Defensive investment strategy paid off as markets went into free fall

Putting a protection strategy in place before the coronavirus drove economic uncertainty paid off for some super funds.

BUSSQ’s premium choice balanced fund was the second best performer for the 2020 financial year.

High valuations in the domestic equity market had Simon Mather, the chief investment officer of the $5bn BUSSQ Building Super, already concerned about a potential sell-off in equity markets, well before economic uncertainty driven by the coronavirus crisis.

He put in place a defensive strategy and refocused on his fund’s global markets exposure, which he said helped the Brisbane-based industry fund to outperform the super sector in the past financial year.

“We put a protection strategy in place using derivatives and during the end of February through March when the market sold off we were able to actually turn this protectionist strategy into value for our members. We were able to make money as markets fell and offset some of the losses,” Mr Mather told The Weekend Australian.

That protectionist strategy is likely to remain in place for the next three to six months, Mr Mather said.

BUSSQ’s premium choice balanced fund was the second best performer for the 2020 financial year, booking a 2.5 per cent return for investors over the period, while the median balanced fund returned minus 1.2 per cent, according to SuperRatings figures.

UniSuper’s widely held balanced fund delivered a return of 0.9 per cent, thanks in part to its conservative approach to liquidity.

“At the height of the crisis, our high levels of cash and bonds meant we easily dealt with the drain on liquidity caused by members switching into cash, foreign currency settlements and early redemptions,” said John Pearce, the chief investment officer of the $80bn UniSuper.

“Furthermore, on top of not being a forced seller, we were actually able to participate in many capital raisings at attractive prices.

“By the end of June, we had invested over $600m in support of capital raisings. It demonstrated not just our own strength, but also the important role that superannuation plays in funding corporate Australia at critical times.”

First State Super booked a 1.3 per cent return for the 2020 fiscal year.

Damian Graham, the fund’s chief investment officer, said the outperformance was due to its diverse investment portfolio.

“We came into the start of 2020 in a strong liquidity position,” Mr Graham said.