Women worried about their retirement funds: MLC

Ahead of International Women’s Day, MLC is raising awareness about the importance of superannuation and the amount of savings women will need in retirement.

Women retire with 40% less super than men which means too many women are risking a very basic lifestyle in retirement.  Additionally one in four women will have little or no super at retirement age.

MLC spokesperson Lara Bourguignon said this International Women’s Day MLC is encouraging women to take an active interest in their super to help overcome the retirement savings shortfall.

“While the issue is on the minds of most Australians, people are not doing enough about planning for their retirement, particularly women who have a larger savings shortfall than men,” Ms Bourguignon said.

“International Women’s Day is about empowering women financially and so it’s a great reminder for women to take some small steps today to make sure they have enough superannuation to last through retirement.”

MLC data about women and super shows:

• Australians are living longer – and women live longer than men (a 60 year old male is expected to live on average to 85 and a 60 year old female to 90)
• The average super balance for men in Australia is just under $300,000, but the average super balance for women is just $195,000
•  56% of Australians expect a financial shortfall at retirement and one third of women (36%) say they’ll have far from enough money at retirement
• Women retire with 40% less super than men as they take time out to care for children and their elderly parents, and often work part time
• Women experience significant economic inequality.  A young woman of 25 today will earn almost 50% less over her lifetime than a young man of the same age
• 47% of women are unprepared for retirement
• Almost half (45%) of women think they will struggle to make ends meet or just be able to afford the basic living expenses in retirement
• Just 35% of women have a formal retirement plan in place compared to 43% of men

Top tips for women to boost super:

• Awareness is the first step in taking action.  Take action today and don’t wait.  Think about the retirement lifestyle you want, how much you might need to retire on (use an online super calculator) and check out what your super balance is.
• Seek financial advice – find out how you can maximise and protect your super and how it complements your other investments like the family home.
• Consolidate and sacrifice your super – your superannuation is real money and it’s yours, so look at it like any other savings account.  Changing simple things today like finding lost super, consolidating your super and sacrificing a couple of extra dollars each week of your salary can make a big difference.
• Co-contribution – low income earners should consider making the most of the Government’s co-contribution scheme.  If you earn under $48,517 and make a personal after-tax superannuation contribution, the Government may contribute up to $500 per year to your super.
• Income – consider investing in a pension product with longevity protection that eliminates the risk of outliving your savings.

“It’s never too early to start planning for retirement.  It’s really important women take action today to secure the retirement lifestyle they’ve imagined and deserve,” she said.

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New low-cost product helps manage investment risk

MLC has reduced fees for the award winning MLC MasterKey Investment Protection product, offering customers a lower cost option to manage the risks they face to fund retirement.

MLC MasterKey Investment Protection is a retirement solution allowing Australians to stay invested in growth assets at the same time as protecting their superannuation or pension income from market downturns.

The MLC Investment Trends survey recently highlighted the two greatest things that individuals feel they are least prepared for when it comes to their retirement: outliving retirement savings and falls in financial markets. MLC Investment Trends 2012 Retirement Income Report, based on a survey of more than 7,000 Australians aged over 40.

“People saving for retirement are faced with the unique challenge of having to maintain an investment in growth assets in order to build sufficient savings, and convert these savings into an income stream to last their lifetime. This all has to be balanced with managing their exposure to market risks,” MLC General Manager Retirement Solutions Andrew Barnett said.

“We’re pleased to be able to reduce the cost of MLC MasterKey Investment Protection for people saving for or already in retirement, so that they can invest for growth while protecting their retirement savings or income.”

MLC MasterKey Investment Protection is designed for individuals over 50, with accumulated savings of between $30,000 and $2 million. Their super or pension income can be protected for terms of 10 years, 20 years or for life.

The reduction in fees applies to both the protected capital and protected income for new customers, effective 1 November 2013. The reductions vary between 0.20 and 0.90 per cent per annum depending on the type of protection, term and optional extras chosen.

Funds under management in MLC’s MasterKey Investment Protection have grown to more than $150 million since launching in December 2012.

In addition, MLC MasterKey Investment Protection recently won the 2013 Chant West ‘Best Fund – Longevity Product’ award.

The product is rated ‘Recommended’ by Zenith and Lonsec and adviser dealer groups including Capstone, Futuro, Lonsdale, Sentry, Synchron, CUA and Meritum have recently added it to their approved product lists.

