how we are using our scale to invest differently,” he said.

“Guided by our commitment to do well for our members while doing good in their community, over the next five years we expect to continue to adapt our approach to secure more large-scale global and domestic opportunities, while continuing to make a positive impact on the communities where our members live, work and retire.”

Meanwhile, Louise Bradshaw, who was previously at Australian Catholic Super and Retirement Fund joined Aware on Monday as senior analyst in its responsible investment team.

“Louise’s role will be to support our current responsible investments team to continue to deliver our leading responsible ownership approach and comes at a time when we are building out our internal investment capability to support our aim to deliver strong sustainable, long-term returns to our members now and in the future,” a spokesperson for the fund said. fs

Modern slavery obligations fall by the wayside: ACSI research Karren Vergara

Despite pledging to do more to help vulnerable workers, Australia’s top 200 public companies are falling short on their modern slavery obligations.

According to a new study by the Australian Council of Superannuation Investors, major companies are providing the bare minimum in terms of disclosing their exposure to modern slavery risk.

Just 5% of companies clearly articulated how they may be involved in modern slavery risk. Many companies express their concerns with supply chain risks rather than modern slavery risks within their operations.

Almost 65% of their reporting did not identify any general modern slavery risk areas/factors relating to company operations.

ACSI suggests that the lack of quality in the reporting could be partly due to a low level of understanding of how businesses fit in human rights frameworks.

“Many ASX200 companies appear poorly prepared to respond to modern slavery incidents that may be identified in their operations or supply chains and are taking few steps to ensure that grievance mechanisms for vulnerable workers are

trusted and accessible,” the Moving from paper to practice report read.

Further, very few ASX200 companies engage with stakeholders to help inform them about their modern slavery risk management approach to identity vulnerable workers.

The Modern Slavery Act (2018) requires companies with revenue of over $100 million to publicly disclose their exposure to modern slavery risks.

ACSI chief executive Louise Davidson said: “While many companies have strong governance of these issues and policies in place, it can be more challenging understand and address what happens in practice across both their operations and supply chains,” she said.

The next 12 months will determine whether the act is driving concrete action and continuous effective “box-ticking compliance exercise”.

“Investors and other stakeholders have a key role to play in engaging with ASX200 companies to ensure statements give them the information they need to meaningfully assess Australian companies’ modern slavery risk management, and that the MSA delivers important change,” Davidson added. fs

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News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

Super funds back infra investor

01: David Cullen

general counsel AMP

Kanika Sood

AustralianSuper, QIC and Aware Super have invested in a US sustainable infrastructure firm.

Generate builds, owns, operates and finances sustainable infrastructure. It has a portfolio of about $2 billion of such assets in the energy, waste, water and transport markets.

In a recent equity raise of US$2 billion, Generate attracted investments from Aware, AustralianSuper, QIC, CBRE Caledon and Harbert Management Corporation.

AustralianSuper and QIC, who have already invested in the firm, were back as the cornerstone investors in the most recent raise.

Aware was a new investor.

Generate said the new equity raise allows it to continue expanding its reach into new sectors and regions to meet rising demand for sustainable infrastructure.

AustralianSuper head of infrastructure Nik Kemp said Generate is a market leader, with an innovative business model that successfully leverages growing global demand for sustainable infrastructure solutions.

“Investing in Generate provides both an attractive investment return for our members and fosters the development of new sustainability focused technology which is making a real impact on the global transition to clean energy,” Kemp said.

QIC head of global infrastructure Ross Israel said its follow-on investment reinforces QIC’s sector-centric, thematicbased investment strategy across energy transition, decarbonisation, and distributed infrastructure. fs

New shareholder at Challenger Caledonia has sold its 15% stake in annuities giant Challenger to Athene Holding Limited and Apollo Global Management.

Athene and Apollo, which are set to merge, now own 18% or $720 million of Challenger shares. Of this, 3% is subject to approval from APRA. “Investing in Challenger represents an exciting opportunity for us to support a wellestablished platform within the Australian market, a geography we have been studying given the current economic conditions and compelling demographic fundamentals” Athene chief executive Jim Belardi said.

“Today’s announcement by Athene is a strong endorsement of Challenger’s market position and long-term growth prospects from a leading international retirement service provider,” Challenger managing director and chief executive Richard Howes said.

“We look forward to Athene and Apollo as we continue to pursue our shared purpose of providing customers financial security for a better retirement.”

In August 2020, Japan’s MS&AD received Treasury’s tick to increase its stake in Challenger but has continued to remain a roughly 15% shareholder.

Caledonia is a global investment management firm founded in Sydney in 1992. fs

No charges in AMP BOLR fees investigation Jamie Williamson

A

The quote

The CDPP has now determined, on the basis of the available evidence and weighing the relevant public interest factors, that no charges should be brought....

SIC’s criminal investigation into AMP’s fee-for-no-service conduct related to its Buyer of Last Resort Policy has wrapped up, with the regulator and Commonwealth Director of Public Prosecutions determining no charges should be brought.

Under AMP’s BOLR policy, when a financial adviser would exit via BOLR, that adviser’s clients were placed into a ‘pool’ where they became known as orphans; clients with no financial adviser that continued to be charged for financial advice for up to three months.

The investigation related to suspected criminal conduct regarding the charging of fees for no service in relation to the BOLR Policy in breach of section 1041G (prohibition on dishonest conduct) of the Corporations Act. AMP Financial Planning was also investigated for breaches of section 1308(2) which relates to making misleading statements.

The investigations resulted in two briefs of evidence being prepared but, following consultation with the CDPP, ASIC said no further action will be taken on these matters.

“The CDPP has now determined, on the basis of the available evidence and weighing the relevant public interest factors, that no charges should be brought for that conduct,” ASIC said.

AMP welcomed the news, with general counsel David Cullen saying the institution acknowledges the deficiencies in its historic systems and processes. He added that the business is “pleased to have closure on the matter”.

The conduct was the subject of intense scrutiny during the 2018 Royal Commission. At the time, Senior Counsel Assisting Michael Hodge also noted that AMP would dial down fees for orphaned clients rather than issue a disclosure statement not because those clients were being charged fees for no service, but that a disclosure statement might prompt the client to cancel an ongoing fee and potentially lodge a complaint with ASIC, which would be a “negative customer experience”.

The regulator’s other investigations into feefor-no-service conduct at AMP are continuing.

As it stands, fee-for-no-service misconduct has seen Australia’s largest institutions pay about $1.24 billion in remediation to date. fs

Active managers lead new ETF issuers: Research Annabelle Dickson

Actively managed exchange traded funds (ETFs) are on a steady rise, with all the new issuers entering the market launching active products, new data shows.

The BetaShares Australian Exchange Traded Fund Industry: Half Year Review 2021 report showed all new issuers of products were active managers who accounted for nearly half of the 15 products that were launched in total.

This includes Monash Investors, which converted into an active ETF. The Hyperion Global Growth Fund also launched on the ASX in March and the Coolabah Active Composite Bond Fund launched on Chi-X in June.

Meanwhile, active ETFs only made up 11% of the $8.8 billion of inflows, up 1% from 2020 however, the top three active ETFs accounted for around 80% of the category’s flows.

Index ETFs accounted for 81% of inflows and smart beta with 8%. Vanguard and BetaShares led the inflows receiving around 65% of industry flows, up from 53% in 2020.

Global equities products saw the highest inflows with $5 billion, followed by Australian equities at $1.5 billion.

Rounding out the top five were fixed income ($1.3 billion), multi-asset ($752 million) and listed property ($242 million).

Funds under management across the industry grew 22% to the new record of $115 billion, having surpassed $100 billion in March.

Further to this, trading values are at the same levels as the previous half-year period with monthly trades of around $7 billion to $8 billion on the ASX. BetaShares forecasts total FUM to reach $138 billion by the end of 2021.

A recent study by the Australian Securities Exchange and Vanguard found that global equity ETFs were the asset of choice for Australian investors in the first half of this year.

The amount invested was about $5 billion.

Aussie equity ETFs on the other hand saw $1.5 billion of inflows; 69% lower than global equities.

Overall, the local ETF market has surpassed $111 billion in assets under management.

For advisers, before COVID-19, one in five advisers trading via platforms invested in ETFs. This figure has now gone up to one in two using ETFs, as many looked to this vehicle to invest in fixed interest, REITs and international equities. fs

Product showcase

www.financialstandard.com.au 12 July 2021 | Volume 19 Number 14

7

01: Anthony Doyle

cross asset investment specialist Fidelity International

Taking centre stage

A post-COVID world might just be emerging market equities’ time to shine. s COVID-19 battered the world’s econoA mies last year, emerging markets were among some of the hardest hit; they also saw one of the better recoveries when equity markets rebounded towards the close of 2020.

This strong recovery has hit a few headwinds though, with fresh or continuing waves of COVID-19 putting differing levels of pressure on several nations. For instance, China, Korea and Taiwan’s economies have remained relatively open, while India and Latin America suffered greatly.

The resurgence in both the US economy and the US dollar also have the potential to hinder the emerging markets’ progress.

Still, in April the International Monetary Fund raised growth projections for emerging markets to 6.7% for the year; up 0.4% in just three months.

Much of this, Fidelity International cross asset specialist Anthony Doyle says, is down to vaccination rates beginning to trend up after having started out slower than expected in the first half of the year.

For context, the median emerging market economy has fully vaccinated 12% of its population to date, a number that is expected to accelerate materially to about 65% by year end.

“Emerging markets feature some of the highest-ranking countries in terms of total doses per capita, such as the United Arab Emirates, Chile, Turkey and Poland,” he says.

“With a higher share of younger people in places like South Africa and India, a number of large emerging market economies will be able to vaccinate their more susceptible people in a relatively short period.”

So, how are emerging markets tracking at the moment?

To date in 2021, the MSCI Markets Index is up 8% in Australian dollar terms. For all its suffering in 2020, Latin America has performed well this year, largely buoyed by Brazil. This is followed by markets in Europe, the Middle East and Africa (EMEA) and Asia.

From a sector perspective, healthcare, energy, and industrials have posted strong gains, followed by materials and financials securities.

Real estate, consumer discretionary, communication services, and information technology have lagged.

However, a key consideration for all economies – no matter how developed – is whether we will see the return of inflation any time soon.

Holding a similar view to Federal Reserve chair Jerome Powell, Doyle believes much of the high inflation readings seen in recent times can

be attributed to temporary factors, such as supply shortages and rising consumer demand.

Therefore, any inflation related to stimulus or reopening of economies is likely to also be transitory, he says.

“From a macro perspective, the roll-out of vaccines that we are seeing across the world and the reopening of economies have resulted in a sharp pick-up in global activity momentum,” he says.

“This has led to shortages in several inputs such as semiconductors, leading to mismatches between supply and demand, pushing up prices of consumer durables such as cars.”

Combined with base effects related to the COVID-related activity collapse last year, some measures of inflation are now at their highest levels since the 1990s.

“But we believe this stimulus/re-opening fuelled demand bounce has likely peaked and should drop-off towards year-end as stimulus is phased out and savings are partly depleted,” Doyle says.

“Additionally, Fidelity’s bottom-up analysts are telling us that the vast majority of the supply chain, disruptions that we have seen are already beginning to resolve themselves, but much will depend upon how inflationary expectations develop from here and whether central banks will respond.”

Recent surges in commodity prices have also fuelled speculation that inflation will return, and this is a good thing for many countries, particularly those that rely on exports.

Unfortunately, not all emerging market countries are created equal, and the impact of rising prices will differ broadly as not every emerging market benefits from an inflationary environment.

But overall, the potential for growth in emerging markets is significant, with certain sectors already competing on a global scale – individual companies too. For example, as the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC) is responsible for almost all of the world’s chips. It’s also the top holding in the Fidelity Global Emerging Markets Fund.

As a global COVID-induced chip shortage wears on, TSMC stands to benefit. The US is in particular need, and TSMC has very recently announced plans to expand stateside and build new factories to meet demand.

Similarly, India’s Tata Consultancy Services is the world’s largest IT services company by market capitalisation. Reported in early July, the company’s Q1 net profits were up nearly 30% year on year and plans to expand its US operations are underway; hiring more than 220 employees in the next two years. Tata also accounts for 3% of the fund’s holdings.

The quote

Because of the risks associated with emerging market economies, they often generate higherthan-average returns for investors.

It’s investments like these that saw the Fidelity Global Emerging Markets Fund return 37.06% in the year to June end. Over the same period the benchmark, the MSCI Emerging Markets Index, returned 29.22%. The pandemic aside, since its December 2013 inception the fund has returned 13.02%, beating the index’s 3.58%.1 And while some of the fund’s holdings have already made a name for themselves, Doyle says the team sees increased opportunities for emerging market equities to disrupt global companies.

“For example, domestic companies and brands are challenging established developed market companies in the consumer discretionary and staples sectors. In sectors like industrials, construction, chemicals, and heavy equipment local emerging market companies are gaining market share and consolidating the market,” he says.

“We’ve also seen new business models developing in e-commerce, fintech and financial products which are disrupting old and legacy businesses.”

All said, the outlook for emerging markets is positive, Doyle says, with emerging market economies with large domestic consumption to benefit from disruption of supply chains over the short to medium term.

The rise of regional economic centres, where growing demand from a large economy like China or India, will also fuel growth in other developing countries nearby. Couple this with strong domestic consumption as a result of a rising middle class and the evolution of growth industries, and there is quite a compelling case for investing in emerging markets.

“Because of the risks associated with emerging market economies, they often generate higherthan-average returns for investors,” Doyle adds.

“Not all are good investments, but for those investors willing to research and focus on identifying high quality names, emerging markets will remain an attractive proposition for some time yet.” fs The fund inception date: 16/12/2013. Total net returns represent past performance only. Past performance is not a reliable indicator of future performance.

1

This document does not take into account your objectives, financial situation or needs. Consider the Product Disclosure Statements available on our website fidelity.com.au. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

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News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

Insurers dodging RC reforms

01: Ben Way

group head Macquarie Asset Management

Elizabeth McArthur

The federal government announced exemptions for the insurance industry in relation to Royal Commission reforms.

According to the Consumer Action Law Centre, these exemptions allow the insurance industry to side-step the Royal Commission recommendations and are to the detriment of consumers.

Commissioner Hayne recommended that the government implement an economy-wide deferred sales model for add on insurance products after the Royal Commission heard evidence of high-pressure sales and unsuitable add on insurance being sold to consumers.

This extended to insurance within superannuation (including group life insurance).

On 10 December 2020, the government passed laws that introduced a deferred sales model with a four-day pause between the sale of a principal product or service and the sale of an add-on insurance product.

However, on July 8, Treasurer Josh Frydenberg provided numerous exemptions to the laws as the outcome of consultation with the industry.

Classes of insurance products exempt from the laws include: third party property damage, fire and theft insurance for motor vehicles; comprehensive insurance for boats, motorcycles, motorhomes, caravans, and trucks; insurance sold within superannuation (including group life insurance); home building insurance, home and contents insurance; and landlord insurance. fs

AMP Capital GEFI sold to Macquarie Group Jamie Williamson

A

The quote

It cements Macquarie’s position as the leading investment manager in Australia by AUM.

OnePath to remediate $35m OnePath Life is repaying customers to the tune of $35 million due to poor telephone sales practices.

Following an ASIC intervention and action, OnePath was found to have sold life insurance over the phone between 2010 and 2016 using pressure selling tactics.

These tactics included promoting a deferral of the first premium payment and using the cooling off period as an inducement to buy the product.

The insurer was also found to have failed to provide those buying policies with accurate information about policy exclusions and to have led consumers to believe that the salesperson was calling from ANZ Bank with a special customer offer.

OnePath, which is now owned by Zurich, was owned by ANZ at the time but was operated as a separate business.

“For over three years now, ASIC has pursued enforcement, regulatory and remediation action to tackle misconduct and stem consumer harm in the direct life insurance market. ASIC has delivered deterrence through court action, disruption and improvement in sales practices and delivered compensation to tens of thousands of consumers who have suffered harm,” ASIC deputy chair Karen Chester said.

She added that she is disappointed that despite OnePath offering refunds to around 26,000 consumers, less than one in two consumers (only 41%) have banked their cheque or arranged with OnePath for their refund to be paid into their bank account. fs

MP is selling AMP Capital’s Global Equities and Fixed Income business to Macquarie, with the division valued at $185 million.

Under the sale, the global equities and fixed income capabilities will be combined with Macquarie’s public investments platform.

The total consideration includes $110 million in cash on completion and a cash earn-up-to of $75 million, payable two years after the deal is done.

The GEFI business currently manages about $60 billion in assets for AMP Australia, in addition to a number of external clients. Upon completion, which is expected in Q1 of the 2022 calendar year, all GEFI staff will transfer to Macquarie.

It is also an important step in the planned demerger of AMP Capital, it added.

“In bringing together two well-known Australian investment businesses with strong track records, we’re pleased to deliver such a positive outcome for our clients, our GEFI teams and AMP shareholders. Our review of the GEFI business last year showed it had strong investment capabilities and performance but needed greater scale and broader distribution reach to compete effectively,” AMP acting chief executive James Georgeson said.

