Into its fourth month now, the Actuaries Institute’s Asset Allocation Competition, might be causing some (hypothetical) headaches. Time will tell if its would-be CIO’s can turn the tide, writes Ben Trollip.

In April this year, the Wealth Management Sub-Committee launched its Asset Allocation Competition. This contest allowed entrants to manage a hypothetical superannuation fund allocating across asset classes ranging from Australian shares and bonds to global infrastructure, hedge funds and commodities. Prizes will be determined based on the results to 31 March 2016 and awarded to:

1)         The highest total return.

2)         The best risk-adjusted return (excess return over cash divided by volatility).

3)         The closest return to CPI + 5%.

With four completed months in the books, we thought we’d take a quick look at the results as at 31 July. Notwithstanding the very short-term nature of this analysis, across the 62 entrants there is a wide range of returns (from +6.5% to -8.9%), showing the entrants were not shy with the discretion afforded to them. Interestingly, first place is currently a three-way tie* amongst entrants that chose to put 100% of their members’ funds in unhedged global equities. The fall in the Australian dollar has provided a welcome kick to these portfolios, despite some mixed numbers from equity markets. Presumably these results will not be looking quite so rosy come the end of August!

Illustrating the generally tough time in markets (outside of those exposed to the weakening Australian dollar), the average return across all entrants is a disappointing -0.15% compared to cash which is up 0.74% over the period. Clearly there will be quite a few (hypothetical) members that are dissatisfied with the recent performance of their funds. Time will tell if our would-be CIO’s can turn the tide.

The chart below shows the returns for various sectors over the four-month time period.

* In the event of a tie at the completion of the 12 months, a random draw will be made amongst the winning entries.

asset class

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Adam Butt says

7 September 2015

It's great to see sub-committees engaging with the broader profession in ways like this but I'm a little concerned that competitions such as these encourage the sort of "short-termism" that is prevalent in the industry. I would even argue this is the case for the full 12 months of the competition. This can particularly be seen in the highest total return component of the prize, which by definition will be won by a 100% allocation to one asset class (assuming at least one entrant has chosen that option across all asset classes).

I wouldn't want to discourage competitions such as these, but wonder if focussing on risk-adjusted returns only might at least deter these sort of incentives.

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