SuperRatings has reported that the median balanced superannuation strategy has a year to date return of 12.5 per cent following modest October gains.
The median growth had a yearly return of 14.4 per cent, while the median capital stable option delivered a respectable 7.1 per cent.
According to SuperRatings’ executive director, Kirby Rappell, funds have shown some resilience during a difficult economic period both domestically and abroad.
“Whether it’s the US-China trade conflict, the weaker economic outlook, falling interest rates, or the rolling Brexit saga, there’s been a lot for funds to take in,” Mr Rappell said.
Noting the ability of funds to protect members capital through managing downside risk, Mr Rappell outlined that a number of funds have broadened members’ investments across different asset classes.
“Over the past five years, super funds have shifted away from Australian shares and fixed income and moved a higher proportion of funds into international shares and alternatives,” he highlighted.
Alternatives include private market assets and hedge funds, which despite their negative connotations can provide an important source of diversification and downside protection when markets take a turn for the worse.
“This shift in asset allocation is in part being driven by the low interest rate environment, which has prompted super funds to reach for yield by allocating to alternatives and other less liquid assets,” the director offered.
“This isn’t necessarily a bad thing, and it may in fact result in a more robust asset allocation, but it’s something members should be aware of,” Mr Rappell said.
While these assets tend to be less liquid, they play an important role for funds looking to generate income while managing risk, he continued.
Mr Rappell concluded by outlining how “alternatives can help protect capital under certain market conditions, but they can also be used to boost returns by taking on some additional risk”.
“We generally think the shift to a broader asset allocation is positive, but funds should not be complacent in ensuring risk is appropriately managed.”
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