Damian Lillicrap, Head of Investment Strategy
While my views on boxing have changed, when I grew up Muhammad Ali was a hero in my house. Still to this day I’m inspired by the way he combined hard work and natural talent to rise to the top in his chosen sport.
In his prime, Ali was fast, moved out of the way of trouble and struck when he saw opportunity.
As investors, we all dream of being able to move like Ali – dodging trouble and hitting opportunity. So reflecting on the last few years, how has QSuper fared in dodging and weaving those ugly bear markets?
Of course we’d love to say that we foresaw exactly how markets would unfold over the last few years. But to be frank we didn’t – well not entirely – and we would be wary of others claiming to have done this accurately.
In actual fact we were a little more sceptical about growth than most commentators, but we still hoped world growth would be stronger than it has been.
Not everyone is as frank. There are investment firms out there that will try and sell you hope. They want you to believe they are the greatest; that if you invest with them you’ll be able to save less and retire early. Just give them your money, pay them your fees and they will be your salvation (no promises of course – see the fine print!).
As part of our work we regularly interact with many prominent and well respected investment firms. These firms track how many market calls they get right. Can you guess what this figure might be? In practice it’s typically around 55 per cent even for a really successful firm.
At QSuper we don’t set ourselves a target to beat the investment returns of other super funds over the short or medium term. We think such targets lead to a focus on managing risk compared to other funds, rather than managing the risks our members face in reality, and that this kind of focus leads to having lots of super funds with similar looking equity-heavy portfolios.
So if our focus is on managing the investment risks our members face, is QSuper able to dodge and weave as Ali did? Well for one thing we don’t have all our eggs in the growth basket. That kind of strategy will shoot the lights out when shares perform well, but struggle to make positive returns when shares don’t make positive returns. Those portfolios ignore the punches that the markets can throw, believing that over the long run they can take the pain.
We do have the capacity to move the asset allocations within our multi asset class options1 around quite a bit. If we believed that we were truly great at forecasting the world, this false confidence and a misplaced hope that growth would be stronger than it was would have led us to have had much more in shares over the last few years – which would have detracted from performance. But we realise that even if we have called things well relative to others, the world is difficult to forecast. If well respected managers are still only getting 55 per cent of calls right, then setting up a portfolio with one dominate bet that assumes you need to be accurate all of the time doesn’t seem right to us. That’s why we aim to always have a broad exposure to a range of asset classes to make us more robust to unexpected punches, rather than having a portfolio that’s dominated by equities.
Ali was the greatest; at his best he was nimble and quick. He also adapted and used a range of different strategies when circumstances called for it. We have adjusted our strategy when the circumstances have called for it, and we do a bit of dodging and weaving but only to fine tune and never to dictate outcomes. Results have been good in recent years as a result of following this strategy. And while we don’t believe we are the greatest (we know our forecasts can be wrong), we do believe that our portfolio is well positioned to deliver strong, consistent returns to meet our members’ needs and remain robust to a range of economic outcomes.
There are many investors that masquerade as Alis but there was only one greatest – and even he didn’t dodge as many punches as I’m sure we all would’ve hoped he had!
1 This applies to 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.