The CIO who won’t put his own money in his top-ranking fund

Investing

Hostplus’s Indexed Balanced super fund was the highest returning “balanced” super fund of 2023, returning 13.2%. Chief Investment Officer Sam Sicilia explains how they did it … and why he puts his money elsewhere.
Hostplus
Hostplus chief investment officer Sam Sicilia. | Image: Supplied

Why did the Hostplus Indexed Balanced fund beat all the other balanced funds (returning 13.2%) in 2023 ?

So let me go back to 2013. [A prominent retail fund] announced an index product for 60 basis points, 0.6%. That means if the market returned 1%, they kept 0.6c of it as a fee. They would give 0.4% to their customers. We looked at that and we said, ‘Surely we can do better than 0.6%.’ What we didn’t understand is how much better we could do … Our fee turned out to be 0.07%. We could do it for 53 basis points less than them, just by asking our fund managers the following question: ‘We are creating an index product. There will only be one fund manager in every asset class … Do you want it to be you? How low a fee can you provide?’

We took the 53-basis-points differential and we gave it to our members in the form of additional return. How can they [retail funds] win? They just can’t win. This is not a contest.

Why can’t other industry funds do the same?

Other industry funds potentially can do the same thing, right? It’s about the ability of one industry fund to get a better fee from the manager than another industry fund. These are our sister funds. I’m not attacking them. It’s the depth of relationships. If you have $200 million with a manager, you have one conversation. If you have $2 billion or $3 billion with them, then you approach them and say, Hey, you already manage $3 billion of our money. What about this index product? Can you do it for zero? I’m being extreme right. The manager would say ‘Look, we can’t do it for zero, but what about five basis points?’ So that conversation is what needs to be had with their fund managers – not a transaction, a relationship.


Top balanced funds of 2023
RankFund NameAnnual Return
1Hostplus – Indexed Balanced13.22%
2Brighter Super Optimiser Accumulation – Multi-Manager Growth Fund13.13%
3ESS Super – Balanced Growth12.84%
4CFS-FC Wholesale Personal – CFS Enhanced Index Balanced11.95%
5Vision Super – Balanced Growth11.76%
6IOOF Employer Super Core – MLC MultiSeries 7011.47%
7Aware Super Future Saver – Balanced11.08%
8GESB Super – My GESB Super Plan10.79%
9TWU SUPER – Balanced10.61%
10HESTA – Balanced Growth10.5%

Source: SuperRatings


And if I want to be extreme about it, let’s forget about finance for a minute. The most dangerous players in the world are fully cashed up, not-for-profit organizations … If you’re fully cashed up and you’re not for profit, capitalism can’t beat that. We’re capitalists. Make no mistake. But our masters are our members. And that’s the whole story. It’s not the product. It’s actually the fees that get charged for each of them, each of those stages that determines the outcome.

You don’t actually do very much then, do you Sam?

Is that a question about the product, or is that a question about my whole existence? (Laughs) Hostplus does not manage money in house or any of our $105 billion that we have. We are 100% outsourced to fund managers. Our job is to allocate capital to fund managers.

Their job is to do what they do best. In index products, it’s preset 75/25. But in the balanced option, the non-indexed one that’s allocating money to infrastructure, to credit, to real estate, to equities, to domestic equities, international equities, developed markets, emerging markets, venture capital, private equity. That’s a big job to figure out where in the world you want to deploy capital. Once we’ve given money to those fund managers, their job is to buy the technology company or the commodities company or what have you. That’s what they do best. So super funds in general allocate money to fund managers. Fund managers allocate money to securities. And that’s how the system works.

Where’s your super?

With Hostplus.

Which one?

With the Balanced option, not the Indexed Balanced option.

Can you explain that?

There are two types of investors. There are those who are driven by cost, and that’s fair. If you are driven by low costs, go for the Index Balanced option. It can be volatile. Equity markets go up and equity markets go down. Low cost doesn’t give you more certainty. You’re just paying less fee to get that return. But you only get the return from listed markets – international equities, domestic equities, international bonds, domestic bonds and cash – the stuff that’s liquid and the stuff that’s listed. But 99% of the world’s assets are unlisted. Just think about that.

If you want infrastructure, if you want real estate, if you want credit, private equity, venture capital, you can only get those in the Balanced option. The Balanced option is more expensive because those asset classes cost more. But the returns can be higher. More diversification means you better manage or mitigate risk. If you’re a long-term investor, be in the listed and unlisted space and diversify your eggs into as many baskets as you can. That’s the philosophy and if you live without second-guessing markets, you end up with a better return over the long term. Not last year, last year, the Indexed Balanced option killed the Balanced option. But over a 20-year period, you would expect the Balanced option to win. (Hostplus’s Balanced option was Australia’s top performer in the 2022 calendar year, returning 1.6% when most competitors were negative and it also led the way for the decade up to the end of 2023.)

RankFund NameAverage Annual Return
1Hostplus – Balanced8.32%
2AustralianSuper – Balanced7.93%
3Australian Retirement Trust – Super Savings – Balanced7.94%
4UniSuper – Balanced7.85%
5Cbus – Growth (MySuper)7.66%
6Vision Super – Balanced Growth7.57%
7CareSuper – Balanced7.58%
8HESTA – Balanced Growth7.49%
9Spirit Super – Balanced (MySuper)7.4%
10Hostplus – Indexed Balanced/Aust. Food Super Employer Balanced (equal place)7.3%
The top ten super funds over the last decade. Source: SuperRatings

I have a house which is mortgaged. I have some cars and some furniture and some clothes in my cupboard. But no other investments – none – outside of the Hostplus super fund. The reason is pretty straightforward. The Balanced option is the best ideas we have. What makes me think that I can get a better idea than what can be purchased with $105 billion in the Hostplus super fund? And how do you plan to do that, Sam, while munching your Cornflakes in the morning flicking through the AFR. That doesn’t work. Access to the best brains trust in the world is access to the fund managers that house those skill sets. Give them money. Hold them accountable.

With all the indexes having risen so much, would now be a bad time to jump on board?

So market timing is always a killer. You’ve got to be there when lightning hits. You can’t win that game. My advice to everybody would be don’t market-time. Put your money somewhere that you are comfortable with the risk, and leave it there. I put my money in the Balanced option and it’s stayed in the Balanced option all the time. What’s really bad is if people are looking at the television, listening to the radio, watching TikTok, reading the papers and they’re using that as the basis for moving from A to B, then from B to C. And that’s just a way of handling money back to the market. You will get that wrong at some stage. Even if you get 20 calls in a row right, number 21 will kill you. You’ll hand it all back. Market-timing is a loser’s game.

Where the Balanced Indexed fund puts its money

 Asset ClassIndexManagerTarget Range
Australian EquitiesASX 300IFM Investors35%
International Equities (Developed markets)MSCI World IndexIFM Investors40%
Domestic BondsBloomberg Ausbond Composite 0+Y index (AUD)  BlackRock17%
International Bonds50% Ishares Global Bond Index Fund + 50% Ishares ESG Global Bond Index FundBlackRock
CurrencyN/AMesirowN/A
CashBloomberg AusBond Bank Bill Index  Citi8%

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