Diversification shows merit for superannuation fund returns

Australian super funds were carried to safety by growth assets and ever-widening diversification.

Shares still make up the majority of assets held in all funds. Picture: iStock

A strong leaning towards “growth assets” and an ever-widening diversification into unlisted sectors such as infrastructure carried most Australian super funds to safety over the year to June 30, says a new report from Chant West.

In the most widely held category, the “median growth fund” managed a loss of just 0.5 per cent in the last financial year, an outcome that looked very unlikely a few months ago when shares lost 30 per cent in the March crash.

For many funds, though, the negative performance for the last financial year will be the first negative performance in a decade.

The specialist superannuation research group found that most Australians are in funds where growth assets can be anything as high as 80 per cent of the total portfolio.

In effect, that means many funds are not “balanced”, but they have enjoyed the premium placed on “growth” assets in an era of record low interest rates.

With shares still taking up the majority of assets held in all funds, the April to June rebound buoyed the performance of the wider sector.

According to Mano Mohankumar, senior investment research manager at Chant West: “Australian funds are well diversified and it has paid off with a resilient performance overall.”

Mohankumar says Australia’s leading funds continue to move money out of the sharemarket and into other asset classes.

Sharemarket investments would have been 60 per cent of most funds during the GFC, and that portion has now dropped to around 54 per cent.

With most funds ending the year pretty much flat, the outstanding funds were those that could manage a return that would be judged very modest in any other year.

Among the top three funds, Suncorp Multi-Manager Growth made 3.8 per cent, Australian Ethical Super Balanced made 2.8 per cent and BUSSQ Balanced Growth made 2.5 per cent.

One of the differentiators over the year was the level of unlisted assets in portfolios, where managers with unlisted infrastructure did considerably better than those with a listed version of the same asset.

Even though infrastructure assets such as toll roads or toll bridges would have performed similarly in terms of revenue and profits over the lockdown periods, contributions from those assets were dramatically different depending on how they were held in the fund.

Chant West says listed infrastructure contributed minus 10 per cent to major super funds, but unlisted infrastructure had a positive contribution of 1 per cent.

Mohankumar says part of the explanation could be in the time lag where unlisted assets are only valued at irregular intervals by the bigger funds.

“The diversity pays off throughout the system. Australian shares were down 7.6 per cent over the year and Australian listed property fared worse, losing 20.7 per cent but international shares and Australian and international bonds were all up by about 4 to 5 per cent.

“The other point that distinguishes the better performing funds over the year were generally those that had lower allocations to Australian shares and higher allocations to international shares and bonds. Funds would also have benefited from having low exposure to listed property and listed infrastructure,” he explains.