The Accident Compensation Corporation (ACC) fund has turned in another above-budget but below-benchmark annual investment performance during the 12 months to June 30.
According to the just-published 2024 ACC annual report, the now almost $50 billion fund fell short of its blended benchmark by a narrow margin for the second year in a row.
The fund was up 7.46 per cent after costs versus the benchmark 7.57 per cent, largely due to index misses by five of its eight active global share managers: last year the ACC portfolio returned 7.02 net compared to 7.27 per cent for the benchmark.
But despite the marginal, and rare, lapse in relative performance, the fund still delivered almost $3.6 billion in returns against a budgeted $3 billion – all for a total expense ratio of just 0.16 per cent.
“Strong gains created by interest rate positioning in our fixed interest portfolios were offset by underperformance of our active management decisions in global equity portfolios,” the report says.
Paul Dyer, ACC chief investment officer, says in the report that the outsize impact of a handful of US technology stocks on equity markets during the 12-month period weighed on the underlying managers.
“What we can say is that this is typically a tough environment for active managers for whom the cost of being underweight or overweight in these large stocks can be severe,” Dyer says. “As a long-term investor, it is important to have a comprehensive understanding of a manager’s style and operating procedure and not to be too quick to judge them solely on their short-term results.”
The fund held almost $10 billion in international shares as at June 30 with the collective 18 per cent annual return (before costs) for the asset class falling almost 3 per cent shy of the benchmark.
ACC international equity managers include: Allspring; Arrowstreet; Alliance Bernstein; Harding Loevner; Intermede; Marathon; Orbis; and, Te Ahumairangi Investment Management – the firm led by former ACC CIO, Nicholas Bagnall.
PIMCO, Elementum and Robeco serve as underlying managers for global bonds.
Despite outperforming across most other asset classes, the fund slightly missed the mark in both NZ equities and local inflation-linked bonds.
Dyer notes in the report that the fund is preparing to lift its overall target exposure to equities by 5 per cent over the next couple of years to weight of some 45 per cent.
“An increase of this magnitude raises potential investment income by about $100 million a year, lowers average levy rates by 1.5% and has only a small impact on estimated long-term risk,” he says. “It would also move ACC closer to the average equity allocation of funds with similar long-term defined liabilities, such as Australian accident insurers.”
During the financial year, the fund also merged the stand-alone climate change impact fund – launched three years ago with a $100 million target size – into the broader ($2.3 billion) private markets portfolio.
Signalling a more open-door policy, the ACC published statements of investment beliefs and risk tolerance over the last 12 months, adding to previous climate change and ethical investing disclosures.
Last year the fund also slated its first independent investment operations review due to be carried out in 2025.