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MLC, one of the country’s leading asset and wealth management firms, will invest into its flagship vehicle, the BlueMountain Credit Alternatives (BMCA) Fund.  This will be held within MLC’s Low Correlation Strategy, which has returned 10.9% since inception with a correlation of -0.1% to the MSCI AC World Index.
 
“BlueMountain has built an enviable record in achieving alpha in the credit markets over the past 10 years and we think they will provide a return profile that is attractive and complementary to our diversified portfolios,” said Gareth Abley, Head of Alternative Strategies at MLC.
 
“We have been speaking to the BlueMountain team for some time before reaching this decision.  We have been impressed with their collaborative culture, intellectual rigour and their comprehensive, multi-strategy approach to credit investing,” Mr Abley added.
 
MLC is the wealth management division of National Australia Bank, and provides investment, superannuation, insurance and private wealth solutions to corporate and institutional customers.  As of September 2012, MLC managed approximately $120.8 billion on behalf of individual investors and corporate customers in Australia.
 
“Australia is one of the most important markets in the world with a retirement savings pool of $1.4 trillion and we have invested a lot of time and effort to build relationships there,” said BlueMountain President and Co-Founder Stephen Siderow. 

“We believe MLC was attracted to our distinctive relative value investment approach that combines three core areas of expertise: fundamental research on companies, quantitative analysis of market relationships, and technical understanding of market dynamics and instruments/structures.  They are a sophisticated client and we are delighted to have them on board.”
 
BlueMountain’s flagship BMCA fund is a relative value, multi-strategy credit fund, which allocates capital across three broad portfolio strategies: fundamental, structured credit, arbitrage and technical.  The firm has successfully pursued these strategies since the fund’s inception in 2003.
 
BlueMountain is an Affiliate of the US-based Affiliated Managers Group, Inc (AMG), a global asset management company with equity investments in leading investment managers.  AMG has opened a number of offices around the world in the past six years, including in Sydney, to help its Affiliates seamlessly do business outside their home bases.

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In a telephone conference with several hundred financial advisers, MLC informed advisers that active managers with strong investment processes and strong investment discipline, are more likely to pick up stocks at very attractive prices relative to their medium-term growth
opportunities.

Jonathan Armitage, MLC’s Global equity portfolio manager said: “It’s times like this, where we continue to witness not just market volatility but individual stock volatility, that the critical role of an active manager, in producing strong returns, becomes really clear.

“If you look at the top 10 moves in the Dow Jones index since it was created in its current form back in the 1920’s, over that period, four of them have happened in the last two weeks.

“In the same two week period, we have also seen our managers, some of whom have been holding quite high cash positions which has held them in very good stead in the recent volatility, put that money to work and invest in some high quality stocks,” said Mr Armitage.

“Interestingly, last week we saw a surge in insider buying, not seen since March 2009. It was reported that 50 managers in over 60 companies in the US bought stock in their own companies, last week.

“The point is that an active manager will use this period of uncertainty and volatility to pick up very high quality stocks at what should prove to be extremely attractive valuations for the medium term,” he said.

MLC also launched a brand new online Market Volatility Toolkit, built in response to the market volatility of the last two weeks, which supports financial advisers have conversations with their clients during these uncertain times and provides them with a range of useful tools and the
latest information.

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The move comes after 14 years with the dealer group, Charter Financial Planning, who is owned by the AMP Group as a result of the recent merger with AXA Asia Pacific Holdings Limited. Integra has met their 90 days notice of termination period requirement with AXA/AMP and have officially
become authorised representatives under Garvan.

In response to the proposed Federal Government’s Future of Financial Advice (FoFA) reforms and the acquisition of AXA by AMP, Integra took the opportunity to review the offerings that are available in the market place in preparation for future growth and industry change.

Deborah Kent, Managing Director of Integra said ”With the proposed changes under FoFA along with consumer education around fees, commissions and volume based bonuses, it was important to us to align our business with a Licensee who fits our business model and will partner with us into the future, embracing industry change and assisting in building good advice businesses.”

“We were very impressed by the increased range of services, products and resources that will not only benefit our valued clients but will also extend to our business partner network” Deborah Kent said.

