1 00:00:05,700 --> 00:00:08,010 Sean Aylmer: Welcome to the Fear and Greed Business Interview, I'm Sean 2 00:00:08,220 --> 00:00:11,190 Sean Aylmer: Aylmer. The 2024 Financial Year proved a good one for 3 00:00:11,190 --> 00:00:14,849 Sean Aylmer: superannuation funds with a median growth fund, which has between 4 00:00:14,849 --> 00:00:20,700 Sean Aylmer: 61 and 80% in growth assets returning 9.1%. That's about the same 5 00:00:20,700 --> 00:00:23,160 Sean Aylmer: as the previous year and well above the target for 6 00:00:23,160 --> 00:00:27,090 Sean Aylmer: most super funds. It's the 13th positive return in 15 7 00:00:27,090 --> 00:00:30,090 Sean Aylmer: years. But can it continue? To help me mull over 8 00:00:30,090 --> 00:00:32,489 Sean Aylmer: that question, I Welcome to the show Chant West Senior 9 00:00:32,490 --> 00:00:37,559 Sean Aylmer: Investment Research Manager, Mano Mohankumar. Mano, welcome to Fear and Greed. 10 00:00:38,130 --> 00:00:39,930 Mano Mohankumar: Hi Sean, how are you? Thanks for having me on. 11 00:00:40,260 --> 00:00:43,620 Sean Aylmer: Not at all. The results last year, 9. 1% for 12 00:00:43,620 --> 00:00:46,379 Sean Aylmer: the median growth fund followed about the same, a little 13 00:00:46,380 --> 00:00:48,569 Sean Aylmer: bit higher in 9. 2 I think for the previous 14 00:00:48,570 --> 00:00:51,000 Sean Aylmer: year. Was it a surprise that they did so well? 15 00:00:51,690 --> 00:00:53,729 Mano Mohankumar: Yes, it definitely was a surprise. A, it was on 16 00:00:53,730 --> 00:00:56,490 Mano Mohankumar: the back of that previous strong year and it was 17 00:00:56,490 --> 00:00:59,850 Mano Mohankumar: achieved despite the uncertain economic and geopolitical backdrop. 18 00:01:00,090 --> 00:01:02,130 Sean Aylmer: So why did they make it? Why do you think 19 00:01:02,130 --> 00:01:05,640 Sean Aylmer: they did so well? What was it that caused those returns? 20 00:01:06,569 --> 00:01:10,830 Mano Mohankumar: On average, growth options have about 55% invested in listed 21 00:01:10,830 --> 00:01:15,420 Mano Mohankumar: shares and listed shares had a particularly strong year in 22 00:01:15,420 --> 00:01:20,819 Mano Mohankumar: particular international shares, which returned about 22%. And that was 23 00:01:20,819 --> 00:01:24,929 Mano Mohankumar: really boosted by the tech sector, which performed incredibly well. 24 00:01:24,990 --> 00:01:28,289 Mano Mohankumar: And Australian shares while not reaching the same heights, also 25 00:01:28,289 --> 00:01:30,331 Mano Mohankumar: returned to healthy 12%. 26 00:01:30,331 --> 00:01:32,550 Sean Aylmer: Okay. And so I mean if you had Nvidia, for 27 00:01:32,550 --> 00:01:35,069 Sean Aylmer: example, stock that did incredibly well, and I think there 28 00:01:35,069 --> 00:01:37,650 Sean Aylmer: was some press articles about one of the bigger Super 29 00:01:37,650 --> 00:01:40,619 Sean Aylmer: funds saying they sort of sold out of Nvidia. You 30 00:01:40,620 --> 00:01:42,989 Sean Aylmer: were kind of on the wrong side of the coin 31 00:01:42,990 --> 00:01:45,719 Sean Aylmer: there because stocks like Nvidia and that really drove some 32 00:01:45,719 --> 00:01:47,128 Sean Aylmer: of these returns. Is that right, Mano? 33 00:01:47,459 --> 00:01:51,930 Mano Mohankumar: Yeah, that's exactly right. If you think about the international shares' 34 00:01:51,930 --> 00:01:56,550 Mano Mohankumar: exposure, that benchmark that the portfolios are measured against have 35 00:01:56,550 --> 00:01:59,730 Mano Mohankumar: about 70% to the US and a big chunk of 36 00:01:59,730 --> 00:02:02,940 Mano Mohankumar: that is those big tech stocks, as you know. So 37 00:02:02,940 --> 00:02:03,870 Mano Mohankumar: that's exactly right. 