Super funds face new risks in global equity markets

Super funds looking for offshore equity opportunities will need to be aware of new risks associated with the global equity markets, according to Parametric’s study.

According to the firm’s analysis, titled ‘Expanding equity horizons: the critical new asset allocation decision and how funds can get it right’, the challenges in global equities had not been fully realised and one of the critical decisions would be understanding the differences between developed markets (DM) and emerging markets (EM).

Also, super funds would need to up-scale equity investing capabilities due to the continued nature of defined contributions and the growing retirement savings gap.

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Parametric’s managing director in Australia, Raewyn Williams, stressed that super funds would need to learn to treat EM allocation and manager/strategy selection decisions as a separate, defined process to DM.

“Super funds need to focus on this as a first order issue on the country  allocation characteristics of a prospective EM strategy and not to waste a valuable time and fee budget on EM strategies whose ‘bells and whistles’ are in sector or style factor management, but not country selection,” she said.

Additionally, the company stressed that super funds that use passive, index-tracking country weighting EM strategy, should act carefully.

The firm’s global head of investment strategy, Tim Atwill, said: “Such strategies have no ‘country smarts’ and can dangerously concentrate a super fund’s country allocations in just a handful of EM countries, rather than diversifying bests across the EM universe”.

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