Australia: State Street Global Advisors

Touching down in Australia after a lengthy gap (over 20 years) since my last visit was wonderful.  As the plane was taxing to the gate, I was like a kid on Christmas morning… just chomping at the bit to get out and enjoy the treasures that awaited.  I lived throughout Queensland, Australia (Brisbane, Gold Coast, Atherton, Cairns, etc.) for two years in the early 90s.  I have nothing but the fondest of memories of my time in Australia and have been itching to get back ever since.  So, when John and I started developing itineraries of important countries to include in our respective Investment Treks, Australia was the country at the top of my list.

I’ve been fortunate to have visited over 40 different countries over the past 25 years, and every country has been fascinating and wonderful in its own way.  But when it comes to a country (outside the US) where I truly feel at home… that country for me is Australia.  I’m not alone in my enthusiasm for the great land down under.  Immigration continues to be a significant issue in Australia.  People are drawn to open, free societies, where opportunities to succeed abound and Australia is certainly one of those places.

My first business meeting in Sydney was with an outstanding team from State Street Global Advisors (SSgA).  The meeting was arranged and coordinated by Matt Camuso and Mike Durant who have been very supportive of our Investment Trek initiative.  I had the opportunity to meet with James MacNevin (Senior Managing Director, Head of Intermediary Business, and COO Asia Pacific), Shaun Parkin (Head of Sales, SPDR ETFs, Australia), and Raf Choudhury (Portfolio Manager, Investment Solutions Group Asia Pacific) in their beautiful SSgA offices in Sydney.

Ryan Hessenthaler with James MacNevin, Shaun Parkin, and Raf Choudhury of SSgA Australia

We began the conversation with a discussion about the institutional asset management environment in Australia.  Raf explained that SSgA employs active, tactical strategies and they concentrate exposures using ETFs.  He noted that his team has the latitude to use whatever ETFs are most appropriate for the specific exposure they’re hoping to achieve, which means they pick from the universe of ETFs that are out there, not just from among SSgA products.  This was good to hear as it is precisely the approach Lunt Capital takes in the ETF opportunities sets we consider as we manage portfolios.  There are a lot of great ETFs out there (and more come online every year), so one of our key roles as trusted investment managers is to ensure we understand the nuances and specific exposures each ETF provides.

We also talked about the challenge of treating huge swaths of the globe as similar, because of their market cap or economic stage, and are therefore grouped together in one investment in an International Developed or Emerging Market fund.  While this beta exposure is sometimes appropriate, everyone at the table in my meeting with SSgA agreed that there are significant opportunities as investors get more granular and precise in their country exposures.  Raf’s team uses a strategic allocation with tactical shifts that happen at both the regional level (Europe, Asia, Latin America, etc.) and the country-specific level.

We spent some time talking about a few of the economies that are impacting Australian markets right now – namely China and Greece.  Greece was really just a footnote in the discussion – the belief is that much of the uncertainty and bad news related to Greece has been priced in to the markets.  China, on the other hand, is a much bigger consideration.  Given Australia’s location and particular set of resources, China is perpetually on the mind of many Australians.  As the SSgA team described it, “China permeates everything!”

The housing market in Australia is something that came up in every one of my conversations in Sydney.  Historically low interest rates coupled with a growing number of real estate speculators, limited supply, and exchange rates have created a white-hot housing boom in major cities such as Sydney and Melbourne.  Shaun noted that defaulting on a mortgage loan is “cultural death” in Australia… so it just simply doesn’t happen.  Real estate ownership is a very important and powerful concept in the Australian psyche.  Our conversation reminded me about an article I read in the Wall Street Journal a few months ago about the housing market in Sydney.  Click here to read →

The housing conversation led us into another important recurring topic in my meetings – the Australian Superannuation Fund (“Super Fund” for short).  In short, this is a government mandated retirement program for all employees throughout Australia.  It was described to me as “similar to the 401k in the United States.”  Employees receive a defined contribution of approximately 9% of their gross pay annually into a fund specifically ear-marked for their retirement.  The contribution rate is set to increase over the coming years, meaning even more assets in the coffers that need sound management.  Australians have the option to self-manage their accounts and this is viewed as a big opportunity for financial service providers in Australia.

Finally, given SSgA’s role in the ETF universe, we spoke about ETFs in Australia.  The group noted that SSgA issued the first ETF in Australia and they’ve been promoting the benefits of ETFs ever since.  The ETF market in Australia is still in its early phases and significant efforts are focused on education of the product.

I don’t know if it was the jet-lag or some other mysterious time vortex in Oz, but I’ve never had a meeting pass so quickly.  We were done before I knew it.  I’d again like to express my sincere thanks to James, Shaun, and Raf for graciously sharing their time and insights with me.

 

Special thanks to Brennan Staheli, Devin Lindley, and the Lunt Capital team for their contributions to this report.