As the financial year closes, those in conservative super portfolios are likely to do best.
With the financial year ending on Saturday, research houses and analysts are making calls on the performance of super funds in 2011-12, and it looks like conservative investment strategies will be the winners.
According to superannuation research company Chant West, conservative portfolios in superannuation funds - those with only 21 per cent to 40 per cent of their investments in shares and other growth assets - are likely to produce the best returns for the 12 months to June 30.
The performance of conservative portfolios in super funds stacks up well against growth and high-growth portfolios in the past three years.
"This reflects the poor performance of shares compared with defensive assets, such as bonds and cash," says the Chant West director, Warren Chant.
A steep fall in global sharemarkets in May threatens to tip super fund returns into the red for the 2011-12 financial year.
Chant says it is "touch and go" whether funds will finish up or down.
"The intensifying European crisis weighed heavily on markets," he says.
The Australian sharemarket fell 6.7 per cent in May and the international equity index fell 6.8 per cent.
Listed property securities tumbled - down 1.2 per cent in the local market in May and 3.8 per cent in the global market.
High-growth portfolios in the super funds that Chant West surveys fell an average of 3.3 per cent in May and are down 1.7 per cent for the 11 months of the financial year to May. High-growth portfolios have 81 per cent to 100 per cent of their investments in growth assets.
Growth portfolios, which have 61 per cent to 80 per cent of their investments in growth assets, fell an average of 2.3 per cent in May and are up 0.2 per cent on average for the 11 months of the financial year to May.
Balanced portfolios, which have 41 per cent to 60 per cent of their investments in growth assets, fell an average of 1.2 per cent in May and are up 2.4 per cent for the financial year to date.
Conservative portfolios, with 21 per cent to 40 per cent of their investments in growth assets, fell an average of 0.4 per cent in May and are up 4.1 per cent for the 11 months of the financial year to May.
In the past three years, high-growth portfolios have produced an average return of 6.8 per cent a year, growth portfolios produced an average return of 7.2 per cent a year, balanced portfolios an average returns of 7.4 per cent and conservative portfolios have produced a return of 6.9 per cent a year.
Given the comparable returns of conservative portfolios and the low risk involved in achieving those returns, risk-averse investors who have not adjusted their super portfolio choice from growth or balanced might want to consider that.
Growth versus
conservative
Chant West's Warren Chant has compared long-term performance of growth and conservative super fund portfolios against their "typical return objectives".
- The typical return objective for an investor in a growth portfolio is a return of the change in the consumer price index plus 3.5 per cent a year (after fees and tax).
- The growth portfolios in the survey achieved that goal between 1997 and 2001, fell below it between 2002 and 2005, achieved it between 2006 and 2008, and have not achieved it since.
- The typical return objective for an investor in a conservative portfolio is the consumer price index plus 2 per cent.
- The conservative portfolios in the survey achieved that goal between 1995 and 2001, missed their target between 2002 and 2004, achieved it between 2005 and 2008, missed it between 2009 and 2011, and have been on target over the past year.
Frequently Asked Questions about this Article…
Which superannuation portfolios were expected to do best for the 2011–12 financial year?
According to Chant West, conservative superannuation portfolios — those with 21% to 40% invested in shares and other growth assets — were likely to produce the best returns for the 12 months to June 30, 2012, as defensive assets like bonds and cash outperformed shares.
How did Australian and international sharemarkets perform in May 2012 and what did that mean for super fund returns?
The Australian sharemarket fell 6.7% in May 2012 and the international equity index fell 6.8% that month. Chant West warned that the steep May falls, driven by the intensifying European crisis, threatened to push some super fund returns into the red for the 2011–12 financial year.
What were the May 2012 and year-to-date (to May) returns for high-growth, growth, balanced and conservative super portfolios?
Chant West reported May 2012 moves and 11‑month results to May as follows: high‑growth portfolios fell 3.3% in May and were down 1.7% for the 11 months; growth portfolios fell 2.3% in May and were up 0.2% for the 11 months; balanced portfolios fell 1.2% in May and were up 2.4% for the financial year to date; conservative portfolios fell 0.4% in May and were up 4.1% for the 11 months to May.
How have different risk‑profile super portfolios performed on average over the past three years?
Over the past three years (as reported by Chant West), average annual returns were: high‑growth 6.8% pa, growth 7.2% pa, balanced 7.4% pa and conservative 6.9% pa.
What do 'growth' and 'conservative' portfolio allocations mean in superannuation terms?
In the Chant West survey: high‑growth portfolios have 81%–100% in growth assets, growth portfolios have 61%–80% in growth assets, balanced portfolios have 41%–60%, and conservative portfolios have 21%–40% invested in shares and other growth assets.
What are the typical return targets for growth versus conservative super portfolios and how have they fared historically?
Chant West sets typical return objectives as: growth portfolios target CPI + 3.5% pa (after fees and tax) and conservative portfolios target CPI + 2% pa. Historically, growth portfolios met that target 1997–2001 and 2006–2008 but fell short in other periods and had not achieved it recently; conservative portfolios met their target 1995–2001 and 2005–2008, missed in other stretches, and were on target over the past year.
Should risk‑averse super investors switch from growth or balanced to conservative options right now?
The article suggests risk‑averse investors who haven’t adjusted their super choices may want to consider conservative options, because conservative portfolios delivered comparable recent returns with lower risk. Any decision should be based on your personal retirement goals, time horizon and risk tolerance.
How did listed property securities perform in May 2012 and did that affect portfolio results?
Listed property securities tumbled in May 2012, falling 1.2% in the local market and 3.8% in the global market. These declines contributed to the weaker performance of growth and high‑growth portfolios that have higher exposure to property and equities.
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