Your account has not been activated, please check your inbox for the activation email.

Insights into portfolio positioning

Amanda White




Despite an environment of continued uncertainty and risk, HESTA has maintained its exposure to growth assets, complemented by a “healthy exposure” to alternatives, says Gary Gabriel, general manager of portfolio strategy and risk at HESTA.

Bonds have played a role as the defensive asset class, but Gabriel says there is concern about longer duration fixed income, and is now focusing on shorter duration like bank loans, and also high yield debt.

Meanwhile, a quality bias across the entire UniSuper portfolio has helped the fund in the environment of continued volatility and heightened risk, says Rob Hogg, head of global strategies and quant methods, UniSuper.

“UniSuper has an overwhelming focus on quality both in the internal portfolio and the externally-managed global portfolios. When we choose to have money managers externally it’s usually a manager with a quality bias,” he told delegates at the Fiduciary Investors Symposium. “This means our investments have balance sheet strength and earnings sustainability, and that’s across all asset classes. Having that sort of focus on those sorts of assets, has placed the fund very well in the past 5-7 years in particular.”

UniSuper focuses its in-house management in areas it believes it has a comparative advantage, which is predominantly yielding equities in Australian large cap equities.

Internationally the focus is quant driven, with the process cutting down the investable universe to a population of potential stocks, focused on quality, earnings sustainability and balance sheet strength.

“Being a defined benefit fund does have an effect on the way you invest,” Hogg says. “It is more absolute return, and a cash-plus-return sphere, rather than accumulation where it is much more relative return.”

In its asset allocation process, UniSuper used growth and defensive labels to define risk, but within each asset class it looks at relative risk, for example high, moderate and low risk equities.

(Continued below)
Sponsored content

    “This influences how we think and what assets populate the portfolio,” he says, with listed and unlisted assets competing for a place in the portfolio.

    “I look every day at the expected nominal growth of the 10-year forward bond yield. When that starts to bottom out, and move up sustainably, we will we be able to have an end to this low growth environment,” Hogg says.

    Scott Tully, chief investment officer, Colonial First State, says there are four broad areas he and the team have spent a lot of time thinking about:

    1. Getting investment objectives right and setting realistic goals
    2. Building tailored portfolios and thinking more granularly about members. For example he says a member who hasn’t been engaged with super may be unaware of the volatility and could react to bad news.
    3. The active component of the portfolio. There are lots of sources of return, not related to market beta, that have not been incorporated yet, such as low volatility, smart beta, macro strategies and downside risk protection.
    4. Always taking a long-term view on investing.

    “We want [to] see through the noise. If you react to the short term you’ll always be behind. If you take a long term view you’ve got a chance of being in front.”