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Over the past decade QSuper have done a lot of research and thinking into developing a different investment approach for members.
Apple fans point to the company’s famous late 1990s “Think Different” campaign as marking its comeback.
It followed Steve Jobs’ return to Apple and was his way of telling the world that the company — which had lost its way without him — was back and was going to make game-changing products by being different from competitors.
Admittedly, the superannuation industry doesn’t stir the kind of emotions of Apple, but maybe it deserves to as good superannuation funds can help to set members up for comfortable living in retirement. That’s worth shouting about.
After the bruising experience of the Global Financial Crisis (GFC) when thousands of superannuation fund members around Australia had to delay retirement plans, QSuper did a lot of research and thinking into developing a different investment approach for members.
Doing the right thing by members was our motivation, not some desire to be novel and quirky.
The investment philosophy we came up with and rolled out from 2013/14 doesn’t guarantee that members’ funds will smell like roses if something as severe as a GFC comes around again. However, because of QSuper’s unique “risk balanced” investment approach, members’ investment journey may be smoother over the long haul.
The highs are likely to be less high, and the lows likely to be not as low when compared to the previous, more traditional approach. Thrills and spills are great in movies and theme parks, but not so great when it comes to your retirement savings.
The typical balanced superannuation fund is actually not very balanced (Figure 1) as it is dominated by equity risk (risk associated with sharemarket investments).1
Because of equities’ outsize influence on investment returns (both positive and negative), even a traditional 60/40 split between equities and bonds may have a far higher level of equity risk that the 60 percent headline number.
By one analysis, a 60/40 portfolio, has 90 percent of its risk in equities. That’s not diversification.1
That may be great when sharemarkets are strong, but not so good when they struggle. The allocation to non-equity risk in a typical balanced fund is just too small to counter equity risk.
“Risk balanced” investing was our response to this problem that dogs many superannuation funds (Figure 2). The QSuper way aims to achieve results in a more even distribution of risks.
Equity risk remains the largest form of risk, but that’s balanced by offsetting exposures to other less correlated risks.1
So, when equity markets are weaker, other parts of the QSuper balanced fund can kick-in. That’s because not all investment assets move together at the same time.
They tend to do well at different times and the QSuper investment approach is designed to benefit from this fact.
Said differently, the QSuper’s balanced fund is not a one-trick pony as it has multiple ways of sourcing returns.
Another way of unpacking the way we invest on your behalf is to think of QSuper aiming to meet its return objective consistently whilst allocating risk wisely, i.e. only take those risks for which we believe we will be adequately compensated.
This may seem like a statement of the obvious — something every superannuation fund does.
However, results suggest that isn’t the case as the chart below shows.
The chart shows risk versus return for 40 major balanced funds. High risk/high returns (right hand quadrant) is good. That’s a reasonable trade off.
On the other hand, there’s high risk/low return (bottom right quadrant). That’s an outcome nobody wants.
QSuper’s balanced fund has achieved something different altogether — good returns with relatively low risk.
Figure 32: Not every fund produces good returns with low risk
Note: The diagram is for illustration purposes only and is based on data sourced from SuperRatings SR50 Balanced Index (60-76) Index using median returns. SuperRatings does not issue, sell, guarantee or underwrite this product. Past performance is not a reliable indicator of future performance.
The way we invest, and the results achieved so far, challenges the adage that high returns can only come from high risks. The QSuper way is designed to aim for strong long-term returns with less risk.
1 The views of the author are not necessarily the views of the QSuper Board. This information is 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. Visit qsuper.qld.gov.au for more information.
2 The diagram is for illustration purposes only and is based on data sourced using the 10-year rolling performance number to 30 June 2018 published by SuperRatings for each fund. We use a 5-year window of monthly 1-year rolling returns (using these 60 data points) and then take the standard deviation of these 60 data points to determine a risk number and draw up a scatter plot of the risk (x-axis) vs returns(y-axis) for each fund (a single point per fund). The vertical and horizontal dotted lines represent the 50th percentile of risk and return respectively. While we believe this information is accurate, we don’t take responsibility for any inaccuracy in the data. SuperRatings does not issue, sell guarantee, or underwrite this product. Past performance is not a reliable indicator of future performance.
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