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We consider that Mr. Duncan’s departure, together with Jason Hazell’s departure earlier in 2010 has resulted in a loss of multi-management experience and expertise, as well as knowledge of the fund and the underlying managers. The effect of these departures has led to our reduced rating conviction.

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“We hold new portfolio manager, Stuart Keighran in high regard, although his multimanager role is somewhat of a departure from his previous role as a property securities fund portfolio manager,” said S&P Fund Services analyst Peter Ward.

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“We expect conviction to build as Mr. Keighran settles into his new role and builds his fund manager knowledge and relationships with assistance from his MLC team members. His strong investment experience will stand him in good stead, together with the framework provided by MLC’s multi-manager research, philosophy, processes, and portfolio implementation capability,” said Mr. Ward.

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The funds affected by this announcement are:

(headline funds in bold)

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There is always the danger that commenting on the economic and market impacts of an event such as the Sendai earthquake and the subsequent tsunami can be seen as trivialising the event; somehow downplaying the enormous human suffering. Nevertheless, there are consequences for the economy and for markets that require a considered response, without diminishing our horror and deep sorrow at the human cost of the catastrophe.

As this piece is being written, the official death toll in Japan stands at 3,373, and is expected to climb well above that figure. A series of explosions at the Fukushima Nuclear Power Plant has raised grave fears of a nuclear disaster. In the financial markets, share prices in Tokyo have now fallen by nearly 20% since the close of trade prior to the earthquake. Share prices across the region are also sharply lower today – particularly as  developments at the nuclear plant have worsened. The yen has strengthened against the US Dollar, perhaps reflecting speculation about, rather than actual, repatriation of Japan’s offshore assets.

It is too early for anything more than educated guesses to be made about the short-term negative impact on Japan’s economic performance, not least because the extent of the radioactive leakage from the Fukushima plant is highly uncertain. According to estimates from Barclays Capital, the affected area accounts for over 6% of Japan’s GDP, 6.8% of the population, and 7.2% of Japan’s private sector capital stock. At this point, analyst estimates of the initial adverse impact on GDP are utterly unreliable, as are estimates of the likely boost to measured economic growth that will result from the repair and reconstruction work. That said, it is still worth noting that all such catastrophes produce both an initial adverse impact on recorded economic growth, and then add to measured growth as the recovery work gets underway.The timing and the magnitudes involved are of course uncertain and highly variable.

What follows is our assessment of what the catastrophe might mean for the Japanese, world and Australian economies, and how MLC portfolios have been affected.

For Japan, the broad impact of the disaster on growth is likely to follow the pattern outlined above, however, there are broader issues at work also. Japan’s fiscal position is already dire, and the Government’s share of the reconstruction and recovery effort is likely to put enormous pressure on the nation’s finances. It is highly likely that taxes will need to increase, at least temporarily, to fund at least part of the cost and that is likely to have an adverse impact on private demand, which has been anaemic to begin with.

While Japan is the world’s third largest economy, the global recovery has not depended on Japan for its momentum – the contrary is true. Japan’s recovery has been highly export dependant. As Capital Economics puts it, Japan has been a passenger in the global recovery and not the main driver. The world is still a highly uncertain place, and there were ample issues to worry about prior to the quake and tsunami (peripheral Europe, the Middle East etc.). In saying this, the world economy is perhaps better able to withstand the kind of shocks currently being experienced than it was two years ago.

For Australia, Japan is still a major trading partner – the Australian Bureau of Statistics merchandise trade data show that in 2010 Japan took 19% of Australia’s goods exports by value, with resources accounting for the lion’s share. The short-term disruption to Japan’s industrial activity is likely to curb demand for Australia’s exports in the short term, however, the recovery effort is likely to be resource intensive, and provide something of a boost to our exports to Japan over time. At this point, we see no reason to change any medium-term view about the likely performance of the Australian economy or financial markets.

At MLC, our portfolios are extremely well-diversified across asset classes, investment managers, countries, industries, and individual securities. In the event of a catastrophe such as this, diversification is perhaps the only protection available to investors, but nevertheless, portfolios have been adversely affected, although some exposures within portfolios will actually have fared quite well.

In global equities, Japan accounted for 8.6% of the MSCI All-Country World Index at the end of February 2011. All except one of MLC’s global managers have Japanese exposure (Sands Capital being the exception). The overall portfolio, however, is underweight in Japan.