“Macquarie is a high quality and respected manager, with a complementary culture and capabilities, well-placed to develop the business and deliver continued strong investment performance for its expanded client base. We are com-

mitted to working with Macquarie to integrate and transition our clients and teams, and to explore new partnership opportunities to enhance the products and services we both provide to our clients.”

Also commenting, head of Macquarie Asset Management Ben Way01 said the transaction “represents another opportunity to add high-quality, complementary capabilities as we continue to scale the MAM public investments platform”.

“It cements Macquarie’s position as the leading investment manager in Australia by AUM and allows us to further diversify our client offering and bring new opportunities to clients joining us from AMP Capital,” he said.

“Clients will be at the centre of our considerations as we work closely with AMP on a successful integration.”

Once completed, Macquarie Asset Management expects to have total AUM of $720 billion.

The news came as Morningstar lowered its cumulative earnings estimate for AMP Capital by about 20% on the back of AUM losses. Looking specifically at the Private Markets business, flow estimates have been cut by almost 50% as the researcher assumes it will lose the Wholesale Office Fund and Community Infrastructure Fund.

The numerous departures seen recently from the Community Infrastructure Fund will likely prove material and impact AMP Capital’s ability to attract new money, Morningstar said. fs

Dixon Advisory to pay $8.2m to settle ASIC action Kanika Sood

ASIC will drop its Federal Court case against Evans & Dixon’s financial advice arm for $8.2 million and declaration of 53 contraventions.

Dixon Advisory and Superannuation Services (DASS) will pay $7.2 million in penalty and $1 million to cover ASIC’s costs.

The penalty follows from court-ordered mediation between DASS and ASIC. Both parties are also consenting to declarations that DASS contravened 961K(2) of the Corporations Act on 53 occasions between 6 October 2015 and 31 May 2019 in personal advice provided by DAA representatives .

EP1 will submit to improving its processes and filing with ASIC and independent review’s report. ASIC has agreed to not seek any further declarations on contraventions by DASS. The heads of agreement still needs court approval.

“The board of EP1 views this as an important step towards resolving the legal proceeding between ASIC and DASS. The board wishes to make it clear that extensive management and governance changes have occured across the group over the last two years to ensure that DASS acts in clients’ best interests

at all time,” EP1 said in ASX filings on July 9.

On 4 September 2020, ASIC alleged a DASS representative failed to look after client’s best interest, individual circumstances and potential conflict of interest while putting their money in the troubled US Masters Residential Property Fund (URF) and related products over a period of about three and a half years (between 2 September 2015 and 31 May 2019).

The early morning announcement drove down EP1 shares by over 12% by mid-day on September 4.

ASIC further alleged 51 instances (which it thought should be treated separately) of financial advice to the eight sample clients resulted in two or more contraventions each of the best interests duty under the Corporations Act. At the time, ASIC said the maximum civil penalty for contraventions it alleged against Dixon Advisory is $1 million per contravention for instances before 13 March 2019, and $10.5 million for each contravention after that.

A draft of the proceedings, which was shared by Evans Dixon on the ASX before the actual filing, said the total number of contraventions was 126. It also said ASIC wasn’t, at the time of draft, seeking action against specific people. fs

Opinion

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

9

01: Shannon Bernasconi

managing director WealthO2

Adding efficiency to the financial advice value chain well understood that advisers have come Iyearst’sunderwith unprecedented pressure in recent an influx of legislative and regulatory change that has kept them away from their core focus on providing financial advice. The pressure has continued unabated in 2021.

This impact is borne out by recent research from AIA and Deakin University, which found the top three areas which are generating stress for financial advisers are: 1) regulation change and compliance bur den – with 82% of advisers saying that this a source of stress, 2) meeting new education standards – with 51% of advisers nominating this as a factor, and 3) cashflow and business performance – with 48% of advisers stating that business concerns were adding to their stress levels.

While it is the first two items that tend to generate much of the media coverage and commentary in the industry (as well they should), an overlooked factor is that they also are strong contributors to the third concern listed.

The increased compliance burden and the time taken out of the business to meet new education standards has a negative impact on the businesses bottom line, as not having enough time to devote to better service clients can sometimes worsens the cashflow and business performance – thereby compounding the business performance issue.

Meanwhile, industry consultants in the business broking space have stated that advice practices now need to operate at more than 40% EBITDA to achieve the same practice valuations of previous years. This is a significant hurdle given the average practice runs at an EBITDA of between 25-28% - leaving most practices at a loss as to how to achieve such an uplift in profitability.

Intergenerational wealth advice In this environment investment platforms have an important role to play in streamlining processes and adding value to the advice practice. Used well, a platform can assist in increasing efficiency in the advice process, driving down the cost of advice and increasing practice profitability, Increasingly investment platforms have also assisted in the provision of intergenerational advice, offering an efficient and cost effective option to service the adult children of existing clients that are (typically) lower balance, low value clients. According to statistics from Business Health 54% of clients of advisers are over 60 years of age, with 45% retired.

With an estimated $3.5 trillion set to change

hands between generations over the next 20 years – an amount that grows at 7% a year – having a strategy in place to advise the adult children of existing clients, is a sensible one that will help ensure the longevity of the adviser practice.

Business Health also cites effective client management as having the highest direct impact on profit. Communication, the review process and having a range of services are some of the lowest rated areas from customer surveys, and hence the greatest opportunity for aligned improvement in client management and profitability.

In light of this, a logical step on the road to adviser practice profitability is to examine the advice value chain to ensure the practice and the client are paying reasonable fees for each service provided, accessibility to digital and transparent client communications and to identify areas of increased profitability.

There is an opportunity to lower client overall costs and increase the value by reducing asset management costs and either increase profitability or pass these on savings to clients.

This can be best done by out-sourcing asset management to ensure “best of breed” investment choices and managed accounts pave the way to this delivery. Adoption of a IMA/SMA/ MDA can further enhance client service and potentially business efficiency and profitability for businesses.

Lower headline fees mask hidden costs Traditionally, fund managers and platforms have taken a large share of the overall cost to client for the funds and the administration service provided. As the industry has become more client centric and focussed on independent advice, we have seen a shift towards lowering of fees.

But all is not what it seems.

On the face of it, it appears that platforms have been playing their part and implementing headline grabbing strategies trumpeting lower headline administration fees.

But for the most part the overall fee has not reduced. In its place has risen a proliferation of hidden fees such as additional fees placed on managed accounts, additional fees for cash balances and indirect cost ratio (ICR) uplifts on managed funds. Many of these platform fees are hidden from the clients as they are embedded in an investment fee line.

The result is a largely similar cost to clients – despite the reduction in headline fees - while advisers remain under pressure to defend their own adviser fees in the face of increased pressure and industry scrutiny.

The quote

Many [of these] platform fees are hidden from the clients as they are embedded in an investment fee line.

There is no doubt that the current platform industry is in conflict. It relies on revenue from products offered by or within the platform which are 95% distributed by advisers, yet the same platforms focus on features and functionality related to meeting adviser’s needs are often competing for funding from the same pool of resources.

Our experience shows that advisers who are willing to adopt the next generation of platform into their business with the accompanying transparent pricing and a demonstrable advocacy for advice practices, unearth significant fee discounts for clients with the added bonus of the ability to significantly add to practice profits and scale for growth.

The savings for a 500 client, four adviser independent practice which rolls out the new generation of platform can be significant. In this case one such practice has been able to shave 48% of overall costs from the advice process.

In this instance the adviser was able to reduce the cost to clients by an average of 16%, while capturing 32% more margin for the practice, while also delivering a better experience to the end client. The client feedback on the process has been positive and the savings have allowed the practice to re-invest further in the business, spend more time with clients and begin adding new clients without any additional headcount.

That this practice was able to achieve these gains during a global pandemic makes it all the more impressive. It underlines that the case for urgent advice practice value chain reform is compelling and importantly beneficial to both client and adviser.

Shifting the margin The evolution of technology has allowed the newer investment platforms to lower the cost of advice and to increase adviser practice profitability.

It’s for this reason that these innovators have been successful in shifting the margin from a productled/ product-paid approach, to an advice-led and advice-paid focus. Some of the established older platforms, by comparison, that operate on legacy systems that haven’t kept up with the latest technology developments have a higher cost of operation. Increasingly, they are recouping those costs through hidden or layered fees.

However, the markets newer investment platform entrants – that are not supporting expensive legacy systems – don’t have to rely on additional cash fees, management expense ratio uplifts or complicated SMA fees for revenue. These platforms are the ones that are successfully lowering the overall cost to the client even more. fs

10

News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

FAR draft reforms released

01: Darren Stevens

head of product HUB24

Kanika Sood

The government released the draft legislation for the Financial Accountability Regime (FAR) which will apply to superannuation funds and insurers.

The FAR extends the Banking Executive Accountability Regime (BEAR) which has applied to banks since July 2018.

After a year of quiet, Treasury released the draft legislation for FAR and opened a 28-day consultation.

It expects FAR legislation to be introduced in the Parliament in spring.

The implementation will start with ADIs which have already been subjected to BEAR. The starting date for large ADIs or their licensed non-operating holding companies (NOHC) will be the later of six months after FAR’s commencement or 1 July 2022.

Insurers, their NHOCs and registerable superannuation entities (RSEs) are slated for a start date of 1 July 2023 or 18 months after FAR’s commencement – whichever happens later.

The minister has the power to set thresholds for enhanced notification requirements for entities that will be subjected to FAR. Currently, it is proposing life insurers with more than $4 billion in assets, and RSE licensees with more than $10 billion in assets to be subjected to FAR. Life insurers and RSE licensees that fall under this threshold will not have to submit accountability maps and statement to APRA and ASIC under the enhanced compliance thresholds. fs

ROA relief guidance released Karren Vergara

ASIC and the Financial Adviser Standards and Ethics Authority have provided further guidance on how advisers can use Records of Advice to make the most of the temporary measure.

The corporate regulator and FASEA said the guidance and case study they have jointly compiled is to ensure that advisers understand their requirements under the COVID-19 relief measure.

For the ROA relief to be applicable, advisers must reasonably consider that the advice is required because a client has suffered adverse economic effects as a result of COVID-19, in place of the Statement of Advice.

The ROA must have a brief explanation of changes in the client’s relevant personal circumstances as a result of the pandemic. It must also have a brief recommendation and the reasons for such recommendations.

They urged advisers to keep a file on client conversations and any action the client has agreed to take (e.g.e.g., reduced living expenses).

In April, ASIC extended the temporary measure until October 15.

In other FASEA announcements, the body has progressed in scrapping the three-month registration requirement for the November 2021 adviser exams.

On July 14, FASEA released the Corporations (Relevant Providers Exam Standard) Determination 2019 Amendment for consultation.

The relief will allow all candidates who have been unsuccessful at any prior sitting of the November exam to resit it. The exam will be offered online via remote proctoring and at exam venues. fs

HUB24 appoints chief product officer, director Annabelle Dickson

T

The quote

We can continue to lead the industry as the best provider of integrated wealth platform, technology and data solutions.

he platform has appointed MLC’s former group executive, platforms to the inaugural role of chief product officer and added a former Westpac executive to its board.

Darren Stevens was in the role at MLC for less than 12 months and was responsible for the platform transformation strategy.

Stevens was previously head of superannuation at Mercer and spent over a decade at Bravura Solutions as global head of product and later director, product management & strategy.

He spent over four years as head of strategy and finance at ING and was general manager product and marketing at TAL Life.

In his new role, Stevens will be responsible for bringing together the product development expertise across both the platform and HUBconnect and collaborating with industry participants to deliver product solutions.

“I am delighted to have Darren join us with his depth of strategic and product development experience to bring together and drive our platform and technology product development initiatives, so we can continue to lead the industry as the best provider of integrated wealth plat-

form, technology and data solutions,” HUB24 chief executive Andrew Alcock said.

Also, Westpac’s former group head of business development Catherine Kovacs has joined as a non-executive director.

Kovacs was responsible for advising the Westpac executive committee and board on business disruption as well as managing strategic partnerships.

She was previously head of equities at BT and head of marketing, distribution and investor relations at Ellerston Capital.

Kovacs also spent seven years at Macquarie as division director, equity markets group and two years at Bankers Trust as vice president, equity derivative sales.

She is currently a non-executive director of OFX, Equitise and the University Admission Centre (UAC).

“Cathy’s broad executive experience in fintech, business strategy and growth, and investments including M&A, further strengthens and expands the Board skillset and supports our commitment to diversity. I look forward to Cathy’s contribution as a director of HUB24 Limited,” HUB24 chair Bruce Higgins said. fs

Banks buoy Aussie equities funds Elizabeth McArthur

The Australian banking sector has rebounded from being among the worst performers of the 2020 financial year to among the best for 2021.

That’s according to a recent Mercer survey which also demonstrated the continued recovery of value stocks, and the outperformance of active management.

At an individual stock level, Mercer found that Commonwealth Bank was the largest stock contributor over the financial year, followed by ANZ, Fortescue, BHP, NAB and Westpac.

“While the second half of 2020 was a strong period for quality/growth managers, as markets rallied from the March 2020 Covid lows, the last six months of the financial year have seen a recovery in value stocks, and in particular financials and materials,” Mercer head of portfolio management Ronan McCabe said.

“Cyclical stocks in the financials, materials and consumer discretionary sectors typically outperform the market as they are able to benefit from the upswing in earnings and profitability.

Stocks that are more sensitive to the economic cycle have seen earnings recover strongly and share prices soar.”

Funds found to perform above the median over the financial year include Bennelong Core Equities, ECP AM All Cap, Hyperion Australian

Growth, Maple-Brown Abbott Australian Share Fund and Perpetual Australia Share Fund.

All but the Maple-Brown Abbott Fund had investments in consumer discretionary as a contributing factor to outperformance against their benchmarks.

Meanwhile, Mercer found several low volatility funds performed below the median in the same period. These include AB Managed Volatility Equities, Acadian Australian Equity Managed Volatility, Plato Australian Shares Low Volatility Income and State Street Australian Equity Fund.

For the full financial year, Mercer found the median manager generated higher returns than the S&P/ASX 300 Index.

“This is a continuation of the outperformance seen in the previous financial year, when the median manager fell less than the Australian equity benchmark,” Mercer said.

“The performance gap between the upper and lower quartile managers has narrowed compared to FY 2020. While cyclical stocks continued to rise in the last quarter of the financial year, there was a notable resurgence of interest in growth stocks, resulting in a reasonably broad based rally. We believe that these changes highlight the importance of diversification when selecting a portfolio of active managers and strategies.” fs

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12

News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

Former adviser pleads guilty Wael Kourieh, who was an authorised representative of Hillross between 2010 and 2016, has plead guilty to false document charges following an ASIC investigation.

Kourieh pleaded guilty to one count of making false documents and one count of using false documents under the Crimes Act 1900 (NSW) in Parramatta Local Court.

He was a director of Nexus Financial Planning, an advice practice in Sydney trading as Hillross Bella Vista, from 8 June 2010 until 14 March 2016.

ASIC reported that Nexus purchased a client book for SuperLeader, an AMP corporate superannuation product where employers and employees could become members.

ASIC alleges he made and used false documents by forging 30 member signatures on AMP super investment election forms with the intention of inducing AMP employees to accept them as genuine. Kourieh would benefit from this by gaining commissions from AMP. Nexus received trail commissions from AMP in relation to each super member in the SuperLeader client book. Kourieh was responsible for generating new business and administering the SuperLeader client book.

He could face two years in jail and an $11,000 fine with sentencing scheduled for August 6.

Kourieh is no longer a registered financial adviser, having ceased according to the ASIC Financial Adviser Register. However, no bans have been recorded against him. fs

Alternatives dominate mandates Kanika Sood

Not-for-profit superannuation funds appointed 377 mandates in the 12 months ending March, with alternatives and Australian equities winning the lion’s share.

By number, alternatives mandates were the popular (46% of 377), followed by equities (29%), bonds and cash (17%), and property (7%), according to the latest Rainmaker Mandate Chaser Report.

However, when looking at the dollar value, equities took nearly half (48%) of the total money that moved from super funds to external managers in the period, followed by alternatives (20%).

The three months ending March saw NFP funds dial up appointments of international fixed income managers, who took 46% of the total FUM. The funds that handed out the most mandates were: Aware Super, Australian Catholic Superannuation and Retirement Fund (ACSRF), ESSSuper, LGIAsuper and NGS. The biggest winners were Macquarie, IFM, BlackRock, First Sentier and Ardea.

Year on year, superannuation funds awarded a total of 382 mandates last year totaling about $40.6 billion.

International equities mandates were proving most popular at the time.

Recent mandates awarded include First Super’s first ESG mandate going to UK manager Cameron Hume, a $30 billion index investing mandate from Aware Super to State Street Global Advisors and $23 billion from IOOF to Invesco. fs

01: David Elia

chief executive Hostplus

Industry fund delivers 21.3% to MySuper members Karren Vergara

he industry superannuation fund has delivered T 21.32% per annum for its MySuper members, the majority of which are invested in this option.

