Hostplus bets against pack wisdom in bid to threepeat

The Australian

19 July 2018

Cliona O’Dowd

Industry super fund Hostplus is taking a contrarian view on the market as it celebrates being named Australia’s best-performing super fund for the second year running.

The fund’s balanced option posted a 12.5 per cent return for the 2018 financial year, smashing the median return of 9.2 per cent across the industry, according to figures from superannuation consultancy Chant West.

“That’s an excellent result. It’s a record-equalling ninth consecutive positive year and well ahead of the funds’ own performance targets,” Chant West senior investment research manager Mano Mohankumar said.

“The better-performing funds in the year were those that had higher allocations to listed shares and to unlisted assets — property, infrastructure and private equity. A lower exposure to traditional bonds and cash also helped, given they were the worst-performing sectors.”

Even the year’s worst performers managed to hobble to the finish line with a respectable return of 6.5 per cent.

The median growth fund has now delivered a cumulative return of about 135 per cent since the 2009 low point and 72 per cent since the pre-GFC high in late 2007.

Hostplus chief investment officer Sam Sicilia said double-digit returns in its unlisted assets boosted the fund’s performance.

Its infrastructure and property portfolios each returned 12 per cent, while its private equity portfolio returned 15 per cent.

And while others are warning of more subdued returns in the years ahead, Mr Sicilia is more upbeat. He’s content to be an outlier in the market.

“If your view is the same as the market then you’ll get the market return. The market believes four things right now: that trade wars are inevitable and will be disastrous for markets; that interest rates are surely going up; that inflation sooner or later will go up; and that equity markets are overvalued and surely there’s going to be a correction. We take a contrarian view in all four of those,” Mr ­Sicilia said.

Sharemarkets would shrug off any trade war impact, he predicted, while interest rates in Australia were not going up any time soon, with the Reserve Bank “starting to waver on their outlook”.

Inflation, meanwhile, would remain low because of the deflationary impact of technology.

“Unless you can find a way to switch off technology you’re not going to find a way to generate inflation,” he said.

Hostplus’s equity exposure, sitting at 53 per cent, is made up of 25 per cent Australian shares, 20 per cent international shares and 8 per cent emerging market shares. The fund is looking at taking a little bit off the table in Australian shares — 1 per cent or 2 per cent at most — and moving it to international shares to gain more exposure to a broader range of industries.

It has a zero allocation to cash and a 2 per cent allocation to fixed interest that it would also soon move to zero, Mr Sicilia said.

The second-placed AustSafe MySuper Balanced fund, which recently announced it was merging with industry super fund Sunsuper, booked an 11.4 per cent return. Statewide Super placed third with an 11.3 per cent return, while AustralianSuper’s balanced option came fourth with an 11.1 per cent return. Cbus Growth rounded out the top five with an 11 per cent return.

Industry funds overwhelmingly dominated as the top performers, taking out every spot in the top 10 and returning an average 10.3 per cent last year compared with retail funds, which averaged 9.3 per cent. Industry funds have also outperformed over the long term, returning 8.1 per cent over the past 15 years compared with their retail peers, which returned 7.2 per cent.

“Over the longer term, industry funds have outperformed retail funds largely because of the way they allocated their investments and their preparedness to vary those allocations to suit changing market conditions,” Mr Mohankumar said.

“They tend to have higher allocations to unlisted assets such as private equity, unlisted property and unlisted infrastructure. This means they have less invested in traditional asset classes such as listed shares, REITs and bonds.”

Hostplus was the top-performing balanced fund in Australia over one, three, five, seven and 15 years, while UniSuper balanced was the best-performing fund over 10 years.