Damien Egan, Portfolio Manager, Capital Markets
QSuper was one of the first super funds in the country to establish an in-house trading team in 2010. So why did we take this step and what does this team do?
The Capital Markets team, as it’s known, does several things. A key role we perform is managing the liquidity of the Fund to ensure it has the cash available when necessary to meet its obligations. These include things like payments to members and investment option switches, the acquisition of assets and capital calls from investment managers.
We also manage currency risk with the aim to manage the impact of currency fluctuations through the purchase of forward foreign exchange contracts.
And we undertake portfolio rebalancing on a daily basis so that the asset allocations of the investment options stay within the ‘lines’ or the ranges we specify on our website and in our PDS. This ensures the QSuper portfolio1 remains aligned to the stated investment strategy at all times which is critical in targeting the return objectives of each investment option.
On a daily basis we manage the QSuper portfolio by trading futures contracts to rebalance the portfolio to remain within asset allocation ranges mentioned above. A futures contract is a highly liquid contract that replicates an index, e.g. S&P ASX 2002. For example, instead of buying a proportionate amount of stocks to replicate the S&P ASX 200 the team will buy or sell a SPI futures contract which mirrors the constituents of S&P ASX 200.
This allows us to maintain exposure to Australian equities and manage the QSuper portfolio in real time. The Capital Markets team trades international equities, fixed interest and Australian equities futures contracts for the QSuper Lifetime and the Balanced, Aggressive and Moderate investment options. During times of volatility these instruments are crucial to maintain exposures without the need to call on external managers to invest/divest in physical markets without depleting liquidity.
Previously this function was outsourced to an external manager. The main benefits however of having an internal trading team doing these tasks are that it creates efficiencies from a speed to market and a cost perspective and it affords us greater control to be able to act when required.
Ultimately you can think of the capital markets function at QSuper as risk mitigation, as having this capability in-house really comes into its own during times of market stress.
In times of volatility, such as the GFC or the more recent Brexit market shock for example, when large price moves occurred across asset classes the Capital Markets team manages the QSuper portfolio to ensure the assets stay between the ‘lines’ of the asset allocation ranges.
While market volatility may cause alarm in some media circles we maintain a disciplined approach to investing that takes into account the nature of markets and volatility. The QSuper Investment team ensures that through portfolio construction each investment option3 is well diversified and positioned based on long term asset pricing views. That being said, volatile markets do provide opportunities for further investment and the investment team is always alert to invest when market conditions and pricing opportunities arise.
1. The term ‘QSuper portfolio’ is used to refer collectively to the underlying portfolios of assets which in combination make up the individual asset allocations of the QSuper Lifetime and the Balanced, Moderate and Aggressive investment options.
2. The S&P/ASX 200 index is a market capitalisation weighted index of Australian stocks listed on the Australian Stock Exchange. It is recognised as the investable benchmark for the Australian equity market and is comprised of 200 of the largest Australian listed companies.
3. The diversification process referred to is employed within QSuper Lifetime and the Balanced, Moderate and Aggressive options.
The views of the author and those who provide the responses to comments posted on this blog are not necessarily the views of the QSuper Board. We’ve put this information together as general information only and you should get professional advice before relying on this information.
Past performance is not a reliable indicator of future performance. Each of our investment options has a different objective, risk profile, and asset allocation.
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Portfolio Manager, Capital Markets
As a Portfolio Manager within the Capital markets team Damien is responsible for managing the efficient implementation of QSuper's investment strategies and the management of fund level risks.