Moreover, MLC’s Japanese equity holdings have fared substantially better than the overall Japanese market, reflecting the high quality, and somewhat defensive nature of our holdings. While many of the Japanese companies we invest in will experience disruption to their businesses, it is also important to recognise that many Japanese companies are highly globalised, with production facilities and operations across many countries. The major car companies are an obvious example.

Our global listed real estate portfolios also have Japanese exposure, and some of the Australian REITs we invest in also have assets in Japan. Reports so far suggest that our exposure to the main affected areas is minor.

Australian shares have also fallen in value in recent days, and individual stocks we hold in MLC’s Australian shares strategy will have been affected – both adversely and positively – by the events in Japan. Among the insurance stocks we hold, QBE has already announced its exposure to Japan and its share price has suffered somewhat. However, its exposure is modest when viewed in the context of its overall reserves; the impact on MLC’s portfolio has been minor. On the other hand, other holdings in the portfolio, such as Bluescope steel has seen its share prices fare relatively well in the aftermath of the quake. In addition, MLC’s portfolio is significantly underweight resources stocks that have fallen further than the overall market in recent days, and has little or no exposure to the smaller uranium stocks, where prices have plummeted.

Within MLC’s debt portfolios, our exposure to Japanese debt securities has been minimal, reflecting the very low yields on offer in the Japanese Government Bond (JGB) market. Our exposure to Japanese corporate securities is virtually non-existent as spreads over JGBs have been way too tight to attract the interest of our managers.

Prior to this disaster a number of investment managers – both those we currently engage and those we do not – have expressed a view that Japanese equities were attractively valued, and even some traditionally cautious, value-oriented managers have noted that they were seeing opportunities in the Japanese market for the first time in many years. The market contains many quality companies with truly global franchises that will survive this disaster, and eventually continue to prosper. Moreover, there is a chance that this crisis will bring about the kind of decisive policy action that could help end Japan’s twenty-year long economic malaise. Please forgive the harsh end to this briefing note, but the role of our active managers, is to look through the human tragedy and seek out opportunities that inevitably arise in the wake of disasters, and that is just what they will be doing.

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MLC Wrap leverages the strengths of the Navigator and MasterKey Custom platforms, creating a platform which is rich in functionality and investment options.

MLC Wrap offers a diverse investment menu, with an integrated separately managed account service and a complete solution for self managed super fund (SMSF) investors.

Furthermore, the platform is underpinned by Navigator’s award winning technology, n-link.

Executive General Manager of MLC Investment Platforms, Michael Clancy said, “MLC Wrap is built on award winning platform technology which provides financial advisers with comprehensive reporting capabilities and online straight-through processing.

“It also has an extensive range of Adviser Service fee options, enabling advisers to collect fees for advice in the way that best suits their business model.  Options include charging flat dollar or asset based fees, indexed and tiered fees.

“In a world where advisers are transitioning to fee for service, offering flexibility in the way these fees can be collected is a critical platform capability and MLC Wrap offers the most flexibility in the market.

“With its sophisticated technology and extensive investment menu, MLC Wrap is the most feature packed platform currently available for sophisticated and high net worth investors,” Mr Clancy said.

MLC Wrap’s features include:

• An extensive range of investment options including more than 300 managed funds, ASX listed shares and other listed securities, such as exchange traded funds (ETFs), listed investment companies (LICs), interest bearing securities and instalment warrants.
• A selection of eight direct share portfolios within a separately managed account.
• Access to term deposits and a high interest cash account.
• An SMSF solution for the establishment and ongoing management of a client’s fund, including an extensive compliance and administration service.
• Access to personal insurance and margin lending products with the ability to tax effectively pay insurance premiums from a member’s super or SMSF account.
• A simple, competitive and transparent pricing structure across superannuation, investments and self managed super products.
• A flexible range of adviser service fee options including flat dollar or percentage based fees with multiple variations on how these fees can be applied.
• Award-winning technology that provides advisers with easy-to-use online solutions and real-time information, making it easier for advisers to manage clients’ investments and run their business more efficiently.
• Sophisticated portfolio management and tax optimisation tools, real-time workflow tracking and comprehensive client and business reporting functionality.

