Financial Standard Comments - Telstra Super majority returns above 10%

Comment by Sam ()

Sam () — Wed, 06 Jul 2011 13:56:37 +1000

Does anyone really believe that 0.5% lower fees is the reason that industry funds significantly outperform?
Its easy to outperform when there is no trasparency with how investment funds are managed. Take Australian equities for example, there is obviously more exposure to additional risk factors than the average Australian equities large cap fund. A simple strategy of 70% allocation to market beta and 30% to the average small cap fund would have seen a return in excess of 15% last FY.
Anyone can take these risks within a portfolio, how about some more transparency from industry funds to create a level playing field.

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Comment by Andrew ()

Andrew () — Wed, 06 Jul 2011 17:09:01 +1000

That just sounds like sour grapes. More risk does not equal more return. If more risk equals more return then we should all just take more risk.
a) The ASX300 is not a large cap index
b) active managers take positions against their benchmarks and a small cap tilt is not uncommon
Industry funds are completely transparent on the biggest difference between them and Retails, which is the exposure to unlisted/illiquid assets.
If there is a persistant illiquidity premium then this will generate an excess return for them. Of course they then run liquidity risk and some industry funds have managed that better than others.

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Comment by Sam ()

Sam () — Thu, 07 Jul 2011 09:55:18 +1000

Andrew, are you suggesting that risk and return aren't related?
The ASX100 makes up in excess of 90% of the ASX300 (ASX50 makes up 80%) so it is for the most part a large cap index. However, small cap tilts within Australian Fund Managers are not significant in relation to the index unless they are a small cap or satellite type fund.
In relation to transparency, the Telstra PDS gives the following vague description on how the Australian Equities option is run:
"The Australian Shares option has 100% exposure to Australian shares. Diversification is achieved through exposure to a number of investment managers with different styles."
In comparison to a retail Australian Shares multi-manager, Russell gives a 4 page description on how their Australian Shares fund is managed as well as specific mention of market capitalisation (including a graph comparing it to other funds in regards to market capitalisation and value/growth tilts), which is noted to be market neutral over the long term. The Fund is also widely scrutinised by research houses - how many Industry Funds are covered by research houses? The link to the Russell fund profile is below.
http://rus0003.live.farmcreative.com.au/media/2488/r_pro_fnd_ausshares_v8f_web_1103.pdf
Im not suggesting unlisted/illiquid asset exposure cannot increase diversification, but how has that worked out for MTAA? Members are not aware of some of the large positions these funds are taking.
In relation to the sour grapes comment, you are partially correct. Given the it means pretending not to care about something you can't have, well there is no pretending about it, we do care, but your right the retail industry cannot have the same level of ambiguity around their actual processes.

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