Portfolio Analysis of UniSuper Management Pty Ltd

UniSuper Management Pty Ltd

  • Superannuation fund for 370,000 current and former employees in the Australian higher education sector.
  • Total market portfolio worth $4,621.91 million as of 27th November 2015.
  • Equities portfolio currently invested in 42 shares. A further 31 shares have recently been divested from according to regulatory filings.


UniSuper Equities Portfolio: Overview

  • UniSuper’s equities portfolio is concentrated in Financials (37.67%), Industrials (32.37%), and Energy (25.32%) sectors.
  • Australian shares dominate the equities portfolio (94.76%).
  • International shares in the equities portfolio are located in the United Kingdom (4.79%), New Zealand (0.028%), and the tax domiciles of Ireland (0.09%) and Luxembourg (0.08%).
  • 93.28% of UniSuper’s equities portfolio is concentrated in six shares.


UniSuper Equities Portfolio: Concentrated Holdings

  • Sydney Airport Holdings Ltd (ASX: SYD): 32.23% of UniSuper’s equities portfolio. 1 year benchmark: 46.96%. P/E: 246.44%. Est. P/E: 60.26%. ROE: 3.45%. Held by 663 mutual funds; 3 pension funds; and 1 hedge fund. UniSuper is the largest institutional shareholder with 15.76% (351.44 million shares).
  • Australian Pipeline Ltd (ASX: APA): 17.64% of UniSuper’s equities portfolio. 1 year benchmark: 18.65%. P/E: 38.53%. ROE: 16.28%. Held by 446 mutual funds and 2 pension funds.
  • Vicinity Centres Re Ltd (ASX: VCX): 13.11% of UniSuper’s equities portfolio. 1 year benchmark: 0.00%. P/E: 14.31%. ROE: 7.96%. Held by 613 mutual funds and two pension funds.
  • GPT Group (ASX: GPT): 15.61% of UniSuper’s equities portfolio. 1 year benchmark: 12.29%. P/E: 15.97%. ROE: 11.59%. Held by 643 mutual funds, 3 pension funds, and 1 hedge fund.
  • DUET Group (ASX: DUE): 7.65% of UniSuper’s equities portfolio. 1 year benchmark: 1.28%. P/E: 26.4%. ROE: 2.78%. Held by 144 mutual funds.
  • ASX Ltd (ASX: ASX): 7.04% of UniSuper’s equities portfolio. P/E: 19.05%. ROE: 10.71%. Held by 510 mutual funds and 4 pension funds.


UniSuper Equities Portfolio: Analysis

  • The concentration on Australian stocks means that the UniSuper equities portfolio may be susceptible to home country bias.
  • The Financials sector concentration is actually in Real Estate Investment Trusts (regional shopping centres and office / retail space).
  • The international holdings emphasise established Anglo companies rather than emerging / frontier markets.
  • The equities portfolio’s construction reflects UniSuper’s emphasis on a Defined Benefit plan component for older employees: SYD, APA, VCX, and GPT as safe, income-generating stocks that are mid- to upper-middle in their sector peer group. The Accumulation plan component is focused on Australian growth stocks (e.g. ASX:JBH) and income generating stocks (e.g. ASX:VLW), and on international stocks that are predominantly on the London Stock Exchange Group (LSE:L).
  • The equities portfolio uses order book / market microstructure techniques to manage its Industrials sector / dominant holding in SYD – similar to how mutual funds and hedge funds accumulate large positions over an extended period of time.
  • The equities portfolio is also constructed around two pairs trades that hedge company/market risk using a market-neutral strategy: (1) APA and DUE in the Energy sector; and (2) VCX and GPT in the Financials / REIT sector. APA and VCX are the respective dominant stocks whilst DUE and GPT diversify the market beta exposure in each sector. The pair trades are 25.29% and 28.72% of UniSuper’s equities portfolio.
  • The SYD concentrated holding (Industrials sector) and the two pairs trades (Energy and Financials / REIT sectors) account for 84.26% of UniSuper’s equities portfolio. There may be anchoring, confirmation, and disposition biases in investment manager decision-making because of this concentration of portfolio holdings.
  • It is not clear that the UniSuper fund uses sector rotation to update its holdings in response to macroeconomic conditions.
  • UniSuper offers a range of investment options — including Socially Responsible Investing — which deflects attention from the fact that its portfolio is very concentrated.
  • Peer / Sector group analysis using relative strength momentum may identify different investment opportunities.
  • UniSuper’s order flow in dominant stocks such as SYD, APA, VCX, GPT, and DUE may be predicted in advance due to the timing of superannuation fund in-flows from universities. This means that UniSuper’s electronic execution services could potentially be ‘gamed’ by high-frequency trading firms that use VWAP (volume weighted average price), TWAP (time weighted average price), accumulation, and momentum ignition algorithms.