The quote

The results... are a strong validation of our investment beliefs.

The $68 billion Hostplus said the result for its MySuper (Balanced) option is its “best-ever single-year performance” as at the end of the June 2021 financial year. Some nine out of 10 members are invested in this option.

Its Index Balanced option returned 18.88% p.a. for the period, while the Socially Responsible Balanced option achieved 21.82% p.a.

Rainmaker research shows that Hostplus retained its title as the best performing MySuper product in the single strategy category, delivering 24.3% p.a. as at May 2021.

Across all MySuper products, some 17.7% on average was achieved in the year to May 2021, underpinned by high performance in equities and property, Rainmaker found.

Hostplus chief investment officer Sam Sicilia said the fact that several options had their bestever financial years “means that almost all members have had a great result for their super with us this year, giving me added confidence that the all-weather nature of our investment strategy remains resilient and fit-for-purpose”.

Hostplus chief executive David Elia 01 said the end of financial year performance was the result of a well-diversified and executed investment strategy and would give further confidence to the fund’s ever-growing member base.

“First and foremost, we are delighted to have delivered a range of best-ever achieved annual return results for our members, whose financial future and achievement of a dignified retirement is our number one focus and priority,” he said.

“The results that we announce today are a strong validation of our investment beliefs and approach that has served to position us exceptionally well to deliver these outcomes for our members,” said Elia..”

The $68 billion in assets under management has grown nearly 39% year on year.

Hostplus is working toward two mergers, which once completed will see membership and assets under management also grow considerably, providing greater scale, capability and other benefits for members and contributing employers, Elia added.

The fund is in the process of merging with Intrust Super; early in the year it pooled assets with Maritime Super. fs

IFM Investors, QSuper consortium bid for Sydney Airport falls over Elizabeth McArthur

The IFM Investors bid to purchase Sydney Airport for $8.25 a share has been rejected.

A consortium comprising IFM, QSuper and Global Infrastructure Management made the offer to Sydney Airport on July 5, with Barrenjoey and UBS advising.

After an assessment of the offer, on July 15 Sydney Airport advised investors that the proposal is not in the best interests of securityholders.

Sydney Airport boards unanimously concluded that the proposal undervalued Sydney Airport and should be rejected.

The boards recognised that the company will likely trade below $8.25 for some time due to the COVID-19 pandemic’s impact on travel. On July 15, the share price is hovering around $7.75.

However, in a letter to shareholders the boards noted that Sydney Airport is Australia’s largest airport - a unique, strategic and irreplaceable piece of infrastructure.

The boards considered the offer “opportunistic” given the ongoing pandemic. The price of $8.25 is below where the airport traded before the pandemic.

The consortium said it was surprised and

disappointed the offer was rejected, saying it was an extremely attractive offer.

“The consortium believes any assessment of Sydney Airport security prices before the pandemic is of limited relevance given the company’s materially changed circumstances and challenging outlook. This includes potentially significant reductions to demand arising from the pandemic, the introduction of a competitor airport in western Sydney in 2026 and changes in business and consumer travel preferences,” it said.

Sydney Airport noted that it also has significant assets in land value and has diversified earnings, besides its core aviation business, including retail, property, car parking and ground transport revenue.

“Sydney Airport is strongly positioned to deliver growth as vaccination rates increase and we move into a post pandemic recovery period,” the company said.

“It has rapidly adapted to the COVID environment, strengthening its balance sheet and tightly managing costs to maintain flexibility to respond to a range of recovery scenarios and pursue sensible growth opportunities as the recovery unfolds.” fs

News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

13

Executive appointments 01: Matthew Rady

Allianz Retire+ chief steps down Allianz Australia Life Insurance and Allianz Retire+ has announced the sudden departure of its chief executive Matthew Rady01 and appointed an interim replacement.

Rady was first appointed in 2018 as the inaugural chief executive of Allianz Retire+ and oversaw the launch of the first product, Future Safe.

Future Safe was launched to meet the needs of retirees by providing access to equity market-like returns and certainty with a range of outcomes.

It came after PIMCO and Allianz joined forces in 2018.

“I would like to thank Matt for his strong leadership in guiding the Allianz Retire+ team through the successful transition from project to business across his three-year tenure. Matt leaves having built a solid platform for the company and we wish him every success in the future,” Allianz Australia Life Insurance chair David Plumb said.

The founder of Allianz Retire+ Adrian Stewart has been appointed as acting chief executive. He was most recently head of client management APAC ex-Japan at PIMCO and previously head of Australia and New Zealand.

Stewart has served as a board member since the establishment of Allianz Retire+.

“In appointing Adrian as acting chief executive, the board is instilling a proven leader with a deep understanding of the worldwide capabilities of the Allianz Group in retirement income and life protection solutions. Adrian’s strong track record in growing client-focused financial services businesses in the Australian market keenly positions us for significant growth,” Plumb said.

Stewart added: “I look forward to working with the team to deliver on our strategic objective of expediting our product development capabilities and deepening our client partnerships across the institutional and wealth management channels.”

Mirae appoints local chief executive The $280 billion Korean asset manager has appointed the former chief executive of ETF Securities to lead its Australian office and a former Coolabah executive to head operations.

Kris Walesby has joined as chief executive for Australia and Oliver Reynolds has been appointed as chief operating officer.

Walesby joins from T.Rowe Price where he was an ETF consultant for six months. He previously spent five years at ETF Securities as chief executive.

Prior to this, he was based in London and was head of capital markets for Europe, Middle East and Africa at Invesco Powershares.

Walesby was also head of capital markets at ETF Securities and worked in capital markets business development at BlackRock.

“Combined with Kris’s deep knowledge and understanding of investment management sector and his successful track record in growing businesses and developing people, we look forward to his contribution towards strengthening the

Ord Minnett appoints state lead Ord Minnett named a new state manager for Queensland who will also act as a senior investment adviser.

David Lane joins the firm from Pitcher Partners where he spent over 11 years as a director of wealth management, a unit he established and led in 2010.

Lane’s career began in stockbroking as a SEATS Operator and became Queensland manager for Salomon Smith Barney where he helped grow the business in Brisbane and the Gold Coast before assuming a full-time role as an adviser.

Ord Minnett head of private wealth George Deva said: “David will bring to Ord Minnett, a depth of wealth management and advice experience, which will serve to complement our growth trajectory in Queensland whilst maintaining our history of advice and service excellence to our private wealth clients.”

Lane commented: “I am truly excited about joining Ords Minnett and I feel very privileged to be given the opportunity to lead Ord Minnett’s wealth management business in Queensland.”

Australian business,” Mirae Asset Global Investments head of global business Young Kim said.

Walesby added: “My goal as chief executive is to position the firm as the market-leading asset manager in Australia providing innovative investments. We want to be regarded by clients, and broader communities, for consistently providing the best of breed investment solutions.”

Reynolds joins from Coolabah Capital where he was chief financial officer for the last two and a half years.

He joined Coolabah from Challis Investment Partners where he was head of operations and was previously head of finance & operations at XTB. Reynolds also spent time as a vice president at BlackRock.

Praemium strengthens distribution efforts Andrew Mathie is now a regional manager at Praemium, responsible for New South Wales.

He brings more than 20 years’ experience in wealth management, most notably as Fidelity’s head of wholesale sales from 2017 to 2019.

“We are delighted to have Andrew join our team and help further grow our presence in the important Sydney and NSW markets,” Praemium head of distribution Martin Morris said.

“His broad expertise across retail, institutional and wholesale markets and a deep understanding of the advice industry will add further breadth to our experienced and growing team.”

Mathie was most recently head of distribution at Atticus Wealth, a role he departed in October last year.

He has also held roles with Vanguard, Macquarie, Asgard and BT over the years.

Commenting on his new role, Mathie said he is excited to be joining Praemium as it enjoys a strong growth trajectory.

“With its innovative proprietary technology and solutions, it’s really ahead of the market in terms of offering a single platform solution that can efficiently and effectively cater to all clients and all advice businesses,” he said.

Also joining Praemium’s distribution team is Shannon Victor as a business development manager in Queensland.

She joins from Zurich OnePath, having also held roles at ANZ and Suncorp.

Queensland regional manager Matt van Dijk said he is delighted to have Victor on board, saying she brings a great understanding of the needs of advice practices in the Queensland community.

“Our team are rapidly growing our reach in Queensland as we work closely with more and more advice groups and her valuable experience will be an asset to the team,” he said.

DWS Group hires client coverage head DWS Group has appointed a head of client coverage for APAC to lead all coverage and provide investment solutions to institutional and wholesale clients.

Vanessa Wang 02 will commence the role on

02: Vanessa Wang

September 1 and will be based in Hong Kong.

Wang will report to DWS Group’s head of client coverage division Dirk Goergen.

She takes over from Holger Naumann. He will continue in his role as regional head for APAC. Wang joins from Amundi where she was most recently senior managing director and head of institutional business in the US and previously head of institutional business in North Asia.

She spent six years at Citi in Beijing as managing director and head of pensions for Asia Pacific. Prior to this, Wang spent over 15 years at Mercer, starting as a principal consultant and consulting actuary before becoming partner Asia head of retirement, risk and finance consulting.

“We are delighted to welcome Vanessa to the team and the wide-ranging experience she brings. Her appointment reflects DWS’s continued commitment to growing its business in the Asia Pacific region and meeting our clients’ evolving demands, and in turn, deepening our strong partnerships in the region,” Dirk said.

Commenting on her appointment, Wang added: “DWS is a highly regarded franchise in APAC with a strong business strategy. Its broad range of products provides a solid foundation for the tailored and bespoke solutions DWS is able to offer APAC investors and its presence in many APAC markets gives the firm the capability to develop meaningful relationships.”

Bennelong boards appoint chair Michael Dwyer took over as chair of the group on July 1, which includes overseeing subsidiary Bennelong Funds Management.

Dwyer is the former chief executive of First State Super, serving in the role between 2004 and 2018. He left the fund as First State and VicSuper merged the following year, creating Aware Super.

He currently serves as the chair of NSW TCorp and UNHCR and is a director at Iress. Dwyer has been part of the Bennelong group since December 2020, when he was appointed non-executive director.

Bennelong Funds Management chief executive Craig Bingham said Dwyer’s industry knowledge and expertise will be invaluable for the business as it continues its growth strategy, both in Australia and overseas through its UK and US-based arm BennBridge.

“Michael’s three decades in the superannuation industry, across a variety of senior roles and responsibilities, enables him to provide valuable insights to our executive team as the industry continues to evolve and mature,” he said.

Dwyer succeeds Stephen Rix, who will remain on the boards as a non-executive director. Rix was named chair in 2016 and has been a member of the two boards since 2010.

“The past few years have seen significant growth for Bennelong both in Australia and overseas, and Stephen’s experience in a range of investment banking, private equity and infrastructure operations has been instrumental during this time,” Bingham said. fs

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Feature | Value investing

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

IN THE EYE OF THE BEHOLDER

After a prolonged period of underperformance, value management is staging a momentous comeback with opportunities varying in the eyes of different managers. But what is driving the resurgence? And is it sustainable?

Annabelle Dickson reports.

Value investing | Feature

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

01: Antonio Picca

02: Reece Birtles

03: Tim Murphy

head of factor-based strategies Vanguard

chief investment officer Martin Currie Australia

director of manager research, APAC Morningstar

T

he last 13 years have been a cold winter for value investors, after it produced one of the longest periods of underperformance for value investing the market has ever endured.

The S&P BMI Growth Index outperformed the S&P BMI Value Index by more than 10% over a three-year period.

The ongoing period of loss had many questioning whether value investing was dying a slow death. But, against all odds, the beginning of a rotation last year allowed value stocks to turn a corner.

The value index beat the growth index by over 4% over a 12-month period; the difference is even greater domestically. The S&P/ASX200 Value Index has returned over 28% in the last 12 months while the S&P ASX/200 Growth Index has returned just over 21%.

Vanguard head of factor-based strategies Antonio Picca01 believes value investing is the simplest, most intuitive way of generating longterm outperformance.

“It’s an extremely well documented, market phenomenon. It goes back to the 1920s and the 1930s with the work of Benjamin Graham and David Dodd and (Graham’s) The Intelligent Investor,” he says.

Graham and Dodd pioneered the origins of value investing with their celebrated book Security Analysis, which suggested investors should estimate the intrinsic value of an underlying asset instead of trying to anticipate price movements.

Picca points to Eugene Fama (of whom he studied under at The Chicago School) and Kenneth French’s Fama-French Three-Factor model, which he says is a more quantifiable framework.

“The approach to value investing is just an extremely well documented pattern, it makes sense you buy stocks that are relatively cheaper with respect to their fundamentals. As long as fundamentals matter you should earn a higher return over a long period of time,” Picca says.

A sharp rotation Since the Global Financial Crisis, the dispersion of valuations between growth and value stocks

has been much wider than it has been historically, particularly due to the drop in interest rates from 6% down to almost zero over the last eight years.

According to Martin Currie Australia chief investment officer Reece Birtles02 , macro factors such as falling bond yields, inflation and nominal GDP have been correlated with weak value performance especially compared to growth stocks.

“But today, as we’re coming out of COVID-19 and given the central bank and government stimulus around the world we’re seeing a lot higher inflation, we’re seeing bond yields start to rise and we’re seeing an acceleration in nominal GDP growth,” Birtles says.

This in turn has led to the enormous gains in value performance. Recent research from Mercer placed three value strategies in the top five funds that delivered above-median returns.

These included Allan Gray Australian Equity, Martin Currie Australia Value Equity and Perennial Concentrated Shares – all had invested in energy, financial and materials sectors.

As for Morningstar director of manager research, APAC Tim Murphy03 , he is perplexed as to how value’s underperformance lasted so long, even through COVID-19.

He believes one of the most interesting aspects of the COVID-19 correction in March last year was the lack of rotation which has rarely happened in market corrections.

“Very unusually, growth stocks were the leaders into the correction, and then will continue to be leaders through the correction,” Murphy says.

Value stocks, just like the majority of the market, were not immune to the market volatility throughout this time.

Wentworth Williamson founder and chief investment officer James Williamson04 saw it firsthand.

“Tech stocks jumped out much more rapidly as the realisation came that perhaps they would be the beneficiaries of the widespread lockdowns,” he says.

“Value stocks really only kicked out in the second half of the year and we are ready for our strong kick out well into the second half of the year.”

Picca agrees and says value is alive and well with the light at the end of the tunnel having appeared in the form of a COVID-19 vaccine.

Give your clients industrial strength value exposure

After years of relative performance pain, value has been delivering some decent absolute and relative performance.

Liam Nunn

“We have to go through this period and then get over it, and value will shine again, and we’ve seen it recently. The catalyst was the expectation of a strong economic recovery, which we saw on Pfizer Monday, when the company released the result of the vaccination,” Picca says.

Schroders fund manager, equity value Liam Nunn agrees, saying the mood in markets has shifted since then.

“We’ve seen previously unloved sectors of the market rally quite strongly. After years of relative performance pain, value has been delivering some decent absolute and relative performance,” Nunn says.

“However, we think it’s important not to anchor off short-term share price moves, because when you zoom out and take a longer-term view, a lot of shares in the cheapest parts of the market are still trading on deeply depressed valuations.”

Birtles disagrees and believes the opportunity for cheap value stocks today is better than any point over the last 30 years.

He does, however, recognise the vaccine news in November and the proceeding optimism on the global recovery from COVID-19.

“Since then, we’ve had improving economic growth with PMIs and rising bond yields. That has been associated with strong value performance,” Birtles says.

For Research Affiliates head of research Australia Mike Aked05 , the underperformance was unexplainable.

“The rationale given for value being dead was that we started to have a dominance within certain industries, in what we call ‘winner takes most’ industries and those that dominated within those industries were able to keep competition away,” Aked says.

The problem was, he says, that the data showed all companies were able to be profitable and return a level of growth.

“We were getting a change at the industry level and therefore, smaller companies would all go bankrupt because they couldn’t survive within this new complex competitive landscape,” he says.

An undecided duration Value managers are gearing up for what could be months or even years of a sustained rotation.

See what the Vanguard Global Value Equity Fund and Active ETF (VVLU) can do.

Visit vanguard.com.au/factor-funds

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. You should consider your clients’ circumstances and our Product Disclosure Statements (“PDSs”) before making any investment decision. You can access our PDSs at vanguard.com.au. This publication was prepared in good faith and we accept no liability for any errors or omissions. © 2021 Vanguard Investments Australia Ltd. All rights reserved.

15

Investing in Us.

Give your clients industrial strength value exposure Our value strategy weights stocks by factor scores rather than market capitalisation. We also rebalance as needed to ensure consistent value exposure.

See what the Vanguard Global Value Equity Fund and Active ETF (VVLU) can do.

