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Diversified growth strategy can boost super returns
Annual super fund returns could be increased significantly by shifting a proportion of its Australian equities allocations to a diversified growth strategy, according to Investec Asset Management.
Investec's white paper, ‘Diversified growth strategies and their role in Australian superannuation funds', found by including 15 per cent allocation to a diversified growth strategy in a typical super portfolio, funds could increase their realised returns, lower their overall volatility, and therefore improve their risk-adjusted returns.
The paper noted the strongest increase in returns came from substituting within the portfolio's Australian equities allocation rather than international equities.
Investec's co-head of multi asset and portfolio manager for its diversified growth fund (Australia), Michael Spinks, said super funds cannot rely on domestic assets alone to meet their performance objectives.
"The bread of opportunity set, investment flexibility, and active approach to currency management of diversified growth strategies presents a particularly appealing option that funds should be considering as part of their allocations," he said.
Spinks said investors could achieve better returns by taking a more global approach.
"Over the time period 1900-2014, although Australian equities exceeded their typical performance objective… it was achieved with a high volatility, indicating a significant variability of return," he said.
"Australian bonds and cash, on the other hand, significantly underperformed the objective, demonstrating they have not been effective in generating the required return.
"Given the majority of diversified growth strategies are available to investors on a daily dealing basis, their potential as a liquid alternative solution also stands out."
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The future of superannuation policy remains uncertain, with further reforms potentially on the horizon as the Albanese government seeks to curb the use of superannuation as a bequest vehicle.
Superannuation funds will have two options for charging fees for the advice provided by the new class of adviser.
The proposed reforms have been described as a key step towards delivering better products and retirement experiences for members, with many noting financial advice remains the “urgent missing piece” of the puzzle.
APRA’s latest data has revealed that superannuation funds spent $1.3 billion on advice fees, with the vast majority sent to external financial advisers.
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