Like industry funds, MLC MySuper has used unlisted investments to advantage
A redesign which included greater use of unlisted and alternative assets has been credited with lifting MLC’s MySuper Growth Portfolio into a top 10 position in the most recent SuperRatings analysis.
In an approach which seemed to emulate that of a number of industry funds, MLC’s Head of Diversified Portfolio Management, Steve Gamerov pointed to the redesign delivering 30% unlisted assets in the MLC MySuper Growth portfolio.
“This result is testament to the successful redesign and enhanced resilience of our MySuper Growth product and supports our flexible and responsive investment approach, which is designed to successfully nurture members’ super over the long haul.
“We redesigned our MySuper product three years ago to give our members’ funds access to a wider set of unlisted and alternative assets, which complement listed shares exposure,” Gamerov said.
“Unlisted assets make up about 30% of the MLC MySuper Growth portfolio and strong returns from our private equity, real estate and infrastructure investments, as well as alternative fixed income exposures have underpinned portfolio resilience over the past three years of market gyrations.”
“In our view, this combination, along with dynamic risk management and ‘participate and protect’ derivatives-based strategies provides us with the flexibility to protect portfolios from various market risks, such as last year’s outbreak of inflation, while positioning them to benefit from the long-term capital appreciation power of growth assets.”
“In our view, this combination, along with dynamic risk management and ‘participate and protect’ derivatives-based strategies provides us with the flexibility to protect portfolios from various market risks, such as last year’s outbreak of inflation, while positioning them to benefit from the long-term capital appreciation power of growth assets.”
MLC’s MySuper offering uses a combination of the three investment portfolios – MySuper Growth, MySuper Conservative Growth and MySuper Cash Plus – to provide a mix of growth and defensive assets.
Alternative credit, where MLC’s MySuper portfolios acts as a lender along with other investors, has also been an important return driver.
“We have been underweight in traditional bonds for a number of years as very low yields made them vulnerable to changes in the interest rate cycle. As events have transpired, that’s proved to be a sensible decision. It has also meant that we have had to look for fixed income in different places, rather than just giving up on the asset class because of the interest rate environment,” Gamerov said.
“One of those different places is private or alternative credit, where we are finding opportunities to lend capital to private borrowers in niche segments at attractive yields through structures and collateral arrangements, where we believe we have high security of capital.
“Another area we have been able to secure stable and attractive yields has been in natural catastrophic insurance, where we have been providing capital for several years now. Returns from these alternative credits are not typically correlated with share markets or traditional bond market returns, and so they represent important portfolio diversifiers.”
Gamerov also commented on his team’s use of derivatives, which he believes is a differentiator.
“We are strong advocates for using derivatives to access markets because they can be constructed to profit in down-markets while also benefiting from rising markets. In fact, we used derivatives to participate in the metals, minerals, and energy rally and did so in a more cost-efficient and flexible way than would have been possible from owning physical securities.”
Within the MySuper portfolios, unlisted infrastructure investments include Tilt Renewables, Australia’s largest renewable energy platform, and AusNet, which owns Victoria’s regulated electricity transmission network. They also comprise high quality property assets, spread across the office, retail and industrial sectors.
“Our investments in infrastructure focus on assets that provide sustainable long-term cash flows, and have acted well to help stabilise the portfolios over the past financial year,” Mr Gamerov remarked.
Members’ exposure to growth assets automatically reduces when they near retirement age, supplemented by investment in more defensive areas such as bonds and cash, which are more likely to withstand volatile market conditions.
Hard to argue with the “if you can’t beat em, join em” but I’d like to know how they report the Risk in the portfolio, is it like the IFs where if it’s not volatile in price it’s defensive? or on an actual risk analysis basis.
IFs methodology:
Valued once a year = not volatile = Defensive, (or in the case of one fund, not even valued once a year as it would have resulted in them having a negative return, I do truly hope that CANVA starts to make money and doesn’t go bust.)
The APRA test is done on specific figures. Unlisted assets are valued “independently” however the valuers know where the fee is being paid from. This sounds like the rating houses prior to the GFC, only much worse. At the very least the potential for bias exists.