Wild market swings put added pressure on super fund members

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

A report by the Organisation for Economic Co-operation and Development 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 other OECD countries, bonds were by far the dominant investment class, accounting for about half of 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 global financial crisis and will suffer wide swings in value as the debt crisis plays out.

Before yesterday's extraordinary, afternoon bounce-back, the average super 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 global financial crisis.

No one knows in which direction markets will head next, though Bresnahan says 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 some investors are saying enough is enough.

''I get the sense people are saying not again, and are overwhelmed by the powerlessness of it all,'' Challenger's chairman, retirement incomes, Jeremy Cooper, said.

Cooper, who also chaired last year's national review of the super industry, said ''it's not just something that's outside their own control - it's happening outside the country''. Cooper said Australian super funds ''do risk in a big way'' compared with other countries, and when the dust settled, they may 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 AustralianSuper, said it had seen a 20 per cent increase in calls over the past two days with ''a significant proportion'' of callers indicating they would be switching to a more conservative investment option.

''We've been asking them to take a deep breath,'' he said. ''While the situation is unsettling, they shouldn't act precipitously.'' Silk said that after the financial crisis, the level of switching to more conservative investments peaked in early 2009 - right at the low point of world sharemarkets.

''It was the very worst time to switch,'' he said. Having taken the losses, these fund members had missed the recovery.

Cooper said making decisions amid panic was ''doubling the bets against yourself'' .

''There are people who are saying, 'this is enough for me', but there's no point in being rash,'' he said.