Cbus, the A$65 billion ($49.3 billion), Melbourne-based super fund focused on Australia's construction sector employees is poised to report its strongest fiscal year gain in more than twenty years, CIO Kristian Fok said Wednesday.
Briefing reporters on the last day of Cbus' fiscal year, Mr. Fok said while final performance numbers must await the close of global markets today, "we're tracking at around 19% returns" for the financial year ending June 30.
Mr. Fok, who served Cbus as an investment consultant from 1999 before joining the fund as CIO in 2012, said that result "might be the best I've experienced" — a "remarkable turnaround" from the fund's 0.75% gain for the pandemic-plagued financial year through June 2020.
Speaking at the start of the Australian superannuation industry's results season, Mr. Fok said "if you want to get a sense of who the…winners and losers will be…broadly speaking those investment firms that had the confidence to invest in the market and the capability in terms of cash flows (to do so) are broadly the winners, and those who took a more conservative approach, or were cash flow constrained," will tend to lag.
"It's fair to say that if you had investments in any of the equity markets, or equity-like market asset classes, you did well," he said.
On that score, Cbus maintained an overweight position in equities, he said. Final numbers have yet to be tabulated but as of May 31, the portfolio's allocations of 27.1% to global equities and 22.7% to Australian equities topped its strategic targets to those asset segments by 3.1 and 2.2 percentage points, respectively.
"We participated in Australian equity capital raising underwritings to the tune of about A$700 million — companies that had cash flow issues during the first lockdown" but were solid companies set to recover as economic life resumed, Mr. Fok said. Those investments were "good for our returns," he said.
Similarly, Cbus' knowledge of Australia's construction and property sectors left it well positioned to participate in direct debt lending for construction loans for residential development projects that were hurt when banks withdrew support during an extended lockdown in Melbourne, Mr. Fok said.
Meanwhile, new regulations that will tar super funds that underperform a government-mandated performance benchmark by an annualized 50 basis points over an eight year period — which some observers warn will encourage benchmark hugging — won't constrain Cbus' efforts to deliver alpha, Mr. Fok said.
Cbus manages about 35% of its portfolio internally, a structure that allows the fund to pass on the benefits of lower fees to participants and add alpha as well, he said.
"We believe that active management adds value" and the solid results Cbus has delivered over the years "gives us the flexibility to continue to pursue what we consider is a successful strategy," capable of absorbing short stints of underperformance, Mr. Fok said.
For the latest year, Mr. Fok said his team will have delivered 1.5 to 2 percentage points of alpha.
Mr. Fok said the economic and market outlooks remain fairly positive, even if the type of gains Cbus enjoyed over the past 12 months can't be hoped for going forward.
Recognizing that the market outlook could become more challenging over the coming two or three years, Mr. Fok said over the past quarter his team has deployed strategies combining puts and calls to underwrite its "willingness to stay invested in the equity market."