In our May update we discussed some changes to underlying models. While making those changes we had to opportunity to discuss rate cards with new managers and our incumbents, especially given the growth in the holdings in our AAN Core And AAN Growth options.

Key considerations in the creation of the models have always been best of breed holdings and cost reductions through scale.  We use our proprietary ‘Four Pillars’ philosophy when structuring portfolios and then negotiate favourable terms with the successful solutions.

As a product of building scale we can now announce model fee reductions in three of our models including our two largest.

Wherever possible, negotiated fee discounts will be passed through to consumers.

When AAN Asset Management (AANAM) was created, it was to improve efficiencies in managing clients portfolios, create client centric outcomes, and build solutions that utilised best of breed options in active, passive and smart beta options. 

As we have grown the underlying managers have worked with us on fee reductions and those reductions to AANAM clients are now very substantial.

In the rolling twelve months, 1 Dec 2022 to 30 Nov 2023, AANAM clients collectively have received the benefit of fee reductions of more than $2.574 million* across the portfolios.

*This is as compared to clients investing directly via Praemium in the investment options used by AANAM.

The additional reductions that commenced on 1 December 2023, will further reduce fees to AANAM clients by, collectively, approximately $340,000 pa.

For the 2024 calendar year, and based on current portfolio balances, AANAM clients should benefit from $2.914 million of fee savings *across the portfolios.

The Investment Environment

Investment markets in calendar year 2023 have largely been driven by the interest rate cycle which has also been heavily influenced by inflation pressures.

Markets have been carefully monitoring central bank sentiment to provide signals on the direction and impact of underlying inflation.

Inflation has not been a significant factor since the early 2000’s but became a big part of the conversation in the Covid-19 era, 2020_22. Initially, this was supply chain issues, but it was supercharged by massive western government stimulus to assist their populations manage cash needs in what became an economic shut down.

By mid 2022, Europe, the US and most of Australia was ready to move on but China maintained strict Covid protocols to the end of 2022. The Chinese stance meant that supply chain issues were still playing their part in the inflationary pressures, so it has only been in this second half of 2023 that underlying inflation, primarily  driven by wages growth, could be assessed.

  • The CPI – which is the metric commonly linked with inflation – is a basket of goods that measures price changes experienced by consumers. It does talk to the material impacts on households but some of those ‘goods’ such as fuel and energy can be quite variable. Groceries can also be weather dependent so central banks tend to focus on underlying wages growth as they are costs that are ‘baked-in’ once they are given. Other costs can move up and down, but wages rarely retreat.

Central banks had also held artificially low cash rates through Covid-19, but really that has been the case since as far back as 2011. Post the GFC, cash rates were as low as zero or even negative in some countries and our own Reserve Bank was sitting at 0.10% as recently as May 2022.  

Some would argue these rates were too low a rate for too long, but once economies were released from Covid restrictions, it became evident that economies were more robust than expected and central banks quickly moved to an interest rate tightening cycle.

In Australia, we have seen 13 cash rate rises since May 2022. Cash rates started 2023 at 3.10% and in the November Melbourne Cup meeting increased to 4.35%.

In the US, rates were at 0.00% from March 2020 and started their climb in the first quarter of 2022. They proceeded to have eleven rises with the last on 26 July 2023. The US Cash rate is currently sitting at 5.50% and most analysts would see a steady or easing bias in the future as opposed to additional increases (especially in an election year).

Model performance to 30 November 2023

With that back drop the AAN models have performed very well, especially when compared to other industry participants.

A little about the construction of the AAN Asset Management models (AANAM).

The AANAM models are built with an eye to downside protection so will not always participate in the full extent of a growth market. Inevitably you tend to give up some upside to cover uncertainty on the downside.

A disadvantage or advantage, depending on your viewpoint, is that higher returns that can be generated by private equity holdings and unlisted investments, like real property assets, are not utilised by the models

  • This is quite deliberate, as these sort of investments, that you may see described as ‘alternatives’ in other portfolios, have limited or restricted liquidity.
    • These can be suitable for investors with little need to access their investments and hence you will find them in large industry superannuation balanced funds where the average age of the investor can be under 30 years old. With a 35-year time horizon, liquidity is not an issue
  • These investments also often rely on an event, such as an asset or business sale. Unfortunately, at the forecast  maturity of the investment, the market may not be ideal so any sale may be deferred or delayed. Manageable if the investor does not need access to their capital but problematic for pre and post retirees who may need to access these funds.

In this part of the cycle, alternatives have, to some extent, hurt industry superannuation performances as rising interest rates have implications for calculating net present values* and commercial property is still managing post Covid-19 vacancy rates caused largely by the work from home dynamic.

*As an example, as rates rise, property managers need to increase rents or reduce the income paid to unitholders. This can impact the property value as long-term tenants are on usually on CPI plus contracts with rent negotiations every 3-5 years. Increased costs cant be readily passed on so income drops and new investors would expect to pay a lower price to achieve a yield they could get paid on comparable investments elsewhere.

  • Listed property investments are down 25% from their highs in December 2021, but their unlisted counterparts, which are the same assets, but not subject to daily unit pricing to provide liquidity, have only seen small negative adjustments.
  • If investors do not require any access to capital this may have no real impact over the cycle but currently many alternative assets could be seen as overpriced so investors leaving the funds may be receiving inflated values while remaining investors will bear the brunt of unrealised losses. 

The upshot of what we would class as prudent portfolio constructions with disciplined asset selection is that our models have outperformed most of the funds they are compared to and provided, certainly recently, a much less volatile experience.

Model performance to 30 November, 2023:

Source: Data from

By way of comparison:

Source: ART, Hesta and the Aust Super from Intelligent Investor and Q Super data

The performance of all our models can be found at

2024 will no doubt have its challenges and analysts are still at odds over the potential for recession with easing interest rates or a lengthened inflationary cycle with moderate growth and interest rates holding close to steady.

Our focus will continue to be to look for best of breed solutions and measured risk.

As always, if you have any queries please speak to your adviser and to you and your loved ones, a very Merry Christmas and a happy and prosperous New Year.


Paul Forbes
Managing Director, AAN Asset Management

This article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before acting on any of the information included in this article you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Any references to past investment performance are not an indication of future investment returns. If you are a retail client this article will not be suitable for you, please discuss with your financial adviser. Prepared by AANAM ABN 37 609 544 836; Authorised Representative number 1238848 of AAN, ABN 13 602 917 297 AFSL 472901.