Visit vanguard.com.au/factor-funds Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. You should consider your clients’ circumstances and our Product Disclosure Statements (“PDSs”) before making any investment decision. You can access our PDSs at vanguard.com.au. This publication was prepared in good faith and we accept no liability for any errors or omissions. © 2021 Vanguard Investments Australia Ltd. All rights reserved.

Investing in Us.

18

Feature | Value investing

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

04: James Williamson

05: Mike Aked

06: Vince Pezzullo

chief investment officer Wentworth Williamson

head of research Australia Research Affiliates

deputy head of equities Perpetual

Morningstar’s Murphy says the exact duration for a value pickup is the ultimate milliondollar question.

“In many ways it depends on your view on the interest rate and inflation outlook,” he says.

Commonwealth Bank of Australia (CBA) economists recently announced they expect interest rates to rise from November 2022, leading the resurgence to possibly continue for a few years.

The CBA economists expect the RBA to normalise monetary policy with a possible increase to 0.5% and growing to 1.25% by Q3 2023.

Perennial Value Australian Shares Trust director and portfolio manager Stephen Bruce says as interest rates rise, value should tend to outperform growth so that economic growth will support earnings of more traditional style businesses.

“At the same time, the discount rates used to value the distant and uncertain earnings of the “hopes and dreams” parts of the market will rise, putting downward pressure on their valuations,” he says.

But it’s not always a linear relationship between interest rates and good value performance.

“The markets have already priced it in, so the consensus is rates are going up next year.

This is not new. We’re trying to think about the next thing that will come along, a second order thinking,” Perpetual deputy head of equitiesVince Pezzullo 06 explains.

Pezzullo is the portfolio manager of the Perpetual Wholesale Australian fund which has returned 39.02% over one year.

“What you have to start thinking about is with economic growth on a base effect starting point – is it peaking? I expect it is a little bit but also think about if the government is going to persist with higher spending,” Pezzullo says.

More specifically, Aked estimates over the next 12 to 15 months there will be a cyclical uplift in value and after that it will be wholly dependent on the inflationary environment.

“Once inflation returns, value will go back to its normal outperforming, but there could be a low in that period,” he says.

Nunn echoes Aked’s sentiments, saying that a lot of people are asking whether value performance can be sustained given the speed of the change in market direction.

“But valuation dispersion within the global equity market remains at very extreme levels even after the recent bout of value outperformance.

The elastic band between the loved and the unloved parts of the market remains very stretched by any historical standards,” Nunn says.

“Clearly, none of us knows what will happen in the near-term; but if you believe that valuation dispersion in the market should ultimately return to something more like normal in the context of long-term history, then having some decent value exposure in your equity portfolio makes a lot of sense on a medium-term view.”

On the other hand, MFS Investment Management portfolio manager of the MFS Contrarian

Value Strategy Anne-Christine Farstad07 considers that the performance of value will come down purely to fundamentals.

“Market expectations for higher interest rates may have risen but it’s hard to say how entire cohorts of stocks will respond over the next 12 months,” she says.

“Over the long term, the performance of ‘growth’ and ‘value’ stocks will be driven by their fundamental characteristics, how they respond to structural threats and manage risks surrounding climate change and sustainability.”

The move from growth to value The immense popularity of growth stocks, particularly among retail investors, has called into question whether a growth stock can rotate to becoming value.

Williamson points to Apple particularly during 2013 and 2018 and says it is theoretically possible for a value investor and a growth investor to have owned the stock at the same time.

However, it’s not a hard line Williamson says.

“It definitely fell in the ambit of a value investor for sure. It went through a couple of years where its operating income wasn’t really growing. It was still generating significant amounts of cash flow so that would have attracted a value investor,” he says.

On Australian shores, Birtles refers to prior holdings in SEEK as an example of a stock that can fluctuate between growth and value.

“It’s not always a value stock but clearly it’s a growth stock in terms of the growth dynamics it has had from the transition from print to online,” he says.

“It is quite a cyclical stock in terms of job ad growth. It’s completely feasible to find growth stocks that are undervalued but we just say the requirement is that they’re producing strong cash flows from their business model.”

Meanwhile, Nunn looks to the top 10 largest technology stocks at the height of the dotcom mania in January 2000. He says in the two decades since the bubble burst, Schroders value funds have gone on to own a large number of those companies.

“If you’d have said to a US tech fund manager in January 2000 that those tech stocks would be deep value recovery fund fodder in the not too distant future, they would have laughed you out of the room. And yet it happened.”

Farstad agrees and says businesses and sectors that are classified by third parties as growth or value change over time.

“During the late 90’s tech bubble many consumer staples were considered old world businesses and fell into the ‘value’ category at the time. That’s not the case today,” she says.

But for Farstad, she ignores labels and looks beneath the surface for strong fundamentals.

“We don’t think about the labels and instead invest based on first principles and a fundamental understanding of the business. We invest in

Once inflation returns, value will go back to its normal outerforming, but there could be a low in that period.

Mike Aked

businesses expressed through stocks and look for the best risk-reward asymmetry,” she explains.

Looking at growth more generally in this economic environment, Picca believes investors cannot find a lot of growth opportunities so they look to the FANG stocks (Facebook, Amazon, Netflix, Google) despite poor fundamentals.

“Growth has been concentrated in a small set of very large stocks, but investors also look for growth potential. They look for a good story in speculative growth stocks that have a great narrative but not necessarily the fundamentals to back it up,” he says.

He says Microsoft and Tesla are much more likely to underperform slowly for long periods of time and they might never become value.

Higher valuation in the market means that your expected returns are probably lower going forward, Picca says. “[That] is unless you assume the recent crazy growth rates for these companies.”

Williamson agrees, adding that new high growth stocks underperform the market on average.

“There is sort of a human bias for us to like things that grow fast and do well. And we sort of hide when we buy securities that underperform,” Williamson says.

He says the massive flows to index funds are pumping capital into companies that have no fundamentals and which will lead to minimal returns for investors.

But Picca believes the narrative on index investing is incorrect, referring to GameStop as an example of price distortion which completely bypassed index activity.

“The other side of the value underperformance is the strong performance of very speculative growth stocks. This type of irrational exuberance is not driven by index funds, but rather by the investors’ tendencies we’ve seen over and over,” he says.

Picca says the early 1970s and late 1990s are two comparable periods in time. Both occurred without index funds in the market.

“It is just a coincidence that the two are happening at the same time – the popularity of index funds and a period of value underperformance,” he says.

“We are at the end of a long macroeconomic cycle characterised by low growth, low interest rates and low inflation, with investors focusing on growth potential and not paying attention to fundamentals.”

But it is the concentration of growth stocks in index funds that poses an issue for Williamson, namely because of super funds.

“We’ve seen these big super funds merge and their strategies all look the same. They are largely shifting more and more to index and it’s pushing the same stock,” he says.

Aked says there are better active strategies for super funds to play. Specifically, looking for cheap portfolios that generate higher returns.

“Those opportunities are cyclical, sometimes

Value investing | Feature

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

07: Anne-Christine Farstad

portfolio manager MFS Investment

they’re there and sometimes they’re not and at the moment they are definitely there,” Aked says.

As an example, he says investing in the US equity market (market cap-based) will generate a negative return whereas buying the 50% cheapest stocks will lead to a potential 6% real return.

His preference for super to use active and value management comes from data which Aked says shows the average MySuper allocation for industry funds with a portfolio in indices is set to deliver a 1% real return over the next 10 years.

“We should hold our industry funds to do better than that on an after-fees basis, but one of the greatest challenges I find in active management is the amount of difference to the benchmark they do is so small and they end up giving you benchmark-like returns with active fees,” he says.

On the other hand, Sunsuper employs a value strategy. Its head of public markets Greg Barnes 08 believes it should be part of a portfolio. The fund has exposure to a Maple-Brown Abbott fund in Australia and Pzena Investment Management for global equities.

“You should hold value strategies in the portfolio, but ensure that they are balanced with other strategies, [like] growth, momentum and quality, and avoid any excessive value risk concentrations,” he says.

“Over time, value strategies have been shown to perform well and therefore can generate good returns for members.”

Value processes Each value manager takes a different approach to stock selection. The obvious theme for these bottom-up pickers is their shared desire for cyclicals.

Maple-Brown Abbott head of Australian equities Dougal Maple-Brown is seeing value opportunities in the sectors that benefit from rising interest rates.

“The key ones are the financials, so we are overweight banks, general insurers and frankly a sprinkling of the diversified financials as well.

All of which are positively leads to rising interest rates,” he says.

Perennial’s Bruce agrees and says financials are looking attractive with the banks breaking out of a five-year downgrade cycle.

“The headwinds they have faced over recent years are now turning into tail winds and they have significant surplus capital to return to investors, on top of already attractive levels of dividends.”

The other sector gaining traction for value investors is energy. Pezzullo says this is one of the sectors that has performed particularly badly over the last 18 months.

“We’re seeing value in that sector because I think a lot of the oil companies and large traditional exploration and production companies – they’re capex has collapsed, and the supply is tightening but the demand has rebounded to where it was pre-COVID,” he says.

08: Greg Barnes

09: Esther Althaus

head of public markets Sunsuper

managing director Perspective Financial Services

Birtles echoes Pezzullo and says energy is clearly one of the areas where there’s very high increases in the oil price at the moment.

But one of the complications with the emerging value opportunities is arguably the lack of ESG consideration.

“Energy is clearly one of the areas where there’s very high increases in the oil price at the moment, in many ways due to disruption from COVID-19 because there’s been a cutback in capital expenditure,” he says.

Interestingly, Aked says Australian financials are priced at a 37% premium to their global competitors, while resource securities are trading at a significant discount at over 50%.

Even Picca, who unlike most value investors employs a thematic approach to portfolio construction, is seeing the same opportunities. But his process vastly differs.

“We’re not fundamental managers so we’re not really picking stocks. It’s a broad quantitative process and we select stocks based on a variety of valuation ratios. In the fund we use price to book, price to forward earnings and price to cash flows,” he says.

For the Vanguard Global Value Equity Fund and its active ETF, Picca and his team source stocks within eight regional buckets and within the buckets sort stocks on three valuation ratios: price to book, price to forward earnings and price to cash flows.

“We combine the ranking on the valuations and come up with a combined ranking that reflects the attractiveness of the stocks and convert the ranking into a percentile,” he says.

“We use this percentile to select stocks in the top 33% of market capitalisation within each bucket and weight them according to the percentile. Then we give each bucket the same weight it would have in the FTSE Developed Index.”

This differs in the United States where the weighting is equally allocated across US large, mid and small caps.

Pezzullo puts his process simply: “We’re not typically thematic investors because we are more bottom-up stock pickers. We look at the company on its own, assess the industry and try and remove a lot of the emotion out of it and look at those businesses based on four quality factors and then bring it back to what you pay for it.”

On the other end of the spectrum, Williamson’s investment universe is local, and his process is significantly different to Picca’s.

“I think the whole ASX 100 looks expensive.

I’m saying that you need to crack deeper down into the index and look at the traditional value stocks on the fringe of the indices. That’s where I believe the value is today. It’s a very narrow category of the market but it has been left behind,” he says.

The first thing he looks for is the worst performers over a three-year period.

19

“I really want to know who has disappointed investors, who’s in the newspaper for the wrong reasons. I’m always trying to look for mispricings,” Williamson says.

A valuable future

The inclusion of value funds assists with greater diversification as well as the potential for growth over the longer term.

Esther Althaus

The next decade for value is not going to look like the last, Maple-Brown says. He is convinced that as interest rates rise, such an environment would lead to economic growth and in turn favour value.

“That’s going to look a lot different to the last decade. We will encourage people to look forward rather than look backwards and we think it’s going to be a much better decade for value than the last one,” he says.

Despite this, Morningstar’s Murphy cautions investors to not try and time exposures to either growth or value.

“No one 10 years ago would have predicted that value investing was going to suck for the next decade. There was no one,” he states.

This is something that resonates deeply with Perspective Financial Services managing director Esther Althaus 09 .

“We don’t try to time the market with either more or less value funds. We are consistent with our diversified approach and it’s more important to manage asset allocation than attempt to pick individual funds or limit to a particular style of fund,” Althaus says.

Barnes agrees and says Sunsuper looks to have a balanced exposure to both growth and value but without an excessive risk exposure to any particular style.

“We aim to capture the most benefit from manager stock selection skill – some managers use a growth approach, and some use a value approach,” he says.

The thing with value investing, Murphy says, is that it tends to pay off very sharply in short periods of time.

“Depending on the sector, there can be double digit outperformance in many cases but to time that is problematic. When building portfolios, you have to be conscious of not trying to be overly exposed to any one side of that,” Murphy says.

Althaus agrees and says her clients are generally invested in well-diversified portfolios that consider the fact their financial goals need will be fluid over time but might also change very suddenly should an unexpected event occur in their lives.

“In that case, we have to make provisions for outcomes that may either be sooner or later than anticipated. With that in mind, the inclusion of value funds assists with greater diversification as well as the potential for growth over the longer term,” she says.

The old adage of not putting “all your eggs in one basket” rings true in this case.

But, Murphy says, as part of a diverse portfolio investors should have exposure to valueoriented funds as well. fs

20

News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

FASEA scraps three-month rule The Financial Advisers Standards and Ethics Authority is introducing a relief that will allow financial advisers to sit the November examination regardless of their last sitting.

FASEA is proposing to relax the three-month registration requirement in the hope that more advisers will pass the exam prior to the deadline of 1 January 2022.

Financial advisers will be given two opportunities to sit the exam before the end of the current transition period, either being July and November sittings or September and November sittings.

All candidates who have been unsuccessful at any prior sitting can sit the November exam, which will be offered via remote proctoring and at exam venues (subject to COVID protocols).

FASEA will amend the Corporations (Relevant Providers Exam Standard) Determination 2019 to make way for the relief.

It will consult with stakeholders on the proposed amendment to the legislative instrument from July 14.

This amendment will also provide those impacted by the New South Wales lockdown with additional future exam options if required, FASEA said.

The Australian Council for Educational Research (ACER), the exam administrator, will contact the impacted July candidates to provide alternative options for their July sitting. fs

FSC launches DDO templates Annabelle Dickson

The Financial Services Council (FSC) and members from life insurance, funds management and superannuation have collaborated templates for Target Market Determinations (TMDs) and industry data standards which will aid the implementation of DDO. ASIC’s RG 274 Product design and distribution obligations will come into effect in October and aims to help consumers obtain appropriate financial products by requiring issuers and distributors to have a “consumer-centric approach” to the design and distribution of products.

Templates are available for life insurance; income protection insurance; trauma insurance; TPD insurance; superannuation master trusts (choice products); superannuation wraps; funds management (covering ETPs and LICs); and managed accounts.

“Eighteen months ago we started on this timecritical piece of work, designing target market determination templates and data standards for super funds, platforms and wraps, life insurers and fund managers, to help financial services firms prepare for the DDO regime on October 5,” FSC chief executive Sally Loane said.

“Our templates and standards should make life much easier for product issuers, platforms and financial advisers who would otherwise face confusing and inconsistent compliance requirements.

Without this alignment, advisers in particular will be faced with having to comply with dozens of different templates. That would be simply unworkable.”

The templates are available to FSC members and are also available under license to non-members.

Over 200 non-member companies have used the templates and data standards. fs

01: Cathie Armour

commissioner ASIC

ASIC review of ESG products underway Jamie Williamson

T

The quote

Misrepresentation of such products poses a threat to a fair and efficient financial system.

he corporate regulator has confirmed it is undertaking a review of ESG funds, analysing whether they’re as ‘green’ as they claim to be.

Writing on the aims of the review, ASIC commissioner Cathie Armour01 said there is growing anxiety as to the risks of greenwashing – “partly driven by a lack of clarity about labelling or a single generally accepted taxonomy in this area”.

The review aims to determine whether “the practices of funds that offer these products align with their promotion of these products; in other words, whether the financial product or investment strategy is as “green” or ESGfocused as claimed”.

This follows on from the regulator’s review of climate risk disclosures by large, listed corporates, which found disclosure had improved in recent years but also that some sustainability-related disclosures carried a “marketing” feel, she said.

“Misrepresentation of such products poses a threat to a fair and efficient financial system.

Essentially, this misrepresentation distorts relevant information that a current or prospective investor might require in order to make informed investment decisions driven by ESG considerations,” Armour said.

“Addressing this threat will improve governance and accountability in the market.”

In discussing the review, Armour cited efforts by international regulators to stamp out greenwashing. For instance, the European Union’s taxonomy that seeks to define what can be considered sustainable or climate friendly, and the US Securities and Exchange Commission task force aiming to identify gaps or misstatements in ESG disclosures.

Armour encouraged boards to look out for greenwashing – and to ask themselves whether “disclosures around environmental risks and opportunities or their fund’s promotion of ESG-focused investment products accurately reflects their practices”. fs

AFA slams new SOA measures Karren Vergara

The Association of Financial Advisers has hit back at ASIC and APRA for causing “confusion” and “interfering” with financial advice as they look to introduce new changes to Statements of Advice.

The association points to the regulators’ joint letter dated June 30, which advised trustees to review SOAs with respect to new advice fees charged to members’ superannuation accounts.