38 00:02:04,410 --> 00:02:07,110 Sean Aylmer: One of the trends, at least at first glance, but 39 00:02:07,110 --> 00:02:09,720 Sean Aylmer: tell me if I'm wrong, is the fact that retail 40 00:02:09,720 --> 00:02:15,240 Sean Aylmer: funds did fairly well versus industry funds. Now for many 41 00:02:15,240 --> 00:02:17,460 Sean Aylmer: years, and we've seen the ads for it, we've seen 42 00:02:17,460 --> 00:02:21,599 Sean Aylmer: industry funds say that post fees, they actually do better, 43 00:02:21,599 --> 00:02:25,110 Sean Aylmer: but in terms of your numbers, Chant West numbers are 44 00:02:25,110 --> 00:02:27,660 Sean Aylmer: fees included. But generally it looks like retail funds did 45 00:02:27,660 --> 00:02:28,950 Sean Aylmer: do a bit better this time around. 46 00:02:29,460 --> 00:02:32,940 Mano Mohankumar: Our returns, Sean, are net of investment fees and tax. 47 00:02:33,000 --> 00:02:36,990 Mano Mohankumar: And over the last 12 months, if you look at 48 00:02:36,990 --> 00:02:41,699 Mano Mohankumar: the top 10, it is actually quite a mix between not- for- 49 00:02:41,699 --> 00:02:45,300 Mano Mohankumar: profit funds and retail. It all really came down to 50 00:02:45,570 --> 00:02:48,930 Mano Mohankumar: how much you had invested in shares, really, that was 51 00:02:48,930 --> 00:02:53,399 Mano Mohankumar: the main driver. And obviously within shares, particularly if you 52 00:02:53,400 --> 00:02:55,799 Mano Mohankumar: have more in international and that you have a high 53 00:02:55,799 --> 00:03:00,090 Mano Mohankumar: allocation to the tech sector, that was a really important 54 00:03:00,300 --> 00:03:05,399 Mano Mohankumar: driver. And if you also had less in unlisted office 55 00:03:05,580 --> 00:03:09,090 Mano Mohankumar: property, you definitely would've benefited from that over the last 56 00:03:09,090 --> 00:03:12,719 Mano Mohankumar: 12 months. But then obviously it's a different story. When 57 00:03:12,719 --> 00:03:16,109 Mano Mohankumar: you look at our top 10 over the ten- year 58 00:03:16,109 --> 00:03:20,040 Mano Mohankumar: period that's completely dominated by the not- for- profit sector. 59 00:03:20,700 --> 00:03:22,770 Sean Aylmer: Is there any reason for that? Is it a fee 60 00:03:22,770 --> 00:03:24,601 Sean Aylmer: story or is it an investment story? 61 00:03:24,601 --> 00:03:28,559 Mano Mohankumar: No, no, it's really more an investment story. So you 62 00:03:28,559 --> 00:03:32,339 Mano Mohankumar: think about on average the not- for- profit funds have 63 00:03:32,639 --> 00:03:39,090 Mano Mohankumar: higher allocations to unlisted assets. While the for- profit segment 64 00:03:39,990 --> 00:03:44,488 Mano Mohankumar: on average have a higher allocation to listed shares and less 65 00:03:44,910 --> 00:03:47,759 Mano Mohankumar: in the unlisted assets. But as you can see, even 66 00:03:47,759 --> 00:03:51,148 Mano Mohankumar: over the last year, there are quite a few industry 67 00:03:51,150 --> 00:03:56,910 Mano Mohankumar: funds in there too, including (inaudible) , Australian Retirement Trust and Aware Super. 