Industry funds outperform on unlisted allocations
Industry superannuation funds, with their higher weightings to unlisted assets, found themselves on the winning side of the ledger in terms of 2015 investment returns as their retail counterparts suffered from the problems experienced in listed markets.
According to the latest data released by Chant West, the volatile times experienced during 2015 tended to suit the industry funds who had lagged the performance of retail funds as share markets recovered following the Global Financial Crisis (GFC).
While retail superannuation funds with heavier allocations towards listed markets outperformed industry through much of the recovery from the GFC, the Chant West data confirms that industry fund allocations have again rewarded members in the more challenging environment over the past eight months.
Explaining the phenomenon, Chant West principal, Warren Chant, said that over the longer term, industry funds had outperformed retail funds largely because, as a group, they had tended to have lower allocations to listed shares during periods when shares underperformed.
"While that historical difference in allocation no longer applies, they have also had higher allocations to unlisted assets such as private equity, unlisted property and unlisted infrastructure which have performed well for them. That difference still applies, with industry funds currently investing 20 per cent in these sectors against five per cent for retail funds," he said.
Chant said that, over the longer term, the asset allocation policies of industry funds had served them very well because while the allocations to unlisted assets did mean slightly higher investment costs, those extra costs had been more than justified by the better performance and lower volatility.
"Industry funds have also been more prepared to shift away from their longer-term target asset allocations to take advantage of mispricing or to preserve capital," he said.
"Overall, those medium-term shifts have had a positive effect on their performance."
Chant said 2015 had provided another great example of the benefits of diversification and by that he meant the way funds spread their investments far beyond listed shares, property, bonds and cash to avoid getting dragged down if those traditional sectors have a poor year.
"In 2015 Australian shares, hedged international shares, Australian and international bonds all produced fairly anaemic returns of 3.5 per cent or lower, yet growth funds still managed to average 5.8 per cent," he said.
"They did that by including alternative, unlisted assets in their investment mix and by letting currency movements work to their advantage."
Recommended for you
Financial Services Council chief executive, Blake Briggs, is urging Minister for Financial Services, Stephen Jones, to take advantage of the QAR opportunity to reduce regulatory duplication and ensure advice is affordable.
Former chair of the House of Representatives’ Standing Economics Committee, Tim Wilson, is planning a return to politics after losing his seat in the 2022 federal election.
Morningstar is going to offer research ratings of funds in the $3.5 trillion superannuation sector for the first time in response to demand from financial advisers.
Treasurer Jim Chalmers has opened a consultation into the design of the annual superannuation performance test, canvassing views on a range of reform options.