AFA acting chief executive Phil Anderson argued that SOAs are an agreement between a client and their adviser and contains personal information that should not be shared with trustees. He fears the review may breach the Privacy Act and adds another layer of administration.

For the regulators to make trustees review client SOAs is “confusing, and a matter of great concern”, he said.

Of particular concern in this section in the letter: “Reliance on attestations by financial advisers or advice licensees that services have been provided has limitations due to the potential for conflicts of interest, so cannot in all circumstances be relied upon.”

Further, the regulators want trustees and advisers to have arrangements to facilitate any

appropriate reviews, including communicating to clients that these reviews may occur and address any privacy concerns they may have.

“The AFA is calling for financial advisers and superannuation funds to argue against this excessive, unnecessary, and costly interference by the regulators,” Anderson said.

From July 1, new laws mandated all ongoing fee clients to receive a Fee Disclosure Statement each year, that sets out the services provided, fees paid over the last year, as well as the services to be provided over the next year and the fees to be charged.

Clients must sign off on this document. A client consent form detailing the fees also needs to be provided to the product provider each year. Fees are also disclosed in annual product statements, and clients have the right to terminate fees at any time.

“There are already multiple layers of consumer protection,” Anderson said.

“The bottom line is that financial advisers are professionals, subject to high standards, and they should be trusted. There are already a lot of demanding regulations in place. All these additional measures just add further to the cost of providing financial advice and inconvenience clients by adding significant complexity and disruption.” fs

News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

21

Products 01: Andrew Russell

Morningstar launches fee comparison tool Morningstar is launching a new tool that provides increased transparency and disclosure on fees across its investments and superannuation products, well above what RG97 requires.

The Morningstar Total Cost Ratio (TCR), which will be rolled out on August 31, drills down to a granular level of fees and costs data.

TCR gives investors a single, holistic metric and enables them to compare between products.

As part of these changes, Morningstar said it will cease using the labels indirect cost ratio (ICR) and management expense ratio (MER), which it deems are legacy terms.

Morningstar head of product and client solutions Graham Dixon said TCR takes RG97 further by introducing a single, aggregated metric to simplify the real cost of investing for investors, but also introduces granular data sets that change the way fees and costs data is disclosed.

“We are putting the power in the hands of advisers and investors to really understand the product and make informed choices,” he said.

TCR has two versions: one is forward-looking prospective and the other provides actual fees charged over the course of the financial year, as seen in a financial statement. TCR assumes a $50,000 balance for comparability across products.

The new tool will see a refresh of several Morningstar solutions, including its financial planning software, AdviserLogic.

Dixon said this will enable advisers to be more confident they are meeting their best interest obligations and delivering client centric advice.

The update includes labelling adjustments; fee breakdowns; and the ability for advisers to calculate client-specific fees.

Users of Morningstar Direct will have access to historical fees data for trend analysis and peer comparison, along with new views for easily analysing the composition of headline fees and costs.

TCR measures will be embedded in the Adviser Research Centre, along with Morningstar’s research reports and profiles.

Vanguard lowers platform fees Vanguard has made changes to the fees on its Personal Investor platform and introduced a brokerage fee for all listed investments.

From August 18 the investment manager will remove the account fee for Vanguard ETFs, managed funds as well as the cash account and instead apply a $9 brokerage fee.

The new fee replaces the 0.20% per annum account fee for the cash account, ETFs, managed funds and direct shares.

Meanwhile, the new account fee for ASX direct shares will be 0.10% per annum and the additional brokerage fee of $9.

Vanguard head of Personal Investor Balaji Gopal said Vanguard wanted to ensure the platform supports investors in their wealth building journey.

“Adjusting the fee structure is just one

Class launches SMSF auditor tool The SMSF technology platform has launched an online tool to assist accountants in finding suitable SMSF auditors for their clients.

The tool will allow accountants to request quotes from different providers that connect directly to the Class product suite, including some of the largest SMSF audit companies in Australia.

The launch partners include Super Know How, Unison and BDO Audits which leverage data integration to Class.

Following a restructure to APES 110 Code of Ethics for Professional Accountants, SMSF audits can only be done by an independent auditor therefore an accounting practice cannot offer accounting and auditing to the same SMSF client.

“The enhancement of the auditor independence requirements will see a significant movement in the SMSF audit market, so we have provided a facility that allows an accounting business to find an audit provider that operates on an integrated technology platform,” Class chief executive Andrew Russell01 said.

important change we are making to deliver the best value we can, and we look forward to introducing other features in the coming months that will help enhance the investing experience over time,” he said.

Vanguard launched Personal Investor in April last year to provide low-cost access to the firm’s most popular products with a low minimum entry point of $500.

“Vanguard Personal Investor is not designed like a broking site which has a focus on trading.

We want investors to be encouraged to think long term and take time to consider changes to a welldiversified portfolio,” Gopal said.

“For this reason, when we built the platform, we introduced it with features like a focus on portfolio value versus displaying short term percentage performance movements, and two factor authentication requirements to execute trades.”

Personal Investor recently launched an iOS app and has plans to launch a trust and company account, an automated regular investment feature and an Android version of the app.

VanEck launches active ETF VanEck Australia launched its first externally managed active ETF in partnership with a Sydney credit boutique.

The VanEck Bentham Global Capital Securities Active ETF (Managed Fund) (ASX: GCAP) invests in Tier 1 (AT1) securities, contingent convertibles and subordinated debt securities.

Bentham Asset Management will be the portfolio manager.

The ETF targets after-fees returns of 3% over RBA cash rate over the long term, with monthly dividends.

VanEck said it is the only global capital securities exchange traded fund on the ASX and aims to be fully hedged into Australian dollars.

Bentham chief investment officer and managing director Richard Quin said global capital securities complement the local hybrid market.

“With rates near all-time lows, capital securities can provide investors with regular income, whilst diversifying investors’ portfolios that are often heavily skewed towards Australian financials,” Quin said.

“We have been investing in global credit markets and capital securities for many years and we look forward to offering this standalone investment to Australian investors. Global capital securities offer a deeper market compared to locally issued hybrids.”

So far, local fund managers looking to launch ETFs have either done it in-house (such as Magellan and Platinum) or via an ETF issuer, primarily BetaShares.

GCAP is VanEck’s first active ETF partnership with an external manager.

Last year, VanEck launched an EM debt ETF (ASX: EBND) that is actively managed by a US-based VanEck team. EBND currently has about $80 million in assets.

02: Arian Neiron

“Global capital securities offer an opportunity for investors to diversify their income away from concentrated Australian exposures, harnessing a sizeable global universe with deeper liquidity,” VanEck chief executive and managing director Asia Pacific Arian Neiron 02 said.

Hejaz expands with three new funds Hejaz Financial Services is launching three funds with an ethical overlay to retail investors that invest in global equities, credit and property.

As part of the $180 million fund manager’s aggressive growth strategy, the funds will give Australian Muslims and other socially conscious investors access to Shariah-compliant managed funds.

The Global Equities Fund is targeting a 20% per annum return net of fees, investing in Europe, North America and selected Asian markets, including Australia. It aims to reach $100 million in funds under management by the end of 2021.

A defensive option, the Income Fund aims for a 6% p.a. return that provides credit to low-risk commercial development projects and firstmortgage financing with low loan-to-valuation ratio. The fund will be seeded with $60 million from Hejaz’s Ethical Income Fund, the flagship wholesale product which achieved a 60% return last year alone.

The new Property Fund invests in global REITs, with a target of 10% p.a. return. Equity Trustees acts as responsible entity for the new funds.

In launching the funds, Hejaz Financial Services chief executive Hakan Ozyon told Financial Standard that Australian Muslims should not have to sacrifice their beliefs and risk getting left behind in terms of being able to accumulate wealth and retire with a good amount in their nest egg.

As an Australian Muslim himself, Ozyon recalls the lack of financial products available to him when he started out in the financial services industry.

He hopes that by launching these funds to mums and dads, other Muslims don’t have to worry about compromising their beliefs and still take part in the investment arena.

Most Muslim Australians would invest or buy property, but that in itself is difficult, he said.

Shariah-compliant investing abides by principles that include not charging any form of interest in investments. It also promotes accountability, good governance and transparency, and prohibits investments in businesses that operate in sectors like gambling, alcohol, weapons and tobacco. The process is certified by experts or Shariah scholars.

Melbourne-based Ozyon said all three funds will be available as ETFs by the end of the year.

He has even bigger plans for the group, looking to take the offerings to the international stage in the near future.

Hejaz currently has 15 financial advisers and is in the process of recruiting more and recently hired a business development manager. fs

22

News

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

ADIs to prepare for zero

01: Elizabeth Trinh

head of Australia and New Zealand American Century

Jamie Wililamson

Despite the Reserve Bank of Australia believing it’s unlikely interest rates will enter negative territory, APRA is consulting on ADI’s preparedness for such an event.

Saying the regulator’s standpoint does not preclude the possibility of zero or negative interest rates, APRA expects all ADIs to develop tactical solutions to implement zero or negative market interest rates and cash rate by 30 April 2022.

This would cover all products and activities, except for lending products that don’t reference such rates, like business lending or residential mortgages.

“In developing tactical solutions, APRA expects ADIs to consider all aspects of the products and activities that are in scope including customer communications and disclosures,” a letter from APRA executive director, banking division Therese McCarthy Hockey said.

“Further, ADIs should assess the associated operational risks and ensure that there are appropriate controls in place to manage them. ADIs should also consider any relevant conduct related issues, including the potential for conflicts of interest, fair treatment of clients, and asymmetry of information.”

In developing the expectation, APRA took into account industry feedback collected in December last year and international experience.

When APRA questioned ADIs on their preparedness for zero or negative interest rates, most indicated they could deal with “zero and negative market interest rates on financial market products such as those typically managed in a treasury system”.

“However, for some ADIs, zero and negative interest rates on other products (e.g. wholesale and retail lending and deposit products) would pose operational challenges,” APRA said.

ADIs have until August 20 to respond to the consultation. fs

NGS Super awards $150m small caps mandate Kanika Sood

T

The quote

We’re looking forward to building a long partnership with NGS.

he $12 billion industry fund has picked an external manager for a $150 million allocation to global small caps.

American Century Investments will invest the NGS allocation through its global small cap strategy.

“We believe our differentiated growth-oriented small cap strategy is a natural fit for NGS Super’s portfolio. We’re looking forward to building a long partnership with NGS and striving to deliver the best possible financial returns for their members,” American Century head of Australia and New Zealand Elizabeth Trinh01 said.

The American Century Global Small Cap strategy is managed by New York based Trevor Gurwich who is a senior portfolio manager and vice president with the company.

It invests in both developed and emerging countries, with current sector favorites including consumer discretionary, information technology and industrials. About 59% of the fund is invested in US listed stocks.

Kansas headquartered American Century

3PD wins distribution partnership Karren Vergara

FASEA course consultation open The Financial Adviser Standards and Ethics Authority is taking feedback on new degrees and courses that should be recognised as prior learning.

The consultation period, which opened on July 19 and ends on July 30, is seeking to approve a number of several current degrees and bridging courses, as well as historic degrees by amending the Corporations (Relevant Providers Degrees, Qualifications and Courses Standard) Determination 2020.

These courses include the Australian Institute of Management’s graduate diploma and bridging courses, the University of Tasmania graduate diploma and bridging courses, Central Queensland University’s graduate diploma and Charles Sturt University’s master’s program.

In May, FASEA flagged that it approved many of these degrees and courses.

The standards authority’s chief executive Stephen Glenfield said at the time that the approval of these additional courses builds on the body of courses approved by FASEA and provides additional choice to advisers seeking to meet the education standard. fs

Investments manages about US$238 billion globally, of which $2.5 billion is Australian FUM. It entered the Australian market in 2018, with Trinh and vice president of the institutional advisory group Michelle Kidd as its leads.

NGS Super was actually among the super funds to award the most mandates in the three months to March end.

According to Rainmaker data, it handed out the fifth highest number of mandates, behind the likes of Aware Super and LGIAsuper.

In terms of other investments recently made by the fund, NGS is part of a consortium that invested in a spacecraft technology start-up.

Alongside HESTA and Hostplus, NGS is backing Queensland-based Gilmour Space Technologies.

NGS Super is currently in the process of merging with Sydney’s Australian Catholic Superannuation and Retirement Fund (ACSRF).

Once the merger is complete in 2022 the combined fund will have more than $22 billion in members’ retirement savings. fs

An emerging markets fund manager is expanding its presence in Australia by appointing 3PD as its distribution partner.

ValueQuest Capital, an Indian equities fund manager led by co-founders Sanjay Bakshi and Paresh Thakker, hopes to build on its current mandate with an Australian institutional client.

Mumbai-based Thakker said the ValueQuest India Moat Fund is one vehicle that is open to international investors.

“India’s economic growth and listed equity market are now developed to the extent they warrant dedicated investment from institutional investors who are seeking complementary returns beyond traditional global investing,” Thakker said.

“India is likely to regain its spot as the fastestgrowing economy in the world soon aided by catalysts like potential shift of global supply chains to India as they look to diversify their supplier countries, sharp cut in corporate tax rate (now amongst the lowest in the world), labour reforms and production linked incentives provided by government.”

Robert Harrison, a co-founder of 3PD, said as investors continue their quest for superior returns and competitive advantage, they cannot continue to leave India off the table.

“Current global portfolios align with global benchmarks and thus largely exclude the best opportunities in markets like India. Our challenge

has been to find investment managers that will be the strong performers in Asia and we are confident ValueQuest qualifies,” he said.

Harrison added that 3PD plans to introduce ValueQuest Capital’s strategies, including those particularly suited for ESG-conscious investors, to the institutional markets in Australia and New Zealand.

Promethos Capital, Marylebone Partners and Fullgoal Asset Management are some of 3PD’s recently acquired partners.

Fullgoal Asset Management is a Chinese equity and fixed income manager which recently entered the Australian and New Zealand markets via its partnership with 3PD. Fullgoal, which has investment teams in Shanghai and Hong Kong, has AU$200 billion in assets under management, predominantly from Chinese and international institutional investors.

Meanwhile, Marylebone Partners entered the same markets in December 2020.

Marylebone Partners introduced its absolutereturn and long-short global equity strategies to institutional investors. Established in 2013, the firm manages investments of individuals, families, charities, trusts and institutions.

Finally, Promethos Capital is a Boston-based active fund manager that focuses on the ESG space. It began offering its funds to Aussie investors in August last year. fs

FSPOWER 50 The 50 most influential financial advisers in Australia.

Financial Standard is conducting the search for the FS Power50 once again in 2021, revealing the 50 most influential financial advisers.

Nominate now to help us identify the individuals who are instrumental in shaping the future of financial advice.

Nominations close August 6 Visit www.financialstandard.com.au/fspower50 or scan the code.

24

International

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

Milestone Group acquired

01: Mark Sanderson

managing director Praemium UK & international business

Elizabeth McArthur

BNY Mellon will acquire Milestone Group, a funds management technology provider.

The deal comes just over a year after the two companies formed an alliance to create a suite of oversight and contingent net asset value (NAV) services for asset managers and asset owners seeking independent oversight and backup NAV capabilities.

Terms of the acquisition were not publicly disclosed.

The acquisition is subject to conditions and approvals and is expected to occur in the second half of 2021.

“This transaction with Milestone is the latest demonstration of BNY Mellon’s commitment to support clients across the investment lifecycle and provide clients with open and flexible digital solutions that enable them to optimise, scale and grow their businesses,” BNY Mellon chief executive of asset servicing and head of digital Roman Regelman said.

“We gain both industry-leading technology as well as the expertise that Milestone is known for globally. This is a significant step in our continuous evolution — blending leading edge technologies and services to deliver greater efficiency and value for our clients.”

By acquiring Milestone, BNY Mellon said it will advance the digitisation and automation of its core accounting and asset services, delivering increased accuracy and timeliness. fs

GIC Private adds portfolio manager GIC Private, the sovereign wealth fund for Singapore, has hired former AMP Capital portfolio manager Nader Naeimi.

Naeimi started with GIC, formerly known as the Government of Singapore Investment Corporation, on Monday.

Naeimi is now senior vice president and portfolio manager for a new cross asset global allocation fund at GIC, relocating to Singapore for the role.

He will be part of the fixed income and global macro division at the asset manager and will be working with the in-house quantitative team and strategists to build investment process and investment capability. The mandate for the fund is absolute return.

“After a wonderful 21-year career with AMP Capital, I am excited to start a new chapter in my career,” Naeimi said.

“I am thrilled to be joining GIC Private and to have the opportunity to collaborate with some of the greatest minds in the investments industry.”

GIC was founded in 1981 and has approximately US$500 billion in assets under management.

Naeimi departed AMP Capital in April, with a spokesperson telling Financial Standard his role was no longer required.

He was portfolio manager of the Dynamic Markets Fund, which was shuttered by AMP Capital.

