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Shares bias hits super

AUSTRALIAN super fund members are particularly vulnerable to wild swings in world sharemarkets thanks to the high level of shares held in the average portfolio.

AUSTRALIAN super fund members are particularly vulnerable to wild swings in world sharemarkets thanks to the high level of shares held in the average portfolio.

An Organisation for Economic Co-operation and Development report on pensions found Australian funds had the third-highest exposure to shares and similar assets in the developed world. About 46.5 per cent of super money was invested in equity markets.

In most OECD countries bonds were by far the dominant investment class, accounting for about half funds' investments, and often more. But Australian funds were among the more aggressive with just 11 per cent in bonds, and about 15 per cent in cash and deposits.

The bias to shares helped super funds produce strong returns while markets were good. But Australian funds have underperformed the OECD average in the aftermath of the GFC and will suffer wide swings in value as the debt crisis plays out. Before yesterday's bounce-back, the average fund looked like being down 7 to 8 per cent since July 1. A loss of this magnitude would have wiped out most of last year's gains.

SuperRatings managing director Jeff Bresnahan said funds were still down about 4 per cent and had yet to regain all the losses suffered during the GFC.

No one knows in which direction markets will head next, though Mr Bresnahan said he would be "hard pressed" to see them retesting their 2009 lows. "A lot of what is happening is being driven by sentiment," he said.

But already investors are saying enough is enough.

"I get the sense people are saying not again, and are overwhelmed by the powerlessness of it all," said Challenger retirement income chairman, Jeremy Cooper, who also chaired last year's review of the super industry. "It's not just something outside their own control, it's happening outside the country."

Mr Cooper said Australian super funds "do risk in a big way" compared with other countries and might need to re-examine this. "At the moment we have a one-size-fits-all soup of assets, and that may need to change, especially in retirement where people feel losses the most."

Ian Silk, the chief executive of the $44 billion industry fund Australian Super, said it had seen a 20 per cent increase in calls over the past two days with "a significant proportion" indicating they would be switching to a more conservative investment option.


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