68 00:03:59,100 --> 00:04:02,190 Sean Aylmer: Okay, so you're talking about unlisted funds there, which brings 69 00:04:02,190 --> 00:04:04,500 Sean Aylmer: me to the point... We always talk about listed equities, 70 00:04:04,500 --> 00:04:07,799 Sean Aylmer: much easier to understand listed equities because you can go 71 00:04:07,799 --> 00:04:09,660 Sean Aylmer: to Wall Street or the ASX and you can see 72 00:04:09,660 --> 00:04:13,020 Sean Aylmer: what they're worth and off you go. Increasingly we are 73 00:04:13,020 --> 00:04:17,190 Sean Aylmer: hearing about unlisted assets and in the last year or 74 00:04:17,190 --> 00:04:20,670 Sean Aylmer: so, so unlisted property for example, just explain what it 75 00:04:20,670 --> 00:04:23,250 Sean Aylmer: is and it hasn't had a good run, has it? 76 00:04:24,000 --> 00:04:28,440 Mano Mohankumar: No, it's had a really difficult 18 months. So really 77 00:04:28,440 --> 00:04:32,339 Mano Mohankumar: with unlisted asset classes such as unlisted property, unlisted infrastructure 78 00:04:32,339 --> 00:04:34,680 Mano Mohankumar: and private equity, they're not marked to market as in 79 00:04:34,680 --> 00:04:38,190 Mano Mohankumar: they're not valued daily. So there is typically a lag 80 00:04:38,550 --> 00:04:42,870 Mano Mohankumar: in the valuations. And what we've seen with unlisted property 81 00:04:42,870 --> 00:04:48,480 Mano Mohankumar: in particular, well both unlisted property, unlisted infrastructure are sensitive 82 00:04:48,480 --> 00:04:53,580 Mano Mohankumar: to interest rate rises. And in the case of unlisted 83 00:04:53,580 --> 00:04:57,570 Mano Mohankumar: property, it's taken a major hit because of the trend 84 00:04:58,230 --> 00:05:00,570 Mano Mohankumar: towards working from home, which has been in place for 85 00:05:00,570 --> 00:05:02,910 Mano Mohankumar: a while, but it's probably stickier than what a lot 86 00:05:02,910 --> 00:05:08,520 Mano Mohankumar: of people expected. So that's been a significant driver of the negative 87 00:05:08,520 --> 00:05:12,390 Mano Mohankumar: return for unlisted property over the last 12 months. And in fact, 88 00:05:12,870 --> 00:05:15,450 Mano Mohankumar: it was the only asset class that finished the year 89 00:05:15,450 --> 00:05:16,500 Mano Mohankumar: in negative territory. 90 00:05:16,950 --> 00:05:18,930 Sean Aylmer: Stay with me, Mano, we'll be back in a minute. 91 00:05:25,260 --> 00:05:30,479 Sean Aylmer: I'm speaking to Mano Mohankumar from Chant West. And what 92 00:05:30,480 --> 00:05:33,750 Sean Aylmer: about... You mentioned private equity. So investing in private equity, 93 00:05:33,750 --> 00:05:36,779 Sean Aylmer: which is very much an institutional investment because it's very 94 00:05:36,779 --> 00:05:38,729 Sean Aylmer: hard for moms and dads to invest in private equity 95 00:05:38,730 --> 00:05:42,480 Sean Aylmer: directly at least. What sort of returns were they providing? 96 00:05:43,320 --> 00:05:46,260 Mano Mohankumar: Yeah. So early days in us collecting those final numbers, 97 00:05:46,260 --> 00:05:51,238 Mano Mohankumar: but we're estimating both private equity and unlisted infrastructure on 98 00:05:51,240 --> 00:05:55,919 Mano Mohankumar: average finish in that 5% to 7% range. So modest 99 00:05:55,920 --> 00:06:01,200 Mano Mohankumar: returns compared to listed equities, but both those asset classes 100 00:06:01,290 --> 00:06:06,270 Mano Mohankumar: have delivered tremendous results to Superfund portfolios for a number 101 00:06:06,270 --> 00:06:09,539 Mano Mohankumar: of years. So private equity net of fees has probably 102 00:06:10,139 --> 00:06:13,830 Mano Mohankumar: returned over the last decade, close to 13% on average. 103 00:06:13,830 --> 00:06:18,359 Mano Mohankumar: And infrastructure over the last 10 years, probably about 10 and 104 00:06:18,359 --> 00:06:21,719 Mano Mohankumar: a half to 11% per annum. So they play really 105 00:06:21,720 --> 00:06:26,790 Mano Mohankumar: important roles within a long- term portfolio and Super is 106 00:06:27,059 --> 00:06:28,140 Mano Mohankumar: a long- term investment. 