The fund was launched by AMP chief economic Shane Oliver in 2011. fs

Praemium to sell international business Jamie Williamson

F The quote

The group board recognises and is rightly very proud of the international team’s achievements to date.

ollowing a strategic review, Praemium is proposing to sell its international business despite record performance.

The platform provider has confirmed it plans to sell its international business, despite its strong performance in recent times.

The strategic review was first announced in May when chief executive Michael Ohanessian departed.

Praemium said the business remains at a structural disadvantage to its key competitors.

While no buyer has been identified as yet, Praemium says it has received strong, unsolicited interest from several parties.

Praemium said it believes an alternative owner of the business would simplify it, “better serving the interests of its clients and better advancing the career opportunities of its employees”.

Praemium UK and international business managing director Mark Sanderson 01 said: “The group board recognises and is rightly

very proud of the international team’s achievements to date. It can see the clear potential for capitalising on the international business’s strong growth over the last couple of years.”

“However, it also recognises that realising that impressive potential requires a parent focussed on the markets in which the international business operates.”

The proposed divestment would also allow Praemium to focus on the Australian business, the company said.

Confirmation of the plan for the business comes as Praemium reports record funds under administration for both the Australian and international arms.

Locally, platform FUA grew 223% last financial year and the international platform grew 55%.

Net platform inflows also hit a record $1.2 billion in the June quarter, $820 million of which came from Australia.

Total funds under administration now sit at $41.7 billion. fs

Fund managers failing value assessments: FCA Karren Vergara

Active fund managers are falling short of delivering value to investors and justifying their fees, a review from the UK’s financial services regulator reveals.

A review of 18 fund managers between July 2020 and May 2021 by the Financial Conduct Authority found that active managers do not seriously consider how their investment policy, strategy and fees work together to deliver value for investors.

Such managers assessed their fund performance by comparing it with their stated objective, irrespective of whether this objective reflected how the fund was managed and what the fees suggested the manager should be trying to achieve, the regulator said.

“This was particularly apparent for funds that charged a fee commensurate with active management (i.e. with the aim of outperforming market returns), and were managed with the aim of outperformance, but had a more limited stated objective of achieving ‘long-term capital growth’, or similar wording,” the regulator said.

UK fund managers must complete an Assessments of Value (AoVs), a measure put in place after its comprehensive asset management market review in 2017.

At the time, the regulator found that weak demand-side pressure exists in the market for authorised funds, resulting in a lack of competition among fund providers on fees and charges.

In essence, fund managers had to justify if the value they are providing is commensurate with the fees they are charging.

“Our review found that, while some had been conducting AoV assessments well, too many AFMs often made assumptions that they could not justify to us, undermining the credibility of their assessments,” the FCA said.

Other managers did not meet the FCA’s standards by having poorly designed processes and ultimately did not complete their value assessment obligations.

Overall, the FCA said it expected more rigour from fund managers when assessing value in funds. It will conduct another review in the next 12 to 18 months. fs

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Between the lines

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

Plato IM wins $3.9bn mandate

25

01: Bill Watson

chief executive First Super

Kanika Sood

In what may be the biggest Australian equities mandate from a super fund since 2010, a retail fund recently allocated $3.9 billion to Plato Investment Management.

Colonial First State FirstChoice Lifestage made the allocation to the Sydney boutique in March, with the amount totalling $3.9 billion at June end.

Plato replaced First Sentier’s RealIndex for the mandate, which continues to manage a global equities allocation for FirstChoice.

Colonial First State general manager of investments Scott Tully said the change of managers comes as the fund looked to neutralise the value tilt in Australian equities.

“In Australian equities, we felt that we had captured much of the outperformance from value investing and decided to move to a more neutral approach in March 2021,” he said.

At $3.9 billion, the FirstChoice to Plato mandate may be the second-largest Australian equities that a local institutional investor has ever made, according to Rainmaker.

It is topped by QSuper’s $5.4 billion allocation to QIC, which happened in 2010.

The third largest is HESTA awarding $2.2 billion to State Street Global last year.

Recent Rainmaker research shows in the 12 months to March end alternatives mandates were most popular with super funds. This was followed by equities, bonds and cash, and then property.

By dollar value, equities took 48% of the total. fs

Super fund awards first ESG mandate Jamie Williamson

A The quote

I believe you will see more institutional investors looking for managers in this asset class.

$3.4 billion industry super fund handed its first ESG mandate to an Edinburgh-based fixed income boutique.

First Super has selected Cameron Hume to manage $125 million via its Global Fixed Income ESG Fund, comprising investments in sovereigns, corporates and asset-backed securities.

This is the first ESG mandate the super fund has awarded and, as First Super implements a Responsible Investing Policy, has scope to increase to $500 million.

Cameron Hume was founded in 2011 and now has about US$1.02 billion in funds under management, including the First Super investment.

“ESG has clearly been at the forefront of institutional investors’ minds, and managers in equities, infrastructure and property have been talking about it for some time,” First Super chief executive Bill Watson01 said.

Rainmaker Mandate Top 20

“Although managers of fixed income and floating rate debt asset classes have been a bit slower to come to the party, I believe you will see more institutional investors looking for managers in this asset class and other asset classes with a good ESG methodology.”

The fund was eager to work with Cameron Hume because of its commitment to the UN Principles of Responsible Investing (UNPRI) and the reputation it has gained for introducing ESG into mainstream bond investing, Watson added.

Also commenting, Cameron Hume managing director and co-founder Chris Torkington said the fund manager is delighted to have been awarded the mandate.

“Institutional investors are becoming increasingly aware of the need to integrate ESG ratings into their investment strategies and Cameron Hume is extremely well placed to help them to do that,” he said. fs

Latest equities investment mandate appointments

Appointed by

Asset consultant

Investment manager

Mandate type

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

ClariVest Asset Management LLC

Emerging Markets Equities

58

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

ClariVest Asset Management LLC

Global Small Cap Equities

87

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Other

International Small Cap Equities

79

Aware Super

Willis Towers Watson

First Sentier Investors

Australian Equities

281

Care Super

JANA Investment Advisers

Alphinity Investment Management Pty Ltd

Australian Equities

460

Christian Super

JANA Investment Advisers

Macquarie Investment Management Australia Limited

Australian Equities

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Ardevora Asset Management LLP

Global Equities (Unhedged)

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Other

Global Equities (Hedged)

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Other

Global Equities (Unhedged)

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Vinva Investment Management Limited

Australian Equities

Construction & Building Unions Superannuation

Frontier Advisors

Challenger Limited

Australian Equities

Energy Industries Superannuation Scheme - Pool A

Cambridge Associates; JANA Investment Advisers

BlackRock Investment Management (Australia) Limited

International Equities

Hostplus Superannuation Fund

JANA Investment Advisers

IFM Investors Pty Ltd

Ethical/SRI Australian Equities

Hostplus Superannuation Fund

JANA Investment Advisers

IFM Investors Pty Ltd

Ethical/SRI International Equities

101

MyLifeMyMoney Superannuation Fund

JANA Investment Advisers

BlackRock Investment Management (Australia) Limited

International Equities

255

Retail Employees Superannuation Trust

JANA Investment Advisers

Other

Ethical/SRI Australian Equities

23

Retail Employees Superannuation Trust

JANA Investment Advisers

Other

Ethical/SRI International Equities

28

Sunsuper Superannuation Fund

Aksia; JANA Advisers; Mercer Consulting; StepStone

BlackRock Investment Management (Australia) Limited

Emerging Markets Equities

351

Sunsuper Superannuation Fund

Aksia; JANA Advisers; Mercer Consulting; StepStone

Platypus Asset Management Holdings Pty Ltd

Australian Equities

693

TWU Superannuation Fund

JANA Investment Advisers

Eiger Capital Pty Limited

Australian Equities

Amount ($m)

6 20 6 12

228 51

Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14 PERIOD ENDING – 31 MAY 2021

Size 1 year 3 years 5 years

Size 1 year 3 years 5 years

Fund name

Fund name

Managed Funds

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

AUSTRALIAN EQUITIES

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

COMBINED PROPERTY

Hyperion Australian Growth Companies Fund

2,199

33.4

21

19.1

1

13.0

12

Australian Unity Diversified Property Fund

327

24.2

30

16.1

1

17.2

1

Bennelong Australian Equities Fund

892

42.9

2

17.4

2

16.9

1

Lend Lease Aust Prime Property Industrial

1,157

12.1

50

12.8

2

11.9

3

Australian Ethical Australian Shares Fund

537

46.9

1

17.1

3

13.7

6

UBS Property Securities Fund

275

28.7

14

11.9

3

9.4

7

First Sentier Wholesale Conc. Aust. Share Fund

198

30.5

41

15.8

4

13.4

9

First Sentier Whlsle. Gear. Gbl. Prop. Sec. Fund

42

61.0

1

11.7

4

11.3

4

1,032

31.0

38

15.7

5

13.5

8

Pendal Property Securities Fund

494

26.1

21

11.1

5

8.5

9

First Sentier Wholesale Australian Share Fund PM Capital Australian Companies Fund

33

35.5

17

15.2

6

12.1

19

22

38.9

2

10.9

6

7.2

19

Australian Unity Platypus Australian Eq. Fund

245

27.7

58

14.1

7

14.7

3

UBS Clarion Global Property Securities Fund

419

33.2

3

10.3

7

7.2

18

Alphinity Sustainable Share Fund

14.4

4

Charter Hall Maxim Property Securities Fund

205

29.9

9

9.8

8

8.5

10

23

23.5

36

9.7

9

8.1

11

317

19.6

43

9.6

10

7.5

17

354

31.4

33

14.1

8

Ausbil Active Sustainable Equity Fund

72

34.4

20

13.5

9

Bennelong Concentrated Aust Equities

1,665

40.3

4

13.4

Sector average

10

16.9

SGH LaSalle Conc. Global Property Fund

Resolution Capital Real Assets Fund 2

Quay Global Real Estate Fund

553

29.6

9.7

10.4

Sector average

1,284

22.8

6.6

6.6

S&P ASX 200 Accum Index

28.2

9.9

10.1

S&P ASX200 A-REIT Index

24.4

6.6

5.4

INTERNATIONAL EQUITIES

FIXED INTEREST

Forager International Shares Fund

264

65.7

1

22.7

1

18.7

4

Macquarie Dynamic Bond Fund

Zurich Inv Conc. Global Growth Fund

79

24.9

38

22.4

2

20.4

1

Schroder Fixed Income Fund

Loftus Peak Global Disruption Fund

178

28.8

23

22.3

3

5,970

27.7

27

21.0

4

20.3

2

62

18.8

67

20.8

5

15.9

14

T. Rowe Price Global Equity Fund Evans and Partners International Fund Franklin Global Growth Fund Capital Group New Perspective Fund Intermede Global Equities Fund Legg Mason Martin Currie Global LT Fund

713

2.5

9

5.4

1

4.4

1

2,085

1.4

15

5.3

2

4.2

4

Legg Mason Western Global Bond Fund

416

3.3

8

5.2

3

QIC Diversified Fixed Interest Fund

504

2.4

12

5.0

4

3.9

12

AMP Capital Wholesale Australian Bond Fund

955

0.4

28

4.9

5

4.0

7

3.9

8

596

22.0

50

19.3

6

18.8

3

BlackRock Wholesale International Bond Fund

60

2.5

10

4.9

6

1,078

29.2

20

19.2

7

17.6

5

Perpetual Wholesale Active Fixed Interest Fund

195

0.7

25

4.9

7

287

21.0

57

18.6

8

16.2

12

Pendal Sustainable Aust. Fixed Interest Fund

405

0.4

30

4.9

8

Franklin Templeton Global Aggregate Bond

11

21.8

52

18.2

9

16.2

11

Zurich Unhedged Global Growth Share Fund

464

23.4

42

18.1

10

16.3

9

136

1.0

20

4.9

9

2.9

39

Dimensional Global Bond Trust

2,004

0.9

23

4.8

10

4.0

6

Sector average

839

24.6

13.2

13.2

Sector average

1,075

0.2

3.9

3.2

MSCI World ex AU Index

21.2

14.1

13.3

Bloomberg Barclays Australia (5-7 Y) Index

-0.9

4.6

3.4

Note: The performance figures for diversified funds are net of fees, performance figures for sector specific funds are adjusted for fees.

Source: Rainmaker Information

APRA promotes performance anxiety here appears to be some anxiety around the T APRA MySuper performance test and the effect it will have on the superannuation landscape.

Dial tones

By John Dyall john.dyall@ financialstandard .com.au www.twitter.com /JohnDyall

My view is that any healthy ecosystem has mechanisms that both promote competition and allows for failure.

Of course, those funds that are comfortably beating the performance test will see this as a sign they don’t have to worry and should continue with their existing investment strategy. It’s the rest of the funds where the test could lead to unintended consequences that are more afraid of failure than of doing the wrong thing by members.

First of all, the test itself has some serious flaws. It compares the returns of the fund’s MySuper option against a series of financial market indices. This might not be in the best interests of members.

Let me explain. Returns are one aspect of performance. The other aspect is risk. Risk is not a well understood concept, even now. In terms of performance, it incorporates such things as volatility, downside volatility (the risk of losing capital) and other measures that all go towards the shape of the distribution of returns.

Basing a performance test purely on comparative returns throws out most of the information gained in the process of achieving those re-

turns. If the overall returns of the fund happen to incorporate infrequent months of exceptional returns – and thereby passes the performance test – is that good for members? Yes, they have the returns in pocket, but infrequent random returns can be both good and bad. Next time they might not be so lucky. If the distribution of returns becomes part of the analysis of returns, this is seen for what it is.

Some readers will remember the great sales rivalry between National Mutual and AMP back in the late 1980s where returns offered by the capital-guaranteed products on offer bore no relation to the actual risk.

Benchmark hugging also leads to behavioural changes in the super funds themselves. The risk is that fear of failure becomes a greater driving force than ambition to act in the best interests of members. Fear of failure leads to what economists call rentier behaviour. It attracts people to senior roles whose motivation is to keep things going so that they can collect the rents from their position as long as they can. Change is the antithesis of this approach. It excludes those people whose motivation is to obtain the best outcome for their members. They do that by understanding their clients’ needs and changing the organisation to meet those needs.

The final point is the appropriateness of those benchmarks. The APRA methodology still requires splits between so-called growth assets and so-called defensive assets. Where there is some uncertainty between whether an asset is growth or defensive, there is a percentage split between the two. At no stage (that I could find) was there an explanation of what “growth” or “defensive” actually meant. It used to have meaning, back when the choice of asset class was between equities or high quality long duration bonds. But now bonds can be short duration with a heavy emphasis on credit risk (but be classified as defensive) and long duration government bonds have historically low yields. What can a 10-year bond with a 1% yield possibly be defending?

