Which conservative super options serve retirees best?

With 2.8 million superannuation accounts set to move from accumulation to pension phase over the next decade, Super Review had a look at which conservative investment options are doing the best job at protecting members’ capital.

With the focus for retirees firmly on capital preservation rather than growth, it’s options that not only provide decent income but do so with minimal risk exposure that commonly serve those in the pension phase best.

Consisting of funds that invest in a mixture of asset classes but with a greater proportion of assets invested in fixed interest securities, options in the Mixed Asset – Cautious sector, which, according to FE Analytics, has returned 3.71, 3.33 and 3.36 per cent over the last one, three and five-years respectively, generally meet these requirements.

Statewide Super’s Conservative option was one of the most impressive performers in the sector, with its annualised three and five-year returns to April’s end of 5.98 and 5.87 per cent respectively being the highest in the sector. Crucial to retiree members, the five FE Crown-rated funds achieved these results with minimal volatility. Its three-year annualised volatility of 1.53 per cent and five-year of 1.85 per cent both fell below the sector averages of 1.84 and 1.90 per cent.

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Aon’s Moderate Index option also delivered strong returns to members, with its one-year performance of 6.82 per cent being the highest in the sector and its five-year annualised returns of 5.31 per cent only surpassed by Statewide’s Conservative offering. These returns came at the cost of slightly higher than average volatility however, with the option’s one-year volatility of 3.33 per cent outpacing the Conservative sector’s 2.15 per cent and its five-year volatility of 3.13 per cent similarly sitting above the average.

In terms of corporate mandates, those invested in AMP’s offerings were generally well-placed once they hit the life stage where capital protection became crucial.

The company’s SIGS Australia Post MySuper Capital Stable and SIGS AFLPA & AFL MySuper Capital Saver options were amongst the top five performers in the Cautious sector over both three and five years, although both had slightly above average volatility. The former notably achieved annualised returns of 5.1 per cent in the five years to April’s end, being just one of four funds to deliver over five per cent for the period.

In terms of investments, funds in the Cautious sector are, unsurprisingly, largely focused on fixed income. Assets in fixed interest class accounted for 36.59 per cent of invested funds for the Cautious sector at April’s end, with equities and the money market also having a strong presence with around a fifth each. The chart below breaks down its sector weightings.

Sector weightings for Cautious sector investments at 30 April, 2019

Source: FE Analytics