Investment Review

Investment Review

The investment activities at the Helen Macpherson Smith Trust are guided by the organisation’s strategic aims of Building, Enabling, and Leading.



Within this context “Building” means strengthening HMSTrust’s investment capabilities.

During FY2015 two important changes were made to the Investment Committee.  First, Catherine Walter assumed the chair of the Committee in December 2014 on the retirement of the long-serving Darvell Hutchinson. Catherine is an experienced lawyer and company director and has involvement with investments as a director of the listed investment company, Australian Foundation Investment Company Ltd. She is also a former director of the Victorian Funds Management Corporation and a former chairman of the multi-employer superannuation fund, equipSuper. Secondly, after a competitive tender process Frontier Advisors was appointed as an investment advisor to the Committee, with a particular focus on asset allocation advice. Frontier is one of Australia’s leading independent investment consultants and has already made a positive contribution to HMSTrust’s investment activities.

HMSTrust is one of few trusts which manages most of its investments internally. The advantages of this are greater control over the investment process and lower costs. This year the costs of the investment operations increased from 0.20% to 0.23% of the average assets under management due to the increased holding in the Vanguard International Shares Index Fund.


The purpose of the investment operation is to “Enable” HMSTrust to fulfil its granting mission. This is expressed in two investment objectives. The first is to generate net income, including franking credits and after operating expenses, of at least $4.1m ($4.0m in 2014, indexed for inflation). This year the net income generated was $0.8m above this target which allowed Trustees to elect to transfer $0.7m back to the corpus under the approved power of accumulation.

The second investment objective is for the return on the Capital Account (corpus) to match or exceed the return on the strategic asset allocation over rolling five-year periods.  This is the return that would have been achieved if each asset class was held at the strategic weighting, and the return of each asset class equalled its specific index return (e.g. the Bloomberg Bank Bill Index in the case of the cash asset class). This objective has not yet been in place for five years, but in FY2015 the return of the Capital Account was 7.4% compared with 8.4% for the strategic asset allocation. The main reason for the under-performance was an independent valuation of HMSTrust’s office building which resulted in a $296k reduction in carrying value. All other asset classes met or exceeded their respective benchmarks. To put this return in context the S&P/ASX 200 Accumulation Index returned 5.7% for the year. The main reason the overall portfolio did better than that was its significant exposure to international shares which returned 25.2%, helped significantly by a pronounced decline in the value of the A$.

The strategic asset allocation and actual asset allocation at 30 June 2015 are shown in the table below. The main changes over the year were an increase in the exposure to international shares from 15% to 19% and a reduction in Australian shares from 75% to 69%. HMSTrust has held hybrids in the Income Account for many years but included them at 2% in the Capital Account for the first time this year in response to the very low interest rates offered by term deposits.

Australian shares 70% 50% 90% 69%
International shares 15% 0% 30% 19%
Australian property 5% 0% 20% 2%
Growth Assets 90% 90%
Hybrids 0% 0% 5% 2%
Australian bonds 5% 0% 25% 0%
International bonds 0% 0% 10% 0%
Cash 5% 0% 50% 8%
Defensive Assets 10% 10%

The investment objective for the Income Account is to generate an interest rate greater than the 90-day Bank Bill swap rate. In FY2015 this was again achieved comfortably with the portfolio earning an average rate of 4.22% compared with 2.50% for the benchmark.


HMSTrust has a strategic objective to provide leadership in philanthropy. This year the HMSTrust Investment Executive produced a series of six 30 minute webinars on the principles of investment on behalf of Philanthropy Australia. These webinars are designed for trustees with little or no previous experience of investing, to help them improve their understanding and governance of the investment funds under their stewardship. Interactive webinars, enabling participants to ask questions, are planned for the current year.


The investment outlook for the coming year is challenging. Weaker global growth and increased supply have led to significant falls in commodity prices, which combined with a sharp decline in capital investment, are presenting headwinds to the Australian economy. China, our biggest trading partner, is slowing as it transitions from an economy driven by capital investment and exports to one focussed more on domestic consumption. Of all the major economies only the US is experiencing reasonable growth, but even there the likelihood of the central bank raising interest rates will have to be absorbed by financial markets. Interest rates in Australia are expected to remain low and the A$ should remain weak, especially against the US$.

Peter Wetherall
Investment Executive