The fact is that portfolio management has moved on. Dividing a portfolio between growth and defensive assets is a tired concept that has little place in the year 2021. Having the regulator try to enforce it on the keepers of the nation’s retirement benefits is all about fighting last century’s battles, not looking to the future. Here’s a thought, perhaps it would be better to compare the risks that went into earning the fund’s return before judging the fund on the return itself. After all, we wouldn’t want to put the cart before the horse. It wouldn’t make any sense. fs

Super funds

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14 PERIOD ENDING – 31 MAY 2021

Workplace Super Products

1 year

3 years

% p.a. Rank

5 years

SS

% p.a. Rank % p.a. Rank Quality*

MYSUPER / DEFAULT INVESTMENT OPTIONS

27

* SelectingSuper [SS] quality assessment

1 year

3 years

% p.a. Rank

5 years

SS

% p.a. Rank % p.a. Rank Quality*

PROPERTY INVESTMENT OPTIONS

Virgin Money SED - LifeStage Tracker 1979-1983

20.0

10

9.7

1

AAA

AMG Corporate Super - AMG Listed Property

26.1

3

9.3

1

6.9

7

AAA

Australian Ethical Super Employer - Balanced (accumulation)

15.7

36

9.5

2

8.1

26

AAA

Prime Super (Prime Division) - Property

7.8

23

8.0

2

16.0

1

AAA

Mine Super - High Growth

24.0

3

9.3

3

9.1

7

AAA

Aware Super Employer - Property

20.1

16

7.1

3

7.4

4

AAA

Active Super Accumulation Scheme - High Growth

21.6

4

9.1

4

9.7

1

AAA

Telstra Super Corporate Plus - Property

8.7

22

7.0

4

8.3

2

AAA

AustralianSuper - Balanced

19.5

11

9.0

5

9.5

3

AAA

FirstChoice Employer - Gbl. Prop. Securities Select

23.4

6

7.0

5

6.0

14

AAA

SA Metropolitan Fire Service Super Scheme - Growth

21.3

6

9.0

6

9.0

9

AAA

Sunsuper Super Savings - Property

14.3

18

6.5

6

6.9

6

AAA

smartMonday PRIME - MySuper Age 40

20.1

9

9.0

7

9.2

6

AAA

Mine Super - Property

24.8

5

6.5

7

6.4

12

AAA

Telstra Super Corporate Plus - MySuper Growth

21.6

5

8.9

8

9.3

5

AAA

FirstChoice Employer - FC Property Securities Select

23.0

7

6.5

8

5.4

16

AAA

UniSuper - Balanced

16.3

29

8.8

9

8.7

14

AAA

Sunsuper Super Savings - Australian Property Index

21.9

10

6.3

9

5.2

19

AAA

Vision Super Saver - Balanced Growth

18.8

14

8.7

10

9.0

10

AAA

UniSuper - Listed Property

20.7

14

6.1

10

4.7

23

AAA

Rainmaker MySuper/Default Option Index

17.7

Rainmaker Property Index

17.1

7.8

8.1

AUSTRALIAN EQUITIES INVESTMENT OPTIONS

4.8

5.5

FIXED INTEREST INVESTMENT OPTIONS

Vision Super Saver - Just Shares

32.3

1

12.1

1

12.6

1

AAA

Australian Catholic Super Employer - Bonds

1.1

16

5.0

1

3.9

1

AAA

UniSuper - Australian Shares

29.8

6

11.4

2

11.4

3

AAA

AMG Corporate Super - AMG Australian Fixed Interest

1.7

12

4.3

2

3.5

3

AAA

Prime Super (Prime Division) - Australian Shares

32.1

2

10.9

3

11.5

2

AAA

AMG Corporate Super - AMG International Fixed Interest

3.3

5

4.0

3

3.1

9

AAA

AustralianSuper - Australian Shares

28.1

13

10.3

4

10.1

10

AAA

QSuper Accumulation - Diversified Bonds

1.7

11

3.9

4

3.0

13

AAA

CBA Group Super Accumulate Plus - Australian Shares

27.0

20

10.1

5

9.5

27

AAA

StatewideSuper - Diversified Bonds

3.5

3

3.9

5

3.5

2

AAA

Aware Super Employer - Australian Equities

26.6

24

10.1

6

10.1

9

AAA

Intrust Core Super - Bonds (Fixed Interest)

2.5

8

3.9

6

3.3

4

AAA

Vision Super Saver - Australian Equities

28.2

12

10.0

7

9.9

13

AAA

Vision Super Saver - Diversified Bonds

-0.1

27

3.6

7

3.0

10

AAA

Sunsuper Super Savings - Australian Shares Index

25.6

28

9.8

8

9.9

12

AAA

Mine Super - Bonds

-0.8

35

3.5

8

3.2

5

AAA

Virgin Money SED - Indexed Australian Shares

25.3

36

9.8

9

AAA

UniSuper - Australian Bond

-1.7

40

3.5

9

2.6

19

AAA

Lutheran Super - High Growth All Australian Shares SRI

28.7

9

9.7

AAA

HESTA - Diversified Bonds

1.6

13

3.4

10

3.0

12

AAA

Rainmaker Australian Equities Index

26.8

10

9.0

9.6

22

9.4

Rainmaker Australian Fixed Interest Index

INTERNATIONAL EQUITIES INVESTMENT OPTIONS

-0.3

2.9

2.2

AUSTRALIAN CASH INVESTMENT OPTIONS

Vision Super Saver - Innovation and Disruption

44.4

1

27.3

1

AAA

AMG Corporate Super - Vanguard Cash Plus Fund

0.8

2

1.4

1

1.6

1

AAA

UniSuper - Global Environmental Opportunities

40.5

2

19.9

2

17.4

1

AAA

AMG Corporate Super - AMG Cash

0.5

5

1.2

2

1.5

4

AAA

UniSuper - Global Companies in Asia

24.6

35

15.7

3

15.5

2

AAA

Intrust Core Super - Cash

0.3

15

1.2

3

1.5

3

AAA

AustralianSuper - International Shares

23.0

46

15.1

4

13.7

7

AAA

NGS Super - Cash & Term Deposits

0.3

12

1.1

4

1.4

5

AAA

LUCRF Super - International Shares (Active)

26.2

28

14.9

5

13.1

9

AAA

Rest Super - Cash

0.6

3

1.1

5

1.4

7

AAA

UniSuper - International Shares

29.9

13

14.4

6

14.0

5

AAA

ANZ Staff Super Employee Section - Cash

0.8

1

1.1

6

1.3

14

AAA

Equip MyFuture - Overseas Shares

29.1

15

13.7

7

14.0

6

AAA

Prime Super (Prime Division) - Cash

0.3

9

1.1

7

1.5

2

AAA

Vision Super Saver - International Equities

34.4

3

13.5

8

14.6

3

AAA

Energy Super - Cash Enhanced

0.4

7

1.1

8

1.3

9

AAA

HOSTPLUS - International Shares

28.3

18

12.8

9

14.5

4

AAA

LUCRF Super - Cash

0.5

4

1.1

9

1.2

19

AAA

Intrust Core Super - International Shares

26.8

24

12.7

10

13.3

8

AAA

Sunsuper Super Savings - Cash

0.1

21

1.0

10

1.3

8

AAA

Rainmaker International Equities Index

25.1

Rainmaker Cash Index

0.0

11.0

11.3

Note: Tables include Australia’s top performing superannuation products that also have a AAA SelectingSuper Quality Assessment rating.

Investment options are sorted by their three year net performance results. All performance figures are net of maximum fees.

0.8

1.0 Source: Rainmaker Information www.rainmakerlive.com.au

28

Economics

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

Reserve Bank of Australia unperturbed by Delta Ben Ong

A

ustralia’s economy had been recovering faster than expected. It recorded its third consecutive quarter of expansion with a 1.8% increase in the March 2021 quarter, taking its year-on-year growth rate up to 1.1% from -1.0% in the December 2020 quarter.

Even better, the Reserve Bank of Australia revised up its 2021 GDP growth forecast to 4.75% (from 3.5% predicted in its February statement) at its June meeting. Only a day before, the OECD’s ‘Economic Outlook’ report upgraded Australian GDP growth to 5.1% this year (from 4.75% it forecast in March and 3.2% in December 2020.

Stronger than expected growth begets better than anticipated labour market improvement.

The RBA expects the jobless rate to continue to fall “to be around 5% at the end of this year and around 4.5% at the end of 2022” but Australian Bureau of Statistics’ (ABS) figures reveal the unemployment rate has already dropped to 5.1% in May – the seventh straight month of decline – from 5.5% in April.

This was before the Delta variant broke out and now it’s toilet paper that is, once again, rolling out of supermarket shelves.

A recent AFR survey revealed that economists’ expect the recent shutdown in the cities of Sydney, Darwin, Perth and Brisbane would subtract between $2.5 billion (0.5% of GDP) and $3.0 billion (0.6% of GDP) from the third quarter’s national output.

The longer the lockdowns remain, the bigger the hit to Australia’s growth.

Then again, the RBA remains unperturbed.

At its July meeting, the RBA kept the cash rate unchanged at 0.1% and retained the April 2024 bond as “the bond for the yield target,” while at the same time scaling back its current $5 billion weekly bond purchase programme to $4 billion a week until at least mid-November this year.

The RBA would have rolled over its “bond target” from April 2024 to November 2024 (as some speculated) and/or kept its weekly bond purchases at $5 billion. This at the very least signals it may not believe its own prognosis for the domestic economy to bounce back quickly once the recent outbreaks are contained and restrictions eased.

There’s also the government’s increased efforts at speeding up vaccine rollouts in the country that would hopefully prevent a recurrence of the rolling lockdowns we’ve seen over the past 15 months.

Speaking of government efforts, if, in case, Murphy’s Law prevails then fiscal policy could be expanded once more. After all, “anything that can go wrong will go wrong”.

It worked the first time and, this time, Treasury has an extra $52.7 billion in its coffers. The “Budget 2021-22” papers handed down in May 2021 showed that the government’s underlying budget deficit shrank to $161.0 billion (7.8% of GDP) this fiscal year from the A$213.7 billion (11.0% of GDP) forecast in October 2020.

Government spending (and the RBA’s accommodative policy) limited the severity of Australia’s pandemic-induced recession and allowed for a speedy recovery that, in turn, delivered an improvement in the national budget. fs

Monthly Indicators

Jun-21

May-21

Apr-21

Mar-21

Feb-21

Consumption Retail Sales (%m/m)

-

0.42

1.07

1.32

Retail Sales (%y/y)

-

7.66

25.03

2.22

9.09

0.39

68.31

137.24

22.42

5.05

Sales of New Motor Vehicles (%y/y)

-0.78

Employment Employed, Persons (Chg, 000’s, sa) Job Advertisements (%m/m, sa) Unemployment Rate (sa)

-

115.19

-30.70

69.33

76.56

2.99

6.75

4.66

7.66

6.75

-

5.07

5.48

5.70

5.87

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

-10.33

5.93

2.64

15.41

Dwellings approved, Private Sector, (%m/m, sa)

-

-7.06

-5.71

16.01

19.15

Survey Data Consumer Sentiment Index

107.21

113.13

118.78

111.80

109.06

AiG Manufacturing PMI Index

63.20

61.80

61.70

59.90

58.80

NAB Business Conditions Index

24.09

35.80

30.30

27.33

20.47

NAB Business Confidence Index

10.66

19.95

23.58

17.54

19.62

Trade Trade Balance (Mil. AUD)

-

9681.00

8157.00

6003.00

8024.00

Exports (%y/y)

-

23.15

8.24

-5.54

9.24

Imports (%y/y) Quarterly Indicators

-

17.65

7.96

4.82

-4.55

Jun-21

Mar-21

Dec-20

Sep-20

Jun-20

Balance of Payments Current Account Balance (Bil. AUD, sa)

-

18.28

16.01

10.57

16.48

% of GDP

-

3.48

3.15

2.17

3.52

Corporate Profits Company Gross Operating Profits (%q/q)

-

-0.33

-4.78

4.01

13.40

Employment Wages Total All Industries (%q/q, sa)

-

0.60

0.67

0.08

0.08

Wages Total Private Industries (%q/q, sa)

-

0.52

0.52

0.53

-0.08

Wages Total Public Industries (%q/q, sa)

-

0.52

0.52

0.45

0.00

Inflation CPI (%y/y) headline

-

1.11

0.86

0.69

CPI (%y/y) trimmed mean

-

1.10

1.20

1.20

-0.35 1.30

CPI (%y/y) weighted median

-

1.30

1.30

1.20

1.20

Output

News bites

US non-farm payrolls In the US, the much-anticipated non-farm payrolls report was released in early July. US businesses hired a total of 850,000 workers in June following a 583,000 gain in the previous month. This is higher than consensus expectations for a 700,000 gain and followed back-to-back lower-than-expected results in April and May. The unemployment rate inched up to 5.9% in June from the 14-month low of 5.8% recorded in May but remains well-above the pre-pandemic low of 3.5%, as the unemployed count increased by 168,000 to 9.48 million over the month. The recovery in the US economy, supported by increased rates of vaccination in the country should support further gains in the labour market going forward.

Eurozone PMI The IHS Markit Eurozone Manufacturing PMI rose

from 63.1 in May to a new record high of 63.4 in June 2021 – the 12th straight month of expansion.

However, rising cases of Delta variant infections had markets concerned over increased restrictions or delayed reopening. These affirm European Central Bank president Christine Lagarde’s view that the economy while starting to rebound, remains fragile.

Similarly, flash estimates of Eurozone inflation – core inflation eased to 0.9% in June form 1.0% in May; headline inflation slowed to 1.9% from 2.0% -- give that meat to Madam Lagarde’s expectation that mediumterm inflation will stabilise below the ECB’s target.

Australian private sector credit Total private sector credit growth accelerated to 1.9% in the year to May from 1.3% in the previous month.

Business credit growth improved from an annual rate of minus 3.0% to minus 2.0% in May. Personal credit was also better in May (-6.4% from -7.8%) while growth in housing credit quickened to an annual rate of 4.8% in May (from 4.4% in April) with both owneroccupied housing (6.6% vs. 6.2%) and investment housing (1.6% vs. 1.1%) picking up pace. This makes the continued rise in house prices hardly surprising.

CoreLogic’s “5 capital cities aggregate” home value index rose by 1.9% over the month of June and by 12.1% year-on-year. Home values in Hobart registered the biggest increase (3.0%) in the June month, followed by Sydney (2.6%), Canberra (2.4%), Brisbane (1.9%), Adelaide (1.6%), Melbourne (1.5%), Darwin (0.8%) and Perth (0.2%). fs

Real GDP Growth (%q/q, sa)

-

1.79

3.21

3.46

-6.97

Real GDP Growth (%y/y, sa)

-

1.11

-0.95

-3.66

-6.24

Industrial Production (%q/q, sa)

-

1.20

-0.10

0.10

-2.73

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa) Financial Indicators

- 09-Jul

6.27

4.23

-2.87

-6.32

Mth ago 3mths ago 1yr ago 3yrs ago

Interest rates RBA Cash Rate

0.10

0.10

0.10

0.25

1.50

Australian 10Y Government Bond Yield

1.36

1.52

1.70

0.90

2.61

Australian 10Y Corporate Bond Yield

1.52

1.51

1.57

1.72

3.33

Stockmarket All Ordinaries Index

7545.3

0.31%

4.04%

24.20%

18.52%

S&P/ASX 300 Index

7266.0

S&P/ASX 200 Index

7273.3

0.06%

4.01%

22.70%

16.47%

0.04%

3.98%

22.13%

S&P/ASX 100 Index

15.71%

6020.5

0.09%

4.38%

22.38%

16.46%

Small Ordinaries

3330.5

-0.20%

1.40%

25.44%

16.71%

Exchange rates A$ trade weighted index

62.70

A$/US$

0.7482 0.7730 0.7629 0.6962 0.7467

63.50

63.90

60.00

62.60

A$/Euro

0.6306 0.6344 0.6416 0.6164 0.6350

A$/Yen

82.41 84.73 83.60 74.69 82.67

Commodity Prices S&P GSCI - commodity index

531.76

531.92

471.16

333.88

481.11

Iron ore

215.78

210.19

170.32

104.61

63.13

Gold

1806.00 1894.60 1741.20 1812.10 1262.05

WTI oil

74.63

69.90

59.29

39.64

Source: Rainmaker Information /

73.93

Sector reviews

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

Australian equities

Figure 1. Australian stockmarket indices

Figure 2. Australia real GDP growth

140

6.0

CPD Program Instructions

PERCENT

INDEX (30 JUN 2020 = 100)

130

4.0

120

2.0

110

0.0

100

Prepared by: Rainmaker Information Source:

-2.0

90

All Ordinaries

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Aussie equities’ happy EOFY Ben Ong

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ustralians all, let us rejoice for we are richer at the end of the financial year (EOFY) 2020-21 thanks to the rally in the domestic stock market that most of us are invested in through our superannuation.

The All Ordinaries index appreciated by 26.4% in the financial year 2020-21, more than making up for the 10.4% loss recorded in 201920. Big capitalisation stocks, as measured by the S$P/ASX 100 index jumped by 24.0% over the past financial year (from an 11.1% drop in 2019-20) while the S&P/ASX Small Ordinaries index soared by 30.2% (from the previous year’s 8.3% fall).

Happy EOFY! This comes as no surprise given the strongerthan-expected recovery in the domestic economy and continued monetary and fiscal policy largesse.

The Australian Bureau of Statistics’ (ABS)

International equities Prepared by: Rainmaker Information Source: Rainmaker /

‘National Accounts’ show the Australian economy expanded by 1.8% in the March 2021 quarter – the third consecutive quarter of growth since the pandemic-induced recession in the March and June quarters of 2020 – taking the annual growth in GDP up to 1.1% and national output above the level it was before the coronavirus struck.

Australia’s labour market stats indicate that economic growth will continue to progress going forward. Employment increased by 115,200 in May – way above consensus expectations for a 30,000 gain and more than offsetting the 30,600 lost in the previous month and was 1.0% more in May 2021 than the start of the pandemic. The unemployment rate dropped to 5.1% in May – the seventh straight month of decline -from 5.5% in April.

Then again, as we say in financial markets or in terms of asset allocation, “it’s all relative”.

The domestic bourse’s performance leaves

Figure 1. FTSE - 100 Index

much to be desired compared with our peers.

America’s S&P 500 index has skyrocketed by a whopping 38.6% in the year to the end of June 2021 and Japan’s Nikkei-225 index outperformed the ASX with its 29.2% return. Not to mention, emerging markets’ – as measured by the MSCI emerging markets index – 33.4% pop over the same period.

While the spread of the Delta variant – and consequent re-imposition of lockdowns and restrictions and interstate border controls – presents a near-term risk, the Reserve Bank of Australia believes that the domestic economy to bounce back quickly after the recent outbreaks are contained and restrictions eased.

This, along with the RBA’s commitment to maintain supportive monetary conditions and not increase the cash rate “until 2024 at the earliest”, and barring unforeseen developments, point to further gains in the local equity market next EOFY. fs

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inancial markets widely expected the Bank of England’s (BOE) decision to keep current monetary policy settings unchanged at its June monetary policy committee (MPC) meeting.

“The MPC voted unanimously to maintain Bank Rate at 0.1% … and to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion.

