Defensive superannuation options have provided better returns than balanced and growth funds over long time periods, according to new research.
Conservative funds, those that typically invest only 21 per cent to 40 per cent of the portfolio in risky assets like equities, had median annualised returns of 5 per cent in the 10 years to July, Chant West’s multi-manager performance survey said.
That compares with the 3.2 per cent yearly gain for maximum growth options, whose portfolios usually fully invested in risky assets, while growth and balanced options added an annualised 4.9 per cent and 4.7 per cent, respectively, over the same time.
The Chant West research showed conservative options also outperformed funds that were more aggressive over seven, five, three and one-year periods.
Research firm SuperRatings’ recent survey confirmed defensive options mostly beat balanced, growth and high-growth options.
Capital stable funds were the best performers, returning 4.95 per cent a year annually in the 10 years to July.
However, secure funds, which invest up to 20 per cent in risky assets, were beaten by most other options except during the five-year period.
Franklin Templeton Australia managing director Maria Wilton said the returns reflected the mixed performance of asset classes in the past 10 years.
“Those growth options will have an allocation to international and Australian equities and would have been held back by the international component,” Wilton said.
“International equity returns have been negative on an unhedged basis over one, three, five and 10 years.
“Interestingly, the Australian market has posted a positive return over all of those periods. That reflects the strength of the economy, its focus on resources and the positive impact of the post global financial crisis stimulus package.”
DC Advisory Services director Damian Crowe said the possibility of slow global growth could mean planners and clients would have to readjust their expectations for returns.
“Volatility is likely to be a continuing trend and the question is whether clients are able to cope with this volatility,” Crowe said.
“If not, then they are likely to opt for lower-risk options such as defensive diversified, but they too have their risks especially with the fixed interest exposure and the potential for inflation.
“It is possible we are entering a period of very low global growth, despite the emerging markets, and this will mean clients and planners having to readjust their return expectations. Clients will ask: ‘Why take on the extra risk of balanced and growth if I am not being rewarded?'”
Vanguard Investments Australia principal of corporate affairs and market development Robin Bowerman said share markets delivered better returns than cash over rolling 20-year periods.
“We know that past performance t isn’t a guide for future returns, but it gives a framework that says you don’t want to be 100 per cent in cash or 100 per cent in shares. What you need is a long-term balanced and diversified view of the world in terms of asset allocation,” Bowerman said.