Data Source: ThomsonReuters Eikon.

Islamic State as Hypermodern, Momentum Traders

Professor Tyler Cowen (Average Is Over; The Great Stagnation) has posted at his Marginal Revolution blog an email I wrote him about the parallels between Islamic State and the momentum investment strategy in response to an earlier post.


The comments got trolled with posters misunderstanding how momentum strategies actually work; describing strategic culture as a folk theory; and critiquing my graduate school experience via Leo Strauss and the Sokal affair.


There are several parallels between Islamic State and momentum investing:


1. Islamic State has grown rapidly in terms of its mujahideen membership; control of parts of northern Iraq and Syria; and its power projection.

2. Islamic State has outperformed its peer jihadist groups in terms of the impact of its terrorist campaign.

3. Islamic State has persisted over time despite efforts by Iraq, Turkey, the United States, Russia, the United Kingdom, Australia, and France to end it.

4. Islamic State has exploited weaknesses in its enemies through a sophisticated psychological warfare strategy.

5. The Obama Administration may have initially underreacted to Islamic State as a national security threat.


Rapid growth; persistence over time; outperformance of peers; and arbitrage of behavioural biases is observable in momentum strategies for equity stocks.


I thank Tyler for posting my comment and also Gary Antonacci (Dual Momentum Investing) for his insight that momentum strategies rely in part on behavioural biases that are ubiquitous.

Reading Pile

What I’m currently reading:


Abu Bakr Naji’s Management of Savagery: The Most Critical Stage Through Which The Umma Will Pass (2004) translated by William McCants (translation funding provided by Harvard University’s John M. Olin Institute for Strategic Studies): an eye-opening manifesto on the Islamist jihadist plan to re-establish a Caliphate.


William McCants’ The ISIS Apocalypse: The History, Strategy, and Doomsday Vision of the Islamic State (New York: St Martin’s Press, 2015). There are a bunch of quick primers around on Islamic State. McCants is familiar with the source material. He has the language / political science background to understand Islamic State’s ideological vision.


Oliver Morin’s How Traditions Live and Die (New York: Oxford University Press, 2015). Morin posits a new framework for understanding cultural transmission as due to cognitive preferences rather than imitation. Provides theory-building to understand Abu Bakr Naji’s strategic vision and William McCants’ analysis of Islamic State.

Monash SPS Symposium Presentation on Islamic State

Yesterday, I gave a presentation on in-progress thesis research about Islamic State to the annual SPS Symposium at Australia’s Monash University. For the past several years I have used the SPS Symposium to gain feedback on thesis chapters as I am drafting them. This year, I had about 25 minutes of great questions from fellow Monash graduate students and researchers. Thanks to the SPS Symposium committee for a great event.

PhD Mid-Candidature Review Panel Presentation Slides

On 26th October 2015, I will present my in-progress PhD research on strategic subcultures in terrorist organisations to a Mid-Candidature Review Panel at Australia’s Monash University. The MCR presentation slides are here.


My thanks to MCR Review Panel members Professor Jude McCulloch (coauthor of Pre-Crime: Pre-emption, Precaution and the Future), Associate Professor Pete Lentini (author of Neojihadism: Towards a New Understanding of Terrorism and Extremism?), and Dr Narelle Miragliotta (coeditor of Contemporary Australian Political Party Organisations).

Future Research: Profiling Vladimir Putin

For several months I’ve been thinking about how Jack Snyder’s original research on strategic culture might be applied to Putin era Russia. John Ehrman’s review of two books from 2012 on Putin suggests: (1) the existence of several organisational subcultures in the KGB; and (2) the existence of folklore and glamour in Russia in the 1960s which may have influenced Putin’s socialisation as a KGB officer in the Andropov era. I see a possible integration of Snyder’s area studies with Jerrold M. Post’s work on the psychological profiling of political and terrorist leaders. Noted for future research.

