In my scanning of the financial press over the past few days I came across an interesting item reported by Financial Standard - 'ANZ Super cuts options by 40pc'. The article reported that the trustees of the ANZ Australian Staff Superannuation Scheme had overhauled its Australian and International equities portfolio by appointing new managers. By doing so they suggest that investment costs will fall by 40% from current levels for the aggressive and balanced investment options.
This is great news for members of the scheme. For those of us who are not members we can still learn a lot about how the trustees have managed this outcome. A large part of the answer comes from the investment style undertaken by the fund managers they have chosen.
No prizes for guessing that the core investment style being employed both in the Australian and International context is index investing. We are not shy in stating on our website and in our communications - index investing keeps fees lows. As the article reports "Both core managers will adopt a passive investment style, with the aim of matching or exceeding marginally the investment performance of the Australian and international share markets respectively."
Within the Australian equities component of the scheme, the trustees have appointed Macquarie Investment Management as the core manager with 70% of Australian equities now invested in the Macquarie Pure Index Fund. I tried looking for more information on this fund but kept coming to the Macquarie True Index-Linked Australian Shares Fund. The reported management fee for this fund is 0.103%, very cheap. One downside, this not actually a pure index fund as it employs an arrangement with Macquarie Life to guarantee that the fund does not underperform the actual index but the principle stands. Knowing Macquarie, they have to be earning more than 0.103% so it is safe to suggest that the risk of the underlying investments are greater than what would be undertaken if you held a pure index fund and therefore returns are actually higher than index returns with Macquarie skimming off the premium. The fund profile actually suggests that shares outside the actual index may be used.
Within the international environment the trustees have appointed Barclays Global Investors with 70% of international equities invested in the BGI Fission Index Fund. The trustees suggest that information on this fund is not publicly available. The only information I have found states that the fund guarantees that it will match the MSCI World - ex Australia Index return plus add a small premium. The fund does not officially charge management fees. Unfortunately it does not indicate what investments it undertakes to guarantee the index return and how much risk is taken on. BGI have to be making money somewhere so you can expect that the investments are not pure index investments and contain extra risk for investors as compared to holding pure index investments.
Turning a blind eye to the manufactured index approach undertaken by Maquarie and BGI for a moment, the underlying principle of reducing costs through employing a passive investment approach is extremely sound. It is what we recommend for our clients without the funky use of derivatives or other strategies to guarantee index returns - just pure index investments. (Check out our Building Portfolios for more details.)
All of this is particularly fascinating given that this is the superannuation scheme for staff of one of the 4 major banks in Australia - the ANZ. For those who were not aware, ANZ partner with ING Fund to run the funds management arm of their businesses. The majority of the funds they promote through this joint venture have an active approach to investing with fees ranging from 1.44% to 2.9%. The lower fee options are actually Vanguard Index funds which can be purchased directly through Vanguard for 0.75% retail.
Obviously the trustees of the ANZ Staff Superannuation Scheme do not follow the ANZ/ING fund management approach and prefer to use an index approach. Interesting how things change when the people at ANZ are investing their own assets for retirement and not the assets of their clients.