Super fund investors shun local shares

ONE of the nation’s biggest in­vest­ment funds is turning its back on the local stockmarket.

ONE of the nation’s biggest in­vest­ment funds is turning its back on the local stockmarket, with nearly a third of its $34 billion in assets now tied up in offshore shares.

This marks the highest alloc­ation to offshore markets by the Retail Industry Superannuation Trust as it has been steadily moving its assets outside Australia.

The move underscores the growing belief among major fund managers that the future outperformance in stocks now sits outside the Australian market.

Given the shocks of the global financial crisis, local fund managers have been highly cautious when it comes to investing offshore, keeping the bulk of funds in the Australian market.

A rush to offshore comes as two initial share offers are being marketed to domestic fund manag­ers. This includes the $4bn-plus float of Medibank Priv­ate, expected before the end of the year, and the $900 million listing of Hoyts Group, with the timing still to be determined.

In US dollar terms, the Australian sharemarket was among the worst performer among developed markets over the past 12 months. Although shares are up 1.4 per cent in local currency terms, they are down 4.7 per cent in US dollars.

Over the same period, the benchmark MSCI World Index is up 10 per cent and Wall Street’s S & P 500 index is up 17.3 per cent.

Australian shares have been hit by volatility over the past month as markets have begun to price in the prospect of higher US interest rates and a weaker growth outlook in China.

High-yield defensive stocks have been sold off, led by the banks, while resources have been weighed down by concerns about Chinese growth and weaker commodity prices.

REST is now close to having 31 per cent of its total assets invested in overseas equities, well ahead of the 20 per cent held in Australia, chief executive Damian Hill told The Weekend Australian.

The average industry fund usually has about 30 per cent of asset allocation tied up in local shares and 20 per cent overseas.

REST effectively has about $10bn parked overseas and Mr Hill said that, with recent weakness in the Australian dollar, more was likely to head offshore.

“Given the current market, some other funds would have moved to an overseas weighting of 24 or 25 per cent but I haven’t seen anyone else as high as us,’’ the REST chief executive said.

Even so, the fund is a long-term investor, with some members’ investment horizons due to last decades.

Others, including the National Australia Bank-backed MLC, sold down Australian shares in June and August, leaving traditional funds “underweight” in Australian equities. MLC’s more aggressive fund now holds about 30 per cent global shares and 8 per cent Australian shares, down from 12 per cent earlier in the year.

REST ranks as one of the nation­’s biggest funds by members, with about 1.9 million or one in six Australians belonging.

At the end of August, REST was ranked as the No 2-performing superannuation fund over 10 years, with annual average growth of 8.08 per cent, according to SuperRatings. Over the past three years, that was 12.7 per cent.