AustralianSuper Warns Investors Should Expect Lower Returns

AustralianSuper which is the biggest super fund in the country has posted an 8.67 percent return for its popular “Balanced” option for the 2018-1019 fiscal but the company is cautioning Aussie investors to not expect significant returns as this year will most likely not be very profitable.

This is mostly due to the fact that the current economic cycle is experiencing a downturn which could drag down earnings.

The positive results for the 2018-2019 fiscal came as a rather pleasant surprise due to the fact that the super fund would experience a return of 7.1 percent but the super fund out did their predictions. 

One of the reasons the super fund did well was because the fund’s managers switched away from shares into bonds, which helped with strengthening the fund. 

Additionally, fixed-income investments have allowed it to weather the volatile market unscathed. This market volatility was showcased recently when the S&P/ASX 200 Index lost more than 11 percent but bounced back in just six months.

In a statement, Mark Delaney, chief investment officer for the fund, said

We saw US interest rates, the Trump trade war with China and the local housing market downturn as significant threats. We have reduced our asset allocation of equities from the mid-60s in percentage terms to mid-50s, while our bond exposure has grown from 3 per cent to more than 13 per cent. There were some tough months and, at times, it looked like we would see relatively subdued returns. However, there was resilience in infrastructure and property markets while falling interest rates also meant fixed interest did well.

However, this positive performance is not expected to last. Global trends are pointing towards a tense market atmosphere and it may affect future earnings. This is why Delaney has warned fund members not to expect the same performance in the future. He believes that the fund will experience some very low and even negative returns with the current market.

Future Direction

As for the fund’s future plans, Delaney expects the super fund will boost its investment into offshore markets. AustralianSuper has carried out a detailed study of international markets and large funds and found that most of the successful funds have diversified their investment portfolio and targeted international markets. 

AustralianSuper wants to follow a similar plan and keep 85 percent of its investments in-house and use the rest to invest into international markets. Currently, the fund only has 42 percent of its investments managed internally and Delaney aims to bring that to 50 percent within the next 12 months. These steps are expected to protect Aussie investors going forward and reduce the margin of risk.