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The changes are part of MLC’s continuous assessments of its multi-manager strategies and are designed to further align the manager arrangements with the objectives of each fund.

Peter Sumner, MLC Investment Management’s Australian equities Portfolio Manager said, “Previously we have managed the Australian equities component of the Horizon portfolios and our Australian share sector fund as a single strategy. Both strategies employed the same managers with the same mandates.

“Going forward we believe clients’ interests will be better served by separating these strategies. The diversified funds and the sector fund play separate roles within a client’s portfolio and clients want different things from each of them. We therefore believe it is appropriate to separate the strategies, allowing them to respond independently to changing market conditions.

“Both strategies will retain their access to a suite of high calibre Australian equities active managers and will benefit from cost and tax efficiencies that MLC is able to achieve.”

As part of the strategy changes MLC Investment Management has terminated the mandates of Lazard Asset Management and Contango Asset Management. No new managers are being appointed and the portfolios have been reweighted across the remaining eight managers.

“While both the diversified funds’ strategy and the sector fund’s strategy will initially employ the same managers, the manager allocations for the two strategies and some manager mandates differ,” added Sumner.

Under the new arrangements each strategy will have the flexibility to make independent manager appointments, manager weightings and mandates as required.

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Many investors are cautiously bullish about the coming year, particularly following confirmation of extension of the Bush tax cuts and the surprise 2% cut in payroll tax. This is expected to boost US growth by 1% plus, which may take it to above potential levels and start to lower unemployment.

The chart below highlights the stark difference in the performance between the 1930s and current financial crises – these two episodes are circled on the left and right hand sides of the chart respectively. While US growth was flat in 2008 and dipped into negative territory (-2.6%) in 2009, last year saw a significant rebound (the 2010 figures in the chart are for periods to end September 2010). This is in stark contrast to the 1930s experience when growth averaged -9.4% during 1930-32. The other interesting difference lies in what happened to savings behaviour. In both cases total net savings (relative to GDP) declined but the extent of public sector dis-saving is today on a scale not seen in the 30s. It is this fiscal stimulus, together with the dramatic monetary policy response, which allowed the economy to expand last year.

The public sector stepped in to take up the slack as households increased savings, thus avoiding the paradox of thrift (in which more savings reduces demand and hence incomes which ends up increasing  debt). The difficulty with this strategy is, of course, spiralling public sector debt. For a time policy makers have to promise fiscal austerity while carrying on spending until the recovery becomes self sustaining…which hopefully occurs before bond holders lose confidence and grow wary of lending governments more money. Even if bond holders keep their nerve, policy makers know that as debt levels rise the risk is that GDP will slow down as the debt service burden grows. The US public sector debt is now US$14 trillion(!) and above the 90% of GDP threshold believed significant for growth rates.

US policy makers know they are in for a multi-year consumer deleveraging process, that will constrain growth unless there is an offset…hence they are chancing further fiscal stimulus, hoping that it will keep things going until the recovery is self sustaining. However, it’s not clear that the fiscal stimulus is being targeted in the right way. To fix a structural employment problem they likely need public sector infrastructure programs aimed at job creation (i.e. investment as opposed to short term boosts to consumption). All fiscal stimulus of course increases debt, the reverse of what eventually must happen. It is a difficult trade-off – is more shorter term growth worth more than longer term austerity? It is if there is sufficient risk of a Japanese style liquidity trap.

While the US has plenty of problems (at least the growth outlook for 2011 is encouraging. Elsewhere policy makers have opted for fiscal austerity. Consequently, growth potential in the UK, Euroland and Japan is likely to be sub 2% in 2011.

The Eurozone, a coalition of illsuited and (some) dysfunctional partners, is scrambling to avert a new crisis. Economic conditions are not uniform. The core countries are doing okay, partly because they benefit from a lower exchange rate due to the influence of the risky Euro periphery. In contrast the periphery suffers from too high an exchange rate, increasing pain for the real economy. This increases the need for more fiscal stimulus, except that this is difficult since it’s already clear that many Euro periphery bond holders will suffer a hair cut on outstanding sovereign bonds and would be reluctant to invest more. Hence the stronger core is left to finance the weaker periphery.

