Funds adopt core/satellite investing strategy
Cost pressures are driving super funds to adopt core/satellite investment strategies, Jamie Nicol, Dalton Nicol Reid's chief investment officer said.
Core/satellite approaches to investing had gained traction over the past 12 months and were currently the "flavour of the month", Nicol said.
He said super funds were cutting fees by bringing the core investing in-house and outsourcing the satellite investing to active, alpha-seeking managers.
"You're not paying fees for 10 per cent holding in BHP where it costs three managers…and you can concentrate your portfolio on some high alpha generating fund managers," he said.
"Some of them are bringing (investment) in-house and managing a certain part of their Aussie equities themselves, and that's really the core - then they'll look for extra alpha-producing active managers such as ourselves as a satellite," he said.
Nicol said core/satellite approaches were the domain of the bigger funds, which had a higher propensity for running into capacity difficulties issuing mandates, and which also had more resources to bolster internal capabilities.
"As it (a superannuation fund) gets larger, it's going to get difficult to find fund managers that have the capacity to do the job.
"It would be difficult to produce alpha on the amount of money they have to invest, so if they have some core money invested largely in index style, and then look for satellite-type managers to deliver some excess return, then that seems like a reasonable approach," he said.
Nicol said strategies often operated in cycles, so it was unclear if it was just a fad.
He said if internal investing teams were unable to generate the expected performance, funds would probably outsource the function again.
AUTHOR
Staff Writer
Money Management staff writers are writers who contribute to the website from time to time. If you would like to discuss the content contained within this article please contact us.
Recommended for you
Australia’s largest super funds have deepened private markets exposure, scaled internal investment capability, and balanced liquidity as competition and consolidation intensify.
The ATO has revealed nearly $19 billion in lost and unclaimed super, urging over 7 million Australians to reclaim their savings.
The industry super fund has launched a new digital experience designed to make retirement preparation simpler and more personalised for its members.
A hold in the cash rate during the upcoming November monetary policy meeting appears to now be a certainty off the back of skyrocketing inflation during the September quarter.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
215.17 3 y p.a(%)
2
Loftus Peak Global Disruption Fund Hedged
118.15 3 y p.a(%)
3
Global X 21Shares Bitcoin ETF
75.00 3 y p.a(%)
4
UBS Solactive Global Pure Gold Miners UCITS ETF Dis USD
61.11 3 y p.a(%)
5
Global X Ultra Long Nasdaq 100 Complex ETF
60.93 3 y p.a(%)