The Committee voted by a majority of 8-1 … to continue with its existing programme of UK government bond purchases … maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion.”

Yet, the FTSE-100 index closed half a percent higher on the day – up 8.9% in the first six months of 2021 and up 40.9% from the pandemic low plumbed in March last year – aided by the dip in the pound sterling’s exchange rate

and the fall in the yield on 10-year UK bonds.

The British central bank’s sanguine forward guidance underpinned these positive reactions in the financial markets.

For while the BOE upgraded its GDP growth forecast to 5.5% in the June quarter from the 4.25% estimated in May and forewarned that “CPI inflation is expected to pick up further above the target … and is likely to exceed 3%”, the BOE expects that inflation will be transitory as the impact of higher energy and other commodity prices recede.

UK inflation has now reached the BOE’s 2.0% target. Headline CPI inflation accelerated from an annual rate of 1.5% in April to 2.1% in May – above the 2.0% target and the 1.8% rate predicted in the May Report. Likewise, core inflation quickened from 1.3% to 2.0%.

But have no fear:“Financial market measures of inflation expectations suggest that the near-term strength in inflation is expected to be transitory

CPD Questions 1–3

1. Which Australian equity market index recorded gains at the end of fiscal year 2020-21? a) All ordinaries index b) S&P/ASX 100 index c) S&P/ASX Small ordinaries index d) All of the above 2. Which equity market index produced the biggest return in FY 2020-21? a) All ordinaries index b) S&P 500 index c) Nikkei-225 index d) MSCI emerging market index

CPD Questions 4–6 2010

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The UK is not there yet Ben Ong

Australian equities

International equities

-1

4500

The Financial Standard CPD Program has been developed for professionals governed by the Corporations Act 2001 and hold an AFS Licence which provides an obligation to undertake continuous professional development (CPD). Test your knowledge with the following questions.

[See next page for instructions on how to submit your answers].

3. The RBA believes that the economy will rebound quickly after the Delta variant outbreak is contained and restrictions are eased. a) True b) False

Figure 2. UK inflation

8000

29

… because “Overall, there is judged to be spare capacity in aggregate in the economy at present.”

The country’s unemployment rate may have dropped to an eight-month low of 4.7% in the three months to April but “it is likely that labour market slack has remained higher than implied by this measure” because, “some individuals stopped looking for work during the pandemic and were therefore recorded as inactive”.

Similarly, the BOE explained away the recent acceleration in wages growth (to 5.6% in the April quarter) as due to compositional effects – i.e., more job losses among lower-paid workers – and the base effect of last year’s drop in wages.

“The MPC will continue to monitor the situation closely and will take whatever action is necessary to achieve its remit. The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.” fs

4. What supported the FTSE-100’s appreciation after the BOE’s June meeting? a) Weaker sterling b) Fall in 10-year bond yield c) BOE’s sanguine forward guidance d) All of the above 5. Which UK inflation measure reached the BOE’s target? a) Headline CPI b) Core CPI c) Both a and b d) Neither a nor b 6. The BOE believes that rising inflation is transitory. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. Which Japan PMI reading indicated expansion in June? a) Composite PMI b) Manufacturing PMI c) Services PMI d) None of the above 8. Which inflation measure reached the BOJ’s inflation target? a) Headline CPI inflation b) Core CPI inflation c) Both a and b d) Neither a nor b 9. The BOJ’s inflation target is 2.0%. a) True b) False Alternatives CPD Questions 10–12

10. Which country purchased the biggest dollar value of Australian exports in the month of May? a) China b) Hong Kong c) Japan d) Singapore 11. What was the price of iron ore at the end of June this year? a) US$78.33/tonne b) US$191.70/tonne c) US$214.55/tonne d) US$250.45/tonne

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

Fixed interest

Prepared by: Rainmaker Information Prepared by: FSIU Source: Rainmaker / Sources: Factset

Figure 1: au Jibun Bank Japan PMI

Figure 2: Japanese CPI inflation 4

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Japan still waiting for the sun to rise Ben Ong

T

he upward revision to Japan’s March quarter GDP growth – to an annualised rate of 3.9% (from the preliminary estimate of 5.1%) – provides cold comfort to an economy that remains stuck in a rut and continues to reel.

And it won’t get better anytime soon. More so, given recent the government’s declaration of a state of emergency for Tokyo until August 22 to curb the resurgence in infections but effectively banning spectators at the games.

This would surely dampen Olympic-related business activity but Japan probably has no choice, especially given the resurgence of infections in Japan’s capital. Infections in Tokyo rose to 920 on July 7 – the most since mid-May – from 235 a month earlier.

This would put further downward pressure on Japan’s economic growth and inflation which are still wobbling, as captured by the latest au Jibun Bank PMI surveys.

Alternatives

12. The annual growth in China’s steel production slowed in May from April. a) True b) False

Prepared by: Rainmaker Information Prepared by: FSIU Source: IEA Sources: / Factset

Japan’s composite PMI inched up to a reading of 48.9 in June – the second straight month indicating contraction in private sector activity – from May’s 48.8 in May and 51.0 in April.

“The rate of decline at services firms eased from May, while Japanese manufacturers reported the softest rise in output for five months. Aggregate new orders meanwhile fell at a softer pace in June.”

The flash services business activity PMI has improved to a reading of 48.0 in June from 46.5 recorded in May but it remained in contraction territory (below the 50-point mark) for the 17th month in a row.

Although still in expansion, the manufacturing output index eased to from 53.0 in May to 52.4 in June – the weakest rate of expansion since February this year.

Japan’s inflation measures have improved slightly but remain far below the Bank of Japan’s (BOJ) target of 2.0%. The headline infla-

tion rate was better at minus 0.1% in the year to May, from minus 0.4% in the previous month.

The annual rate of core inflation turned into a positive 0.1% from April’s minus 0.1% rate.

Still, the BOJ remains optimistic, noting in its 17-18 June meeting that, “Although the level of Japan’s economic activity, mainly in the face-to-face services sector, is expected to be lower than that prior to the pandemic for the time being, the economy is likely to recover, with the impact of COVID-19 waning gradually and supported by an increase in external demand, accommodative financial conditions, and the government’s economic measures. Thereafter, as the impact subsides, it is projected to continue growing with a virtuous cycle from income to spending intensifying.”

The BOJ decided to keep current monetary policy settings unchanged at the meeting but also extended its pandemic relief programme by six months to the end of March 2022. fs

Figure 2: Iron ore & Chinese steel production

Figure 1: Iron ore price

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China stokes iron ore Ben Ong

C

Go to our website to

Submit

All answers can be submitted to our website.

hina has severed diplomatic contact under the China-Australia Strategic Economic Dialogue. The rhetoric, threats and/or measures limiting/banning imports of Australian products into its shores, as a result, remain in place.

But looking at Australia’s trade stats, one would be forgiven for believing that Beijing and Canberra have kissed and made up and let bygones be bygones.

Preliminary estimates by the Australian Bureau of Statistics (ABS) show that the country’s merchandise goods trade surplus expanded to a record $13.3 billion in May from $9.7 billion in the previous month.

This was driven by a 1% increase in imports that was outpaced by an 11% surged in exports over the month led by a $2.3 billion (16%) jump in shipments to China in May – dwarfing the increase in exports to Hong Kong ($622 million) and Singapore ($133 million) com-

bined. Exports to Japan declined in May by 4% and 11%, respectively.

China may have put limits on many Australian products, but it still can’t live without our biggest export.

According to the ABS: “The increase in metalliferous ores to China [up 20% in May from April] was once again driven by iron ore, up $2,087m (20%) to $12,666m. This is the third consecutive record export month for both iron ore and subsequently metalliferous ores”.

No prizes for guessing but Australia’s having it both ways. China – by far its biggest buyer (accounting for 43% of total exports) – has increased demand for iron ore and the soaring price of Australia’s biggest commodity export – continue to support the Lucky Country’s economy.

Iron ore broke above the all-time high of US$191.70 a tonne recorded more than 10 years ago (February 2011) on May 6 and fetched US$214.55/tonne at the end of June.

This represents a 37.7% increase from end2020’s closing price of US$155.84/tonne and a 173.9% surge from the pandemic low of US$78.33/tonne plumbed on the 3rd of February 2020.

Certainly, China’s steel production has weakened in recent months – it has slowed from an annual rate of 13.4% in April to 6.6% in May – but this is a “base effect” function as China normalises from the distortion caused by the coronavirus pandemic. The overall trend remains on the up and up.

The China Iron and Steel Association reports that crude steel production in the January - May 2021 period had risen by 13.9% compared to the same five-month period in 2020.

Iron ore prices will remain elevated for as long as China continue to urbanise and grow which, ironically, supports the Australian economy which it wants to punish. fs

Sector reviews

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: CoreLogic and the RBA

T

he Foreign Investment Review Board’s (FIRB) 2019-20 annual report shows that just like Australians, foreigners are also in love with Australian property.

The FIRB approved a total of 7496 applications for the purchase of commercial and residential properties in 2019-20 – down 6.3% from the previous fiscal year – undoubtedly impacted by the closure of Australia’s international borders.

This led to a corresponding 36.3% drop in the value of total foreign investment in Australian commercial and residential properties in 201920. Still, the total $55.9 billion spent on buying up Australian real estate adds to the flood of money that’s sending property prices sky high.

The US led foreign property buyers with $13.1 billion worth, accounting for 23.4% of total investment in Australia’s commercial and residential properties. Singapore was in second place with $9.5 billion (17.1%) and mainland China was third with $7.1 billion (12.7%).

However, as a percentage of total foreign investments into Australia, China has allocated more into the purchase of property than any

Foreign love affair with Australian property Ben Ong

other nation. Of its total direct investment, 55.8% is into property. This is more than double America’s 26.6% allocation over the 201920 financial year.

The FIRB annual report shows that while the value of foreign purchases of commercial property dropped by 46.8% in 2019-20 from the previous financial year, the value of residential real estate buying increased by 15.4% over the same period.

Commercial property purchased by foreign nationals declined both in number – 440 approvals – and value – $38.8 billion – compared with the 487 approvals worth $73.0 billion in 2018-19.

New South Wales received the bulk of foreign inflows into commercial property (11.1%) followed by Victoria (3.98%) and Queensland (2.9%).

The FIRB approved a total of 7056 residential property applications in 2019-20 – 6.3% less compared with the previous financial year – but the total amount has increased by $2.3 billion to $17.1 billion.

Victoria received the lion’s share of foreign

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residential property purchases (43%) followed

by New South Wales and Queensland with 19% each.

The FIRB breaks down investments in residential property into “established residential dwellings” and “for development”.

The board approved a total of 1101 applications for purchase of established residential dwellings in 2019-20 (down from 1312 in 2018-19) worth $4.5 billion in 2019 (up from $1.7 billion).

In 2019-20, the FIRB approved 5660 applications for residential property development – 6.8% lower compared with the previous financial year’s tally of 6072 – amounting to A$12.1 billion from A$12.9 billion in 2018-19.

The FIRB’s approvals of residential property new development is part of its policy to encourage investment in the sector aimed at increasing the supply of new houses and thus, relieve escalating house prices.

But demand for residential property continues to grow faster on the back of the faster than expected economic recovery. fs

13. Which country was the biggest buyer of Australian property in fiscal year 2019-20? a) China b) India c) Singapore d) United States 14. Which Australian state received the biggest share of foreign residential property purchases? a) NSW b) VIC c) QLD d) SA 15. Foreign commercial property purchases increased in FY 201920 compared with the previous year. a) True b) False

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32

Profile

www.financialstandard.com.au 26 July 2021 | Volume 19 Number 14

WHEN OPPORTUNITY KNOCKS Chief executive of ClearView Financial Advice and Matrix Planning Solutions Allison Dummett has mastered the art of saying ‘yes’.

Moving across the world for adventure, she tells Elizabeth McArthur how she never shied away from opportunity.

n 1988 Allison Dummett landed her first role Ipartment in financial services, in the marketing deat Prudential.

Dummett had just moved to Australia from the US, where she grew up in Tennessee and went to university in North Carolina.

After marrying her Australian husband, she said yes to relocating to the other side of the world because she thought living in down under sounded like an adventure.

With a marketing and public relations background, Dummett’s first role in Australian financial services was fortuitous. She didn’t know it yet, but it would put her on a clear path.

“We did newsletters and PR, so I was interviewing advisers quite a bit. That’s how I got to know their business and how they helped clients. It led to me taking out my first insurance and investment products,” Dummett says.

“I was very fortunate that the managing director at the time singled me out and told me that if I wanted to advance in the company I would have to work more directly with the advisers - either in a sales role or a management role in advice.”

Shortly after, a position came up in South Australia. Dummett was newly settled into Sydney, but she doesn’t seem to have had much hesitation.

“The best thing I ever did was say yes to that job,” Dummett says.

“The two big moves in my life that have made all the difference - one was moving to Australia, and the other was taking that job in South Australia and accepting the challenge.”

But there is an art to saying yes. Dummett was determined she wanted the position in South Australia, and her husband also supported her and was open minded. He was able to transfer his role with his company to one in Adelaide too.

Dummett would manage the state office there, working directly with life insurance agents and financial advisers. She would work through radical change in the financial advice industry in her position there, seeing those roles of life agents and financial advisers merge, and the rise of holistic advice.

After just a couple of years, Dummett was tapped on the shoulder for a national role, proving her theory that saying yes reaps benefits down the track.

“At that time, we were seeing this massive take off in the managed funds business,” she recalls.

“The day to day work became much more holistic, because most of the advisors who had started off working in life insurance were getting their education and moving into more holistic financial advice.

“And we saw a whole channel of people that became specialist financial advisors, focussing on investments or superannuation.”

Dummett continued to climb the career ladder her own way, side-stepping into a technology role before returning to financial advice.

Along the way, she also started a family.

“I had my son, and then I started Matrix, and then I had my daughter. So, I describe Matrix as my middle child,” she jokes.

“I was fortunate to work with people who accepted that women could both have a family and work. ButI also made certain decisions about how I would manage my life because I wanted to do both.”

Matrix started in 1999 after Colonial acquired Prudential, Dummett says she looked at the roles on offer and didn’t really see anything that excited her.

“At the same time, there were two groups of advisers that had been Prudential supporters for many, many years. And these groups were considering whether or not they set up their own broker group,” she explains.

“I got involved in discussions with both of those groups. Then along with a longtime colleague, Pieter Franzen, we decided that we wanted to set up a dealer group.”

Along with Franzen and Dummett, 23 investors backed Matrix in its infancy - all of them advisers.

The new dealer group would support holistic, strategic financial advice and have a wide approved products list. The advisers who joined would be the kind of true believers in financial advice who were willing to invest in their own futures.

By 2013, it was time for Matrix to think about growth and what was next. Dummett decided it was time for her to step aside. She joined Count Financial, at the time owned by the Commonwealth Bank, to work on regulatory reform projects around the Future of Financial Advice reforms.

“It affected everything - the way we built processes, software, documents,” Dummett says of those reforms.

Around that time, Dummett cemented her passion for strategic advice through holding a directorship with a software company aimed at helping advisers capture client goals and do the financial modelling around them.

After just a few years at Count, and working with the software company on the side, ClearView approached Dummett. It wanted to launch a strategic advice initiative. And, at this time ClearView had already acquired Dummett’s middle child - Matrix.

“That pushed all my buttons,” Dummett says.

“I went back into the ClearView organisation and it’s just been a fantastic journey with an organisation that really supports quality advice.”

Over Dummett’s career she has seen the advice industry transform into a fledgling profession.

“I’ve been through more regulatory changes than I care to think about,” she admits.

“What I can see though is this arch of development from something that was primarily product driven that has increasingly had restrictions and professional guidance put around it.”

In this industry, I would say be ready for a bumpy ride. But the opportunity lies at the end of that bumpy ride.We are in an industry - a profession - with a very strong future.

Allison Dummett

Dummett says she marvels over how far the industry has come sometimes. She points out that the fact it was legislated that there must be a written record of financial advice has allowed a profession to blossom.

“We are able to peer review and discuss ideas and challenge each other as professionals about what good advice actually is. That is a major, major milestone in an upcoming profession,” she says.

“And then with FOFA what we saw was a concerted effort to separate products and advice, to the extent that you can under the current legislation.”

As for the latest suite of changes that hit advisers after the Royal Commission, these have presented more challenges.

“I think advisers have done an amazing job of processing a grueling amount of change in the time that all of that has landed on us,” Dummett says.

“The advisers I know are proud of what they do, and they take being professional seriously.

They’ve risen to the challenge and accepted that if we want to be taken seriously as a profession they have to invest in their education.”

Advisers are facing the same dilemma Dummett faced early on in her career: how to say ‘yes’ to an opportunity, especially a daunting opportunity.

“The very first piece of advice I would give is to be ready for an opportunity and say ‘yes’ when it’s offered. In this industry, I would say be ready for a bumpy ride,” she says.

“But the opportunity lies at the end of that bumpy ride. We are in an industry - a profession - with a very strong future.” fs