107 00:06:29,730 --> 00:06:31,589 Sean Aylmer: What about some of the real assets? And when we 108 00:06:31,589 --> 00:06:34,529 Sean Aylmer: talk about real assets, we mostly... And I'm talking about listed real assets, 109 00:06:34,529 --> 00:06:37,710 Sean Aylmer: so that's sort of the property groups, infrastructure is another 110 00:06:37,710 --> 00:06:40,289 Sean Aylmer: real asset, how'd they perform. 111 00:06:40,710 --> 00:06:46,229 Mano Mohankumar: Yeah, so international listed infrastructure was 4. 5% international listed 112 00:06:46,230 --> 00:06:53,789 Mano Mohankumar: property, 2.6%, Superfunds on average have a very low allocation to 113 00:06:53,789 --> 00:06:58,410 Mano Mohankumar: those asset classes combined. So on average, it's about... A 114 00:06:58,410 --> 00:07:01,589 Mano Mohankumar: typical growth option has about 2% allocated. 115 00:07:02,610 --> 00:07:04,410 Sean Aylmer: So I mean we're going through all the asset classes, 116 00:07:04,410 --> 00:07:07,740 Sean Aylmer: this is how we better remember the defensive things like cash 117 00:07:08,370 --> 00:07:11,160 Sean Aylmer: bonds, local and international bonds, how did they perform over 118 00:07:11,160 --> 00:07:12,210 Sean Aylmer: the last 12 months or so? 119 00:07:12,989 --> 00:07:15,931 Mano Mohankumar: Yeah, so Sean, we're finally getting some meaningful returns from cash, aren't we? 120 00:07:15,931 --> 00:07:15,932 Sean Aylmer: I know. It's been a while. 121 00:07:15,932 --> 00:07:22,410 Mano Mohankumar: So cash finish a year around 4. 5%. And bonds, 122 00:07:22,410 --> 00:07:25,799 Mano Mohankumar: as you know, previous years more of a drag. This 123 00:07:25,799 --> 00:07:33,000 Mano Mohankumar: year they are in positive territory. So Aussie bonds finish 124 00:07:33,000 --> 00:07:34,980 Mano Mohankumar: a year, 3.7% up, international bonds, 2. 7% up. 125 00:07:35,400 --> 00:07:39,210 Sean Aylmer: Okay, so let's put all this together. Can it happen 126 00:07:39,210 --> 00:07:41,520 Sean Aylmer: again is the big question. And I mean I suppose 127 00:07:41,520 --> 00:07:43,950 Sean Aylmer: this comes down to the fundamental idea of what superannuation 128 00:07:43,950 --> 00:07:46,619 Sean Aylmer: investing is all about. We've had two great years. The 129 00:07:46,619 --> 00:07:49,349 Sean Aylmer: year before, I might be wrong here, Mano, but I 130 00:07:49,350 --> 00:07:52,830 Sean Aylmer: think it was the negative return possibly the 2022 financial year. 131 00:07:53,220 --> 00:07:56,400 Mano Mohankumar: Yeah, that's exactly right, Sean, negative 3. 3 was the 132 00:07:56,400 --> 00:08:02,070 Mano Mohankumar: number. So that was during FY22 and that was during period 133 00:08:02,130 --> 00:08:07,860 Mano Mohankumar: of surging inflation and central banks hiking interest rates. So 134 00:08:08,220 --> 00:08:14,099 Mano Mohankumar: we really sort of two years ago started FY23 in 135 00:08:14,099 --> 00:08:16,860 Mano Mohankumar: the middle of a lot of uncertainty. So really the 136 00:08:16,860 --> 00:08:20,070 Mano Mohankumar: aggregate return over the last two years of about 19%, 137 00:08:20,070 --> 00:08:22,619 Mano Mohankumar: it's quite astonishing given the backdrop. 