Australia's Biggest SMSF?
For 10 years now, Fidelity has been paying Paul Taylor to be the portfolio manager of its $2.7 billion Australian Equities Fund. As Taylor has beaten the benchmark throughout that period, I suspect Fidelity has been rewarding him rather well. But it turns out what he’s really doing is running Australia’s biggest self-managed super fund.
Well, sort of. I was recently hired to MC a Fidelity investment forum during which the question came up of whether Taylor put his money where his mouth is – did he invest in his own fund. The answer, in front of a bunch of investment advisers, was a resounding but yet still somewhat sheepish “yes”.
Not only did he invest in the Australian Equities Fund, 100 per cent of his super was in it. That definitely counts as a resounding yes. What made him a little sheepish was the acknowledgement that this was probably not the sort of asset diversification all the investment advisers in the room would recommend.
What makes this story of relevance to us ordinary investors is his reasoning for disobeying all the usual asset allocation advice and going all-in Aussie shares.
Taylor is a big believer in Australia as a structural growth story. We have the population growth, the resources and the space to keep providing corporations for the opportunities to grow their businesses and make more profits. There are cyclical highs and lows, but the underlying fundamentals for the country remain strong. Australia has had the top-performing stock market over the past 112 years and Taylor believes it will continue to outperform.
Lately it seems we only hear that sort of story from visiting foreign experts – people who marvel at how negative Australians are about their economy when it remains pretty much the economic champion of the developed world. As Goldman Sachs’ head vampire squid, Lloyd Blankfein, reminded us, Australia is falling to where the United States is hoping to rise to. Citibank chief economist Professor Willem Buiter nicely described Australia as having “luxury problems”.
Before any investment adviser could raise questions about such a 100 per cent bet, Taylor answered it. He said he thought he would keep working for another 20 or 30 years, so he could handle the volatility that the market might throw up along the way. And, because of his belief in Australia’s growth, he basically couldn’t think of anything better to do with his money.
Shortly before hearing this, I had a conversation with a very successful private investor – and I do mean very successful. He made the point that people don’t make serious money without being prepared to take a position, to break the usual carefully-balanced asset allocation rules.
I will let the individual remain anonymous, but he took an early and very large position in CSL when it first floated. As a percentage of his total worth at the time, it was a big bet, but he held a strong conviction that the company would do very well after being privatised. He added to that position and it has paid off extremely handsomely, providing him with the equity to take other sizeable positions in select investments.
CSL wasn’t some penny-dreadful company that might or might not find Lasseter’s lost reef, but a viable company with a particular business proposition – one of the rich privatisation stories along with the Commonwealth Bank. Many Australians happily took part in those floats, but few took big positions that would make them wealthy.
It was an interesting conversation. The investor admitted to making plenty of other investment mistakes from time to time, but said he was always willing to cut his losses quickly, not to hold on hope as many investors do. His particular big conviction investments are another level of risk from Paul Taylor’s self-managed super fund, but both represent rule breaking that has paid off.
Such things are not for everyone and it’s important to differentiate between a reasonable high-conviction investment - being strongly overweight particular stocks or sectors - and an outright punt, but in a world where so much effort by advisers has to go into covering their own backsides, it’s refreshing to consider the sorts of risks designed to better the usual long-term investment goal of 7 or 8 per cent.
Michael Pascoe is one of Australia's most experienced and thoughtful finance and economics commentators with four decades in newspaper, broadcast and on-line journalism, covering the full gamut of economic and business issues.