ART has moved 1.4 million default members to its new MySuper lifecycle option
The Australian Retirement Trust has moved 1.4 million members to its new MySuper Lifecycle option, which before the age of 50 is invested in the High Growth portfolio.
The 1.4 members have in total $60 billion in assets under management, but since the previous portfolios had a large overlap with the new High Growth portfolio only $10 billion needed to be re-invested.
“We’ve made two separate sets of changes to align the member outcomes. One of those changes was to redesign and change the asset allocation and the strategy for the underlying building blocks in the Qsuper MySuper strategy,” Andrew Fisher, Head of Investment Strategy at ART, said in an interview with [i3] Insights.
“Qsuper was set up with different cohorts. The cohort up to the age of 50 was essentially 100 per cent invested in a strategy that is equivalent to the High Growth option. On the Supersavings side, up to this point, all members under the age of 55 were in Balanced and then they would transition over 10 years to Retirement.
We're moving that to all members under the age of 50 being in High Growth and then they'll transition to Balanced and Cash at age 65. So [we are] lengthening the transition window a little bit
“We’re moving that to all members under the age of 50 being in High Growth and then they’ll transition to Balanced and Cash at age 65. So [we are] lengthening the transition window a little bit, recognising that High Growth is a longer investment horizon strategy.
“And so by lengthening the transition horizon a little bit, it allows us to be comfortable and confident to increase the expected return, but also the level of growth assets required to get that for those younger members,” he said.
ART’s High Growth option consists of about 85 per cent growth assets and finished the financial year ending 30 June 2024 with a return of 11.3 per cent.
The transition is now largely completed and the portfolio is where ART wants it to be, Fisher said.
“We’ve been able to reposition and reshape the physical exposures over the last seven to nine months, so that when we got to June 30, we actually had the physical positions where we wanted them,” he said.
“And then what we’ve been doing is using derivatives over the top to maintain risk where we want it to be. So it’s been a long and really strategically planned out transition, the goal being to transition this in an accretive way from a returns perspective, but also minimise transaction costs along the way when you’re doing a big transition like this.”
Dynamic Asset Allocation
The performance of the High Growth option was largely driven by global and domestic equities, with global equities ending the financial year about 20 per cent higher and Australian equities about 12 – 13 per cent higher.
This was far better than any other asset class, including ART’s unlisted assets.
“Across most unlisted assets, I don’t think any of them will end up at double digit returns, maybe just the infrastructure and maybe just for private debt, we’ll see. But broadly speaking, they’re in the high single digits,” he said.
Despite the continued run of equities, Fisher is not concerned that global equity markets might be getting overvalued. He still sees plenty more upside potential.
Despite everything that's happened, inflation is something that equity markets and corporates are supposed to be able to pass through in higher earnings and revenues. So inflation shouldn't be as painful for equities as it is for fixed income
“From a valuation point of view, we find equity broadly neutrally valued,” he said. “Despite everything that’s happened, inflation is something that equity markets and corporates are supposed to be able to pass through in higher earnings and revenues. So inflation shouldn’t be as painful for equities as it is for fixed income.”
ART also uses a dynamic asset allocation process and targets an outperformance of 10 basis points under this program. This year’s contribution to overall returns was 9 basis points, largely in line with its target.
“Dynamic asset allocation was lucrative from an information ratio [perspective], so a very strong reward for the risk that we took. We didn’t take an awful lot of risk, though. We didn’t really waver from the base case,” he said.
“We did a lot of repositioning of the portfolios, taking advantage of the volatility, but we never established large risk positions. Those opportunities where equities get really cheap or yields fall a long way didn’t open up. But basically we hit our return target with about half the risk we might otherwise have,” he said.
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[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.