Investment Review

Investment Review

The objectives of HMSTrust’s investment activities are twofold: first to achieve long-term appreciation of the value of the corpus, ahead of inflation, and secondly to generate sufficient income to fund the annual grant giving program and operating expenses.

Long-term growth in the value of the corpus is essential if the Trust is to serve Victoria’s communities in the future as well as it has done in the past.

Trustees have delegated management of the Trust’s investments to an Investment Committee made up of three Trustees, the Chief Executive Officer and the Investment/Finance Executive. The Committee also receives investment advice from Frontier Advisors, one of Australia’s leading investment consultants. Guiding the Committee’s activities is a detailed Investment Policy Statement which sets out the asset allocation for the portfolio and various risk control measures.

Investment operations are managed internally wherever possible to maximise control and minimise costs. During FY18, total investment costs were 0.31% of assets, including fees paid to external managers of international shares and unlisted infrastructure funds.

The chart shows how the value of the corpus has changed since 2000, and compares that with the increase in the Consumer Price Index (CPI), a measure of inflation. Over that period the corpus has consistently remained ahead of inflation, achieving our primary investment objective. At June 2018 the corpus was valued at $116m, a margin of $30m (or 35%) above the CPI.

Over the 2018 financial year, the total return of the corpus (meaning capital gains plus income, adjusted for cash movements) was a pleasing 10.8%. This favourable return reflects a high exposure to both Australian and international shares, no exposure to bonds and a strong performance by our unlisted infrastructure managers.

The chart below illustrates the asset allocation of the corpus at the end of June 2018.

I write this report on behalf of the late Peter Wetherall, who retired from his role as the Trust’s Investment Executive in February 2018, representing eight months of the 2018 financial year. HMSTrust has benefited from Peter’s wise management of HMSTrust’s investments since 2013. His influence is very much embedded in the structures and processes that he introduced, and in the excellent Investment Policy that he drafted. He was instrumental in steering the Trust into adopting a more diverse investment portfolio and helped introduce a principles-based ethical overlay to our investment process in 2016. As a result, our investment in the Vanguard International Shares Fund was switched to a similar Vanguard fund which excludes companies engaged in the tobacco, controversial weapons, and nuclear weapons industries.

Peter was also a strong believer in impact investing and motivated a change to the Trust’s asset allocation to allow up to 2% of the corpus to be invested in impact investments, subject to strict conditions. The Trust made its first impact investment in July 2017 by participating in a capital raising by the Murray-Darling Basin Balanced Water Fund. This investment has returned a respectable 31.8% for the year to 30 June 2018 together with significant environmental benefit of delivering water to four wetlands across Victoria and NSW.

Glen Thomson and Peter Wetherall, December 2017.

Peter would be pleased that following year end, the Trust made its second impact investment, this time committing $250,000 to the COMPASS social impact bond. COMPASS is a leaving care program which will be delivered by VincentCare and Anglicare and is expected to return around 7% pa.

Glen Thomson
Finance Executive