Active management to navigate YFYS performance test: Cbus

Despite concerns around index hugging as a result of the Your Future, Your Super performance test, Cbus believes active management will ensure consistent outperformance.

Speaking at a media briefing, Cbus chief investment officer, Kristian Fok, said the fund had returned 19% for the 2020/21 financial year and one of the strongest contributors to the performance had been active management.

Fok said around 1% of the fund’s return was from the contribution made through active management decisions on the equities side of the portfolio.

“It definitely came from different areas this year. In previous years it came from tech stocks and online type companies whereas this year, having seen moderate rotation around those stocks into what would be called value or value-aligned to recovery type stocks, meant that having a well-balanced portfolio in terms of investment styles has been important to ensure consistent outperformance,” he said.

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Fok said the fund had been mindful of the performance benchmarks but that “there’s no point in taking on and deviating from the performance benchmarks that they put forward when there is no clear reason to do that”.

“But we’ve had this very strong track record and quite consistently of outperformance against that benchmark,” he said.

“So, for us it gives us the flexibility to continue to pursue what we consider a successful strategy. It will be in my view another business factor that we need to be mindful of in investing.

“The introduction of benchmarks in unlisted space that more aligned with the type of investments has been an improvement. Ultimately, we’re there to drive the best risk adjusted performance for members and that has been illustrated again this year.”

Fok noted that there were times when wholesale underperformance of active management occurred where three-quarters of the universe could underperform. However, it was usually followed by strong active management performance either the year after, or the year after that.

“We certainly have the capacity of our track record to absorb those short stints where there’s an incredibly difficult environment for active,” he said.

“When you have a lower return environment it’s going to be incredibly important to find as many ways as possible to add that extra 0.5% and 1% in returns especially when you compound it for 20 years it really adds up.

“From our perspective it comes from two key areas – insights we bring and our philosophical belief about applying that to add value beyond market and secondly reducing costs we can avoid. There are certain reductions in returns and if we can avoid that as much as possible then that’s also high returns for members.”