Metis Alpha

I’ve started a TinyLetter account about “Resilience strategies for living in an antifragile world.”


Metis Alpha will feature excerpts from my reflective trading diary; on-going PhD work; a reassessment of Masters work in futures studies and strategic foresight; and things I find during personal therapeutic work using cognitive behavioural therapy. The title refers to Nassim Nicholas Taleb’s book Antifragile: Things That Gain From Disorder (New York: The Penguin Press, 2012).


The first entry is on the Kovner Effect.

PhD Mid-Candidature Review Talk on Islamic State

As part of my PhD mid-candidature review I’m giving the following talk at Monash University in October (date TBC):


Islamic State: Insights from Strategic Subcultures Theory and Combatting Terrorist Propaganda

Strategic subcultures theory examines why and how certain terrorist groups persist over time and grow despite counterterrorism measures. Abu Bakr al-Baghdadi’s Islamic State has gained control of parts of northern Iraq and Syria. Islamic State also poses a current national security threat to Australia in terms of terrorist propaganda (including social media campaigns) and the possible radicalisation of Australian recruits. This presentation evaluates Islamic State as a potential strategic subculture and considers Yale University philosopher Jason Stanley’s guidance in How Propaganda Works (New Haven, CT: Yale University Press, 2015) about how to strengthen democratic nation-states like Australia – and countering violent extremism – through combatting terrorist propaganda.

Credit Suisse Crossfinder Dark Pool Negotiations

Zerohedge reports that Credit Suisse are in discussions with the New York Attorney General’s Office and the Securities and Exchange Commission about alleged market manipulation in its Crossfinder dark pool. Some thoughts:


1. The NY Attorney General’s Office and the SEC are going to have a wealth of market-based information about CrossFinder that could inform industry research on high frequency trading (HFT) and dark pools arbitrage.


2. The academic literature on market microstructure identifies some of the mechanisms that electronic execution services use for HFT / dark pool arbitrage. But the academics don’t really understand how to utilise these mechanisms for alpha generation in the same way that electronic execution services do. The knowledge gap informs the algorithmic trading types that Credit Suisse uses.


3. Electronic execution services are now more sophisticated about flow trading. There is little public literature on this apart from hints in Stephanie Hammer’s Architects of Electronic Trading (New York: John Wiley and Sons, 2013) and the IEX discussions in Michael Lewis’s Flash Boys (New York: W.W. Norton and Company, 2014).


4. I have seen fill order and midpoint gaming in trades that I have placed. This highlights the value of carefully examining the course of a day’s trades / transaction records and comparing it with what is known about market microstructure (in both academic research and in on-going media coverage).

Speculative Bubbles in DIY Trading Algorithms

WSJ‘s Austen Hufford profiles a group of retail investors who use DIY trading algorithms to try and extract alpha. Some comments:


1. Hufford’s interviewees sound very similar to dotcom era day traders at the peak of the 1995-2000 speculative bubble — particularly about their positive expectancy of financial profits.


2. The choice of asset class (forex) and markets (S&P500 and Nasdaq Composite) will likely mean that Hufford’s retail traders are picked off by high-frequency traders.


3. Hufford’s article has some typical anecdotes on how traders lose money early on in the trade development process and how coding errors can lead to unprofitable trades. On the upside the group of traders now has a daily, actionable routine  to deal with financial markets.


4. Aspects emphasised by institutional traders — pre-trade analysis, market microstructure, transaction cost economics, and tax implications — are not considered by Hufford’s retail traders.


5. Hufford mentions Interactive Brokers whose own history of algorithmic trading is featured in Scott Patterson’s book Dark Pools. I took part of Tucker Balch’s course but also compared it to other known research such as Andrew W. Lo’s studies. I’ve also looked at Quantopian and Rizm.


6. $200,000 in account size for equities / forex depends also on other factors such as leverage, position size, and regularity of trading.


7. Computer-driven hedge funds use very sophisticated programming.


8. Twitter and academic journal research uses sentiment analysis.


9. Hufford’s trading strategy example uses a moving average indicator in technical analysis. This is a basic strategy for retail traders that is now gamed by high-frequency trading algorithms.


10. Agile software development practices have insights for how to refactor code.


For a comparison of methodology see Alvaro Cartea, Sebastian Jaimungal and Jose Penalva’s Algorithmic and High-Frequency Trading (New York: Cambridge University Press, 2015).