October 10, 2011
THE volatile equity market has halved the returns of many superannuation funds, exposing their over-dependence on the roller-coaster performance of shares.
According to research by Selecting Super and Rainmaker Information, the annual returns of super funds have plummeted to 3.8 per cent for the year to August 31, down from 9 per cent for the year to June 30.
"This just goes to show that super funds are still beholden to the volatile equity market despite attempts to diversify its investment strategy," Rainmaker research director Alex Dunnin said.
"All this talk about diversifying the super funds portfolio has not been as effective as many superannuation fund managers claim.
"Super funds are still hog-tied to the performance of the equity market." Mr Dunnin said a criticisms of many funds was that if the equity market crashed, their performance would also be "belted".
He said superannuation returns were suffering from a crisis of confidence, with many members telling their super funds to put their money in bank deposits because of the volatile sharemarket.
"Banks and financial institutions are now holding more superannuation money: about $1.5 trillion in deposits compared to $1.4 trillion in super funds."
According to Selecting Super, the top five workplace super funds (default option) were Health Super at 7.7 per cent annual return, Triple-S (South Australia), Catholic Super and Vision Super at 6 per cent and Super (South Australia) at 5.9 per cent.
The top personal super funds (balanced option) were Vision Super at 6 per cent, LUCRF 5.7 per cent, Host Plus 5.5 per cent, Hesta 5.3 per cent and Buss (Queensland) 5.2 per cent.
Mr Dunnin said super funds that had a higher exposure to alternative investments, such as hedge funds and infrastructure funds, had achieved better returns but not enough to satisfy many fund members.
The performance index for the not-for-profit funds showed a return of 5.2 per cent a year over a 10-year period compared with retail funds with only 3.3 per cent a year.
The significant gap in returns showed the not-for-profit super funds had a lower Australian equities exposure and a much higher exposure to alternative asset funds.
Mr Dunnin said fund members should question their financial advisers and super funds regarding how their money was invested.
"If the answers they get aren't satisfactory, fund members should remember that they can swap investment options or super funds at any time."
Article by Teresa Ooi From:The Australian