138 00:08:23,100 --> 00:08:26,100 Sean Aylmer: So can it happen again? And I have seen to 139 00:08:26,100 --> 00:08:28,620 Sean Aylmer: add to all our listeners, we're not an investment podcast, 140 00:08:28,620 --> 00:08:29,820 Sean Aylmer: so you've got to go and get your own... Well, 141 00:08:29,820 --> 00:08:32,040 Sean Aylmer: we always recommend you get your own financial advice if 142 00:08:32,040 --> 00:08:35,370 Sean Aylmer: you are investing. Keeping that in mind though, Mano, can 143 00:08:35,370 --> 00:08:38,429 Sean Aylmer: it happen again? Can Super return make a 9% return again? 144 00:08:39,150 --> 00:08:41,309 Mano Mohankumar: Oh, look Sean, I've been wrong each of the last 145 00:08:41,309 --> 00:08:47,220 Mano Mohankumar: two years. Look, there is some uncertainty. As you know, 146 00:08:47,220 --> 00:08:52,650 Mano Mohankumar: inflation remains stickier than expected. There are some geopolitical risks 147 00:08:52,650 --> 00:08:56,699 Mano Mohankumar: that remain, but July is often to an absolute fly 148 00:08:56,700 --> 00:09:01,049 Mano Mohankumar: with both Aussie and international shares up 3. 5%. Look, 149 00:09:01,050 --> 00:09:04,860 Mano Mohankumar: in terms of other positive news, the US Federal Reserve 150 00:09:05,250 --> 00:09:08,338 Mano Mohankumar: seems to have gotten a little bit more comfort in 151 00:09:08,429 --> 00:09:13,589 Mano Mohankumar: recent days about inflation moving back to targets. So it's 152 00:09:13,590 --> 00:09:18,749 Mano Mohankumar: really that balance, isn't it? Bringing inflation back towards targets, 153 00:09:18,750 --> 00:09:21,900 Mano Mohankumar: but at the same time ensuring a soft landing. 154 00:09:22,440 --> 00:09:24,510 Sean Aylmer: Yeah, I mean, let's hope so. I suppose the point 155 00:09:24,510 --> 00:09:26,130 Sean Aylmer: though with Super is that we're not investing for the 156 00:09:26,130 --> 00:09:27,870 Sean Aylmer: next 12 months or five years. Most of us are 157 00:09:27,870 --> 00:09:32,369 Sean Aylmer: investing for decades. And so it is the long- term returns that 158 00:09:32,370 --> 00:09:33,450 Sean Aylmer: we should be worried about, Manor. 159 00:09:34,020 --> 00:09:37,679 Mano Mohankumar: No, that's exactly right. And if you think about the last five 160 00:09:37,679 --> 00:09:44,970 Mano Mohankumar: financial years, that really highlights the importance of maintaining that long- 161 00:09:44,970 --> 00:09:48,120 Mano Mohankumar: term focus. If you think back to early 2020 where 162 00:09:48,120 --> 00:09:50,400 Mano Mohankumar: you had the COVID in news market crisis we're in 163 00:09:50,400 --> 00:09:54,179 Mano Mohankumar: the space of two months, Super funds lost 12%, but 164 00:09:54,179 --> 00:09:58,860 Mano Mohankumar: then we had an incredibly sharp rebound. So the last 165 00:09:58,860 --> 00:10:02,340 Mano Mohankumar: five years, the returns have been negative 0. 6, positive 166 00:10:02,370 --> 00:10:07,470 Mano Mohankumar: 18, negative 3. 3, positive 9. 2, and positive 9. 1. 167 00:10:08,130 --> 00:10:11,009 Sean Aylmer: That's pretty extraordinary. Manor, thank you for talking to Fear 168 00:10:11,010 --> 00:10:11,489 Sean Aylmer: and Greed. 169 00:10:11,910 --> 00:10:13,650 Mano Mohankumar: My pleasure, Sean. Thanks for having me on. 170 00:10:14,010 --> 00:10:18,660 Sean Aylmer: That was Manor Mohankumar, Chant West Senior Investment Research Manager. 171 00:10:18,720 --> 00:10:20,999 Sean Aylmer: This is the Fear and Greed Business Interview. Join us 172 00:10:21,000 --> 00:10:23,010 Sean Aylmer: every morning for the full episode of Fear and Greed 173 00:10:23,010 --> 00:10:25,440 Sean Aylmer: Business News for people who make their own decisions. I'm 174 00:10:25,440 --> 00:10:27,029 Sean Aylmer: Sean Aylmer. Enjoy your day.