MLC CIO Dan Farmer plugs the value of diversification

Mike Taylor

Managing Editor and Publisher

9 April 2026

MLC chief investment officer, Dan Farmer has plugged his firm’s adherence to a well-diversified multi-manager approach while arguing that active investment retains its place despite recent challenges.

Referencing recent discussion around the underperformance of active global eqity managers relative to passive strategies over the past three years, Farmer said that as a multi-manager “we do not view active versus passive as a zero-sum contest”.

“We manage our global and Australian share investments using a combination of active, passive, and smart beta strategies. In our view, these three approaches are complementary — each with its own strengths and limitations — and together provide a more complete and balanced way to capture the equity risk premium,” he said.

“Passive investing provides a cost-efficient way of gaining broad market exposure.

“Psychological and behavioural factors influence asset prices, revealing that markets are not always efficient and that prices can deviate significantly from ‘intrinsic value’ over meaningful investment horizons. We believe these inefficiencies create opportunities for skilled active managers to add value and achieve stronger long-term returns than passive investing alone can deliver.

“Smart beta strategies, with their rules-based, systematic factor tilts, provide improved risk-adjusted returns or enhanced exposure to rewarded factors while preserving low costs and high transparency,” Farmer said.

He went on to explain that two factors significantly explain global active equity managers’ underperformance in the current cycle – sustained US equity market dominance coupled with the momentum of the artificial intelligence (AI) theme amplified by passive investment flows.

“This dynamic emphasises that passive investing is far from neutral as it mechanically inflates prices of large, and in-vogue stocks,” Farmer said.

He pointed to MLC’s global shareholdings noting that investments such as Microsoft, Apple, Nvidia and Alphabet are capturing some upside, “though at moderated weights”.

“To us, this is just one example of the merits of diversification as the complementary styles and philosophies one of one manager are balanced by those of another. Headwinds for our active global share managers have been ameliorated, to some extent, by smart beta and passive strategies.

“Our active equity managers are uncovering more stock-specific opportunities in Europe and the UK, including companies benefiting from higher structural defence spending, offsetting US caution.

“Options strategies developed and implemented by our highly capable in-house derivatives team has enabled us to benefit from the rise of technology stocks without the lags and costs associated with owing physical stocks. Hedging the Australian dollar has also meant that our members’ and clients’ global investments have been cushioned from the local currency’s rise,” Farmer said.

“Investments uncorrelated with share markets – like Insurance Linked Securities where institutional investors can invest in securities that transfer the financial risk of large natural disasters from insurers and reinsurers to capital markets – too have been important sources of return as well as portfolio diversification.

“Other alternative investments, such as those related to legal and government receivables, have also been valuable sources of returns as well as diversification from public market risks.

“In Australian shares, we believe the strong run from mid-cap and small-cap resources stocks means that the relative opportunity in industrials is looking more encouraging over a three-to-five-year earnings horizon.

“Our conviction in diversification, proven across cycles, remains firm,” Farmer said.