Asset allocation can be the decider in super funds
Ultimately, though, perhaps the most important factor is asset allocation: how your money is spread between different types of assets.
After all, a sharemarket rout will hit anyone who has invested heavily in shares, no matter how brilliant their fund manager or how low their fees.
With this in mind, it's worth looking at how funds have changed their asset allocation strategies in recent years.
Figures from research group SuperRatings show a big trend lately has been the embrace of an asset class known as "alternatives". This is financial jargon for a bunch of asset types that do not neatly fit into an existing category - things such as investments in private equity, hedge funds, or infrastructure.
As the graph shows, super funds' investments in "growth alternatives" have been rising rapidly.
Shares are still by far the most popular asset class for funds, making up about 50 per cent of the typical fund's assets. But alternatives are playing a much bigger part than they were a few years ago.
For-profit retail funds, for instance, have increased their allocation towards growth alternatives from just 2.2 per cent three years ago to 12.4 per cent today.
Union-linked industry funds, which have historically invested much more heavily in infrastructure, have also lifted their weighting towards alternatives, from 12.6 per cent to 16.8 per cent.
So why is a growing portion of Australia's $1.6 trillion in super assets going into this once-obscure asset class? And is the change justified?
The reason is simple: alternatives, particularly infrastructure, have performed well. Industry funds' investments in things such as ports have been a key reason why they have produced better returns than retail funds over the long term.
Australia is estimated to need $750 billion worth of infrastructure in the next decade, so funds are putting money into an area where there's likely to be growing demand. The fairly reliable returns from a piece of infrastructure are also well suited to the needs of super members.
But there's also another likely reason: the sheer volatility of shares.
The global financial crisis was a painful reminder for many that shares are a high-risk asset class.
With big economies in Europe experiencing a protracted slump, some experts think volatility will continue for years to come. Therefore, it seems sensible that super funds are investing in a wider range of assets.
Frequently Asked Questions about this Article…
Asset allocation — how your money is split between shares, bonds, cash, infrastructure and other assets — is often the single biggest driver of long‑term returns and risk. The article explains that even the best managers or lowest fees can't protect you if a fund is heavily weighted in a falling asset class, so checking a fund’s asset mix is essential when comparing super funds.
In superannuation, “alternatives” is a catch‑all for asset types that don’t fit neatly into shares, bonds or cash — for example private equity, hedge funds and infrastructure. The article highlights that alternatives have become a much bigger part of many funds’ growth allocations in recent years.
According to the article, shares remain the largest asset class for most funds, making up about 50% of a typical fund’s assets. However, allocations to growth alternatives have been rising rapidly and now make up a noticeably larger share than they did a few years ago.
The article uses SuperRatings data to show that for‑profit retail funds raised their weighting to growth alternatives from 2.2% three years ago to 12.4% today. Union‑linked industry funds increased their alternatives exposure from 12.6% to 16.8% over the same period.
There are two main reasons given: alternatives, especially infrastructure, have delivered strong returns for many funds (for example industry funds investing in ports), and Australia faces significant infrastructure demand — an estimated $750 billion needed over the next decade — so funds are targeting assets with steady, long‑term cashflows that suit super members’ needs.
No. The article notes that a record of good performance is useful but not a guarantee of future results. It recommends weighing other factors too — such as costs and, importantly, the fund’s asset allocation — because the composition of assets often determines how you fare in market downturns.
High sharemarket volatility (highlighted by events like the global financial crisis and ongoing economic uncertainty) has pushed many funds to diversify away from heavy share exposure into alternatives. The idea is to reduce overall portfolio volatility and seek more reliable returns across different market conditions.
The article cites figures from research group SuperRatings and references Australia’s roughly $1.6 trillion in super assets to illustrate the scale of the shift. SuperRatings’ data is used to show rising allocations to growth alternatives and differences between retail and industry fund strategies.
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