Transcription of Finance News Network Interview with MLC Inflation Plus Fund Co-Portfolio Manager, Dr Ben McCaw Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from MLC Inflation Plus Fund is Co-Portfolio Manager, Dr Ben McCaw. Ben welcome to FNN.
Dr Ben McCaw: Thank you, it’s a pleasure to be here today.
Lelde Smits: The MLC Inflation Plus portfolios aim to deliver certainty of returns while limiting risks. Sounds like a winning formula, how is this achieved?
Dr Ben McCaw: Well generating certainty of returns or robust returns, as we like to think about them, is more than just applying a formula. We need two key enablers to achieve some robust returns for investors. The first is that we need a risk framework that tries to capture the detail of risk, in the real world. And the second is, we need a flexible investment framework.
Lelde Smits: Could you give us an example of where the MLC Inflation Plus Funds have trimmed exposure in some areas, and added in others?
Dr Ben McCaw: So over the past six to 12 months, we’ve made the allocations away from domestic inflation linked bonds. We’ve also trimmed Australian equities and global equities as well. The reason we’ve trimmed domestic inflation linked bonds, is because yields have become severely depressed. And the risk reward relationship for that asset class has become unfavourable, in our opinion. It’s actually a big step for us because inflation linked bonds, domestic inflation linked bonds, are well aligned with the objectives that we’ve got for Inflation Plus.
So taking a step away from that asset class, is a fairly significant statement from us. Where we’ve moved those funds to, over the past 12 months, into a combination of loans, cash and duration hedged domestic credit.
Lelde Smits: So what is your current asset allocation and how might this change in the lead up to The Fed raising rates?
Dr Ben McCaw: So as you are aware, we’ve got three different funds in the Inflation Plus series of funds, a conservative, a moderate and an assertive option. So I’ll talk about the assertive option, it’s the most aggressive option. There we’ve got a 30 per cent, around about 30 per cent allocation, to global equities. Little to no exposure in domestic equities, seven per cent exposure to emerging markets. And the residual of that, is in that combination of alternative investments, cash, duration hedged domestic credit and loans.
Lelde Smits: The Fund does have exposure to both local and domestic equities. What is the Fund’s view on where the best value lies?
Dr Ben McCaw: Well we don’t think just in terms of overseas versus domestic equities. We tend to think about the types of businesses that the Fund needs to own, in order to meet its objectives. So at the moment, our strategies are more tilted towards defensive type equity strategies. So it doesn’t really matter where the businesses are, but we do want to own high quality businesses.
Lelde Smits: Now Ben, to performance. How have the Funds performed over the year to the end of April?
Dr Ben McCaw: We’re quite pleased with performance, especially given the defensive positioning of the Funds over the past 12 to 18 months. Markets have been quite buoyant and over these types of environments, we’d ordinarily expect Inflation Plus to lag a bit. But because of some efficient diversification and some sensible exposure to foreign currency and equities, we’ve gotten the funds into a position where they’ve been able to keep up with asset allocation funds, even though returns have been quite strong.
Lelde Smits: What are your expectations for the year ahead?
Dr Ben McCaw: We don’t make forecasts about what’s going to happen 12 months out. In fact, we don’t make forecasts about what’s going to happen over any particular timeframe. What we do is we try to think about what might happen. And it’s by thinking about what might happen, puts us in a position to manage risk efficiently.
Lelde Smits: Could you give us an example?
Dr Ben McCaw: No problem, this is a point in time where examples are easy to come up with. I mean we’re starting off from a position where central banks have essentially distorted the price of cash. And because of that, the range of outcomes from here are very broad. I mean on the one hand, it’s possible we could go into an inflationary regime from here. On the other hand, it’s entirely possible that we could go into a deflationary regime. They’re two very different environments, but we need to think about both of them when we’re setting up our investment strategy, for Inflation Plus.
Lelde Smits: Ben McCaw, thank you for the update from MLC Inflation Plus.
Dr Ben McCaw: Thank you for having me.
Ends
