Australian superannuation funds had been closely tracking the decline in the Australian dollars to generate foreign exchange benefits, according to the National Australia Bank’s highly authoritative Superannuation FX Survey.
The survey, released today, has tracked the approach of 40 of Australia’s major superannuation funds and has confirmed significant changes since the last survey conducted in 2013 when the Australian dollar was at or near parity with the US dollar.
And what the survey has shown is that currency volatility has persuaded fund managers to pay closer attention with significantly more fund managers now reviewing currency issues on a monthly basis, with the percentage jumping from five per cent in the last survey to 24 per cent.
Among other findings, the survey also showed a significant rise in FX exposure to international equities and emerging markets; along with a decline in the hedge ratio for fixed income to the lowest level in the 14 year history of the survey.
It said there had also been significant decreases in the use of cross currency swaps and FX options.
Commenting on the survey outcome, NAB’s executive general manager, fixed income, currencies and commodities, Drew Bradford said the decline in the Australian dollar had brought about a renewed emphasis on adaptability and flexibility across super funds.
“The survey certainly shows that fund managers are recognising the need for greater flexibility and adapting to the changing market,” he said.
However, he noted that few fund managers seemed to have a firm about the direction of the currency, with 76 per cent stating that ‘no one can predict where the Australian dollar would be in two years’, although 60 per cent believe that the AUD ‘will continue to fall’ in the next two years.
Mr Bradford, said it was more important than ever for super funds to be ready to respond to currency exposure, given the impact it can have on overall fund performance.
“As superannuation funds in Australia continue to grow, and with increasing volatility in global currency markets, understanding trends in currencies and adapting foreign exchange hedging is critical,” he said.
