One of Sam Sicilia's pet themes is that the forces of technology are deflationary, and they will inevitably kick in to be a dominant influence.
The Hostplus investment chief has been on this tear for some time and hasn't changed his mind despite intense inflationary forces.
"When supply chain issues and the energy supply constraints arising from the pandemic and the war in Ukraine subside, inflation will come down," he states.
Sicilia is not suggesting that interest rates will head back towards zero. But he says they won't remain at their current highs.
While the CIO is 100 per cent certain that the current intense inflationary pressures will end, he is less clear about the timing.
That's because there are still some inflation and supply snags on the radar.
Firstly, Sicilia says the transition away from fossil fuels is not costless. And therefore, it will be slightly inflationary everywhere.
Second, the world is heading towards diminished globalisation.
"We are used to finding the cheapest, most effective, most reliable supply chain to get goods into the country. But in the future, we might have to trade with less efficient countries."
That will also be inflationary.
The investment chief predicts that investors will see a no-holds-barred tug of war between all these competing pressures with no clear idea of where things will land.
No inflation worries
Still, Sicilia is not fussed about inflation and is banking on normality returning at some point.
He argues that funds with a time horizon of 10 or 20 years should not care what inflation is today since they will already have hedged inflation risk through those property and infrastructure assets that can reprice and pass those inflation costs on to consumers.
Hostplus' focus on investment strategy - rather than on peer relative returns - has long made the top-performing fund an outlier in the local superannuation industry.
The $92 billion fund for hospitality and tourism workers has not changed its investment strategy in 20 years except at the margin to take advantage of medium-term opportunities. The industry fund's invested capital remains split between equities and unlisted assets.
"We're not changing our strategy because the Reserve Bank of Australia or the US Fed is printing this number or that one although we might be more concerned if we were investors with a shorter time horizon or could not invest in long-term real assets," he continues.
"If we have set a strategy for a young demographic and strong cash flow, then the only time we should materially change that strategy is if our demographics or cash flow changes."
According to Rainmaker, median returns for MySuper products for the year to September were -5.9 per cent.
Hostplus' balanced option returned -3.7 per cent for the period, ranking 7th in the sector.
But the super fund returned 5.6 per cent, 7.0 per cent and 8.9 per cent for the previous three, five and ten years.
This compares to the median which came in at 3.4 per cent, 5.4 per cent and 7.5 per cent, putting the fund in first place for three and five year returns and in second place over ten years.
However, a two-pronged investment strategy that allocates to equities and unlisted assets is not without challenge.
For a start, it's almost impossible to buy unlisted assets any time you want.
"Let's say there's an airport, or seaport, or toll road available for sale. If you think it's a good asset, buy it now. It's not coming back on the market," he points out.
He concedes that real assets are temporarily expensive.
And again, funds with a long-term investment horizon should be less concerned about that.
Incidentally, Sicilia came in for some criticism that the fund was overstating the value of the unlisted investments.
"Yeah, there are people out there who believe that the listed market price is somehow perfect and that anything unlisted listed has valuations that are essentially fabricated by the super funds."
The investment chief points to the plethora of auditors, regulators and custodians - all of whom check valuations and valuation processes.
"We adopt independent expert valuations and reflect those in the unit prices - which the prudential regulator is fine with.
The investment chief said that valuation methods are underpinned by domestic and global accounting standards and principles.
Despite the uncertain times, Sicilia is not looking to see what peers are doing.
"We look at how much money we have today that is available to invest and where is the best place for us to invest today on a 10 or 20-year horizon."
He is quick to point out that bonds were a disaster last year, and that Hostplus was slammed for eschewing a balanced fund comprising equities and bonds.
"How is that going for other funds?"
Nevertheless, Sicilia says there are times when falling in line with peers is smart.
All funds have an aversion to large currency swings.
The currency markets are hazardous because volatility is notoriously hard to predict.
"And you could be killed because your hedging wasn't right - which has less to do with the actual investment you made but the currency effect that comes with that," he says.
"That's a time when you want to make sure you're not straying too far away from the pack. But for everything else, we play our own game, we stick to our investment strategy. And at times that's contrarian because it goes against what others are doing."
Yet, he warns that efforts to play one own game are not always easy - especially when My Future, My Super provisions stymie investments.
"Let's say there is an airport for sale. Normally, five super funds might put their money in to buy the airport. And now let's say two of them have got too small a buffer vis a vis the performance test and are forced to cut back on infrastructure allocations," he says.
Without the benefit of five funds contributing to the airport, Hostplus would be forced to take a bigger slice of the asset or risk losing out. In this scenario, offshore investors have an advantage because they would not be subject to similar behaviour driven by a performance test.
"So you're telling me that I need to invest more money than I would be comfortable with to buy into an airport because some other super funds are performing poorly against Your Future, Your Super?.
"Playing your own game is harder when you need to share risks with a consortium of local investors!"