The problems here look like going on and on. It is unclear how Spanish problems will be resolved, it is both too big to fail and too expensive to save. Policy responses to date have been reactive, and aimed at muddling through rather than finding a final solution. The German voters are impatient and its policy makers have been accused of dithering and acting at the last minute when forced to avert a new crisis.
However, the German economy is doing well and there is some acceptance of the need to change behaviour and support weaker members. This suggests that despite all the problems the Euro may survive.

Clearly policy makers face a range of highly unpleasant risks.Identifying the best policy stance is extremely difficult. The path forward is still very uncertain and policy makers will continue to be forced to react to emerging conditions. An added danger is the fracturing of the post crisis policy coordination, and increased focus on beggar-thyneighbour policies. Protectionism will result in a poor outcome for all.

It is clear that in the near term the global economy is highly dependent on the US and the emerging world, particularly China. Unfortunately China also has issues. It is struggling with the flow on effects of an
inflexible exchange rate, in particular spill-over from the loose US monetary policy. This increases excess liquidity, boosts short term growth but also creates instabilities…in particular what may be a bubble in the (vast) property market. The challenge for policy makers is to reduce the bubble risks without derailing economic growth.

Stellar Chinese growth is also creating labour shortages and wages are rising rapidly (over 20% in 2010). Commodity prices too have risen strongly following the most extraordinarily massive Chinese fiscal stimulus. Oil is around $90 a barrel and many soft commodities are up by around 25% over the past six months. (Note that China is no longer a source of disinflation for the rest of the world…this is not an issue now, but will be later.) With inflation picking up (particularly food prices, which can have implications for social stability) there is concern that policy makers are acting too slowly. They may be overly worried about a property market decline, this is a planned economy and the impact on the real economy may be limited by strong infrastructure spending.

While China is trying to engineer a soft landing, more fundamentally it also needs to increase the consumption share of GDP and rebalance a highly skewed economy.However with China getting ready for a handover of power to a new generation of leaders, change is likely to be cautious.

It is worth mentioning China specific positives. A large surplus reserve exists that can be used to offset economic downturns and this provides policy flexibility. Centralised policy making potentially allows the focus to be on longer term solutions and the use of multiple tools/solutions (be it taxes, lending/trading restrictions, rate-setting, etc) that may not be available to other policy makers.

What are the implications for markets? This is a complex and confusing environment. There is the potential for a range of both positive and negative surprises. It is possible that the US manages to pull off a sustainable recovery, which is critical to the global economy. Also very much on the positive side, many US and other companies are cashed up and strong, and as confidence grows capex and (perhaps) labour hiring could both surprise. A wave of M&A activity is perhaps more likely in the near term, and that could bode well (at least selectively) for equity returns.

Returns depend not only on what happens but also on what’s priced in. At the moment there is a bit more optimism about the outlook which tends to push future returns down (because the good news is already in the price), but there is still an historically high yield gap, or risk premium, between US forward equity earnings yields and the 10yr bond rate. That highlights how deeply unattractive US bonds are. In general, the combination of a highly uncertain environment and somewhat complacent market pricing would suggest a move into more defensive assets. However, today traditional defensive assets (nominal bonds) look very expensive and hence risky.

MLC became wary last year and we switched our global sovereign debt mandate to a cash benchmark. This reflects the risks of spiralling public sector debt, but also recognises that yields will rise as confidence grows in a self sustaining recovery (the December quarter 0.8% rise in the US 10 year Treasury yield was likely mainly due to higher confidence in the sustainability of the growth cycle).

Given typical time horizons and real return objectives, most investors need a significant allocation to equities. We think that a key to future returns is the quality of the stock selection – likely dispersion in individual stock performance implies high alpha potential. On the asset allocation side we are highlighting the need for a sufficient foreign currency exposure in portfolios. One of the biggest valuation anomalies is in the current level of the Australian dollar and, unusually, it may be vulnerable in both a return to risk aversion and more positive global growth scenarios.

The Australian dollar has benefited from what seems like unshakeable confidence, supported by stellar Chinese growth. But an improving US may reduce the focus on China and Australia has an Achilles heel – extraordinarily high private sector debt which is very negative for growth potential. The high private sector debt burden that Australia carries is largely funded from offshore savers via our banking sector, which is highly reliant on offshore wholesale financing. This is a low probability tail risk but we all know what can happen when foreign lenders lose confidence and pull the plug: Iceland, Ireland, Greece, Portugal, Spain.

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