Despite an economic backdrop characterised by market volatility and a declining Australian dollar, foreign exchange remains a key focus for superannuation funds, says NAB.
The 2015 NAB Superannuation FX Survey found that while the Australian dollar (AUD) has declined almost 20 per cent since 2013, foreign exchange (FX) remains a foremost focus for super funds.
The falling AUD has corresponded to an increase in average FX exposure at the overall fund level – up to 24 per cent 2015.
NAB executive general manager of fixed income, currencies and commodities, Drew Bradford said the fall in the AUD has reignited the importance of adaptability and flexibility across super funds.
“As superannuation funds in Australia continue to grow, and with increasing volatility in global currency markets, understanding trends in currencies and adapting foreign exchange hedging is critical,” he said.
“It is reassuring to see that super funds continue to recognise the importance of currency in their decision making process,” Mr Bradford said.
The level of overall FX exposure for industry funds has risen significantly from 18 per cent in 2