Damian Lillicrap, Head of Investment Strategy
And one was there, a stripling on a small and weedy beast,
He was something like a racehorse undersized,
With a touch of Timor pony - three parts thoroughbred at least…
And the old man said, "That horse will never do
‘For a long a tiring gallop - lad, you'd better stop away,
‘Those hills are far too rough for such as you."
Excerpts from The Man from Snowy River by A.B. “Banjo” Patterson1
Most Aussies know how the poem ends. If you don’t, or if you haven’t read that magnificent tale for too long, see here.
A few years ago QSuper changed its investment strategy for some of our investment options2. We went for a strategy that wasn’t so fast if there was a fast track, but one like the Man from Snowy River’s horse that was more robust if there were rocky descents. A bit like that little horse some aspects of our portfolio3 were questioned. For example, the amount of fixed interest we hold drew statements along the lines of: ’yields are close to record lows, that’s no portfolio for times like these!’
But in the poem and on our journey to get our members the best possible outcome, the robust horse has done us proud. As in the poem we aren’t in a race against other funds. Having said that we always try to understand what other funds are doing, both in Australia and around the world, and what we can learn from them.
Within the industry people also watch our performance and ask given that we’ve done well with a strategy that is a bit different to most will we now think about ‘changing horses’ (i.e. move to a more traditional investment strategy) to lock in those gains? Especially as bonds, our ‘touch of Timor pony’, have done so well and can’t now provide as much tailwind as they have done in the past.
For us it comes back to our investment philosophy. The aim of investing for our members isn’t about competing with other funds, it’s about delivering the best portfolio to meet our investment objectives. If it was absolutely clear that we’d get a flat track (smooth economy) for our mounts to race along, where a pure thoroughbred (equity heavy strategy) would outperform our less pure (but more hardy) mount, than a change of mount would make sense.
However as nice as it would be to get a clear track, it is currently anything but certain that this will happen. Global imbalances have grown over the last decade and experimental policy has grown more extreme. Uncertainty about the future has never been higher. While it’s true that bonds can’t deliver as much tailwind as they have in the past, if there are significant events from all of this uncertainty, we judge our mount will continue to be robust, if a touch less than it has been to date. But while we’re conscious of the challenges our portfolio will face if we encounter a rocky descent, we’ve also considered how alternatives investment strategies would perform.
If we did experience a recession in global growth an equity heavy asset allocation is very exposed and authorities now have less resources (monetary and fiscal) to stimulate growth and to support asset prices than they ever had. If there is a rocky patch, the more robust portfolio may not do as well as it would normally, but an equity heavy portfolio is likely to do much worse.
If it turns out the world is a wonderful place, both our portfolio and an equity heavy portfolio will do well – a more traditional strategy would run faster but QSuper members would still do well with our current more diversified investment strategy. But if things go badly, things could go very badly for an equity heavy portfolio.
Some people believe in equities for the long run. But what is the long run? What if equities have a bad decade or even two? We’d like to give our members the best possible chance of consistent returns over the long run, then if they want to ramp up risk they are doing it on a solid footing.
So we aren’t looking at changing strategy. Not because of how the portfolios have performed in the past, but because of the range of outcomes that appear plausible in the future. We continue to believe that the mount that has seen us safety through the volatility of the last few years is the best possible for this range of future outcomes.
1 ‘The Man from Snowy River’ is a poem by Australian bush poet Banjo Paterson. It was first published in The Bulletin on 26 April 1890
2 This strategy is applied to QSuper Lifetime and the Balanced, Moderate and Aggressive investment options.
3 Throughout the blog 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 QSuper Lifetime and the Balanced, Moderate and Aggressive investment 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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Head of Investment Strategy
As Head of Investment Strategy Damian’s responsibilities are to guide asset allocation as well as to manage investment risk and strategy.