Super funds lag on portfolio optimisation

6 April 2017
| By Jassmyn |
image
image
expand image

The Australian superannuation industry is behind in terms of how funds optimise a portfolio from a fee-for-service perspective, Northern Trust Asset Management believes.

Northern Trust Asset Management's global head of retirement solutions, Sabrina Bailey, said not a lot of super funds had not dug deep enough to break apart portfolios to truly understand where value add was coming from, whether it was from stock selection skills, bond selection skills, or from factor exposure.

Bailey said their members tended to be less informed about the difference between fees-for-value and fees.

“If that continues I would argue we would see in the Australian market as we have seen in others, a move to potentially factor strategies and/or asset mandates to try and balance out that fee from a competitive nature,” she said.

“The first place to lower fees within a portfolio is really looking at factor-based strategies whether they are engineered equity strategies, or a strategy that mirrors an index like the Morgan Stanley low volatility index managed by a provider like Northern Trust, it’s really honing in and looking at that portfolio and what’s driving returns in the portfolio.

“Are you paying active management fees and then performance is washing out for index like performance because you have 10 active managers and is there a more efficient and effective way to allocate that portfolio to essentially have no give up in the alpha in the overall portfolio.”

Bailey noted that a reduction in risk and fees would create a more efficient portfolio from an information ratio standpoint.

“Some of the leading funds are conducting this review so some of the larger funds are taking a deep dive into what is that factor exposure and how they are allocated within the competitive landscape and how do they increase that efficiency,” she said.

Bailey also said that factors would become critical in figuring out the retirement income puzzle and solving for retirement income product and solutions.

“As you enter into retirement the individuals have greater access to their assets, and are much more likely to be moved from a behavioural perspective by losses in a portfolio which is where volatility strategies comes in. So it’s managing that through factor-based strategies like low volatility,” Bailey said.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest developments in Super Review! Anytime, Anywhere!

Grant Banner

From my perspective, 40- 50% of people are likely going to be deeply unhappy about how long they actually live. ...

11 months ago
Kevin Gorman

Super director remuneration ...

11 months 1 week ago
Anthony Asher

No doubt true, but most of it is still because over 45’s have been upgrading their houses with 30 year mortgages. Money ...

11 months 1 week ago

Jim Chalmers has defended changes to the Future Fund’s mandate, referring to himself as a “big supporter” of the sovereign wealth fund, amid fierce opposition from the Co...

1 day 21 hours ago

Demand from institutional investors was the main driver of growth in Australia’s responsible investment (RI) market in 2023, as the industry continued to gain momentum....

1 day 21 hours ago

In a new review of the country’s largest fund, a research house says it’s well placed to deliver attractive returns despite challenges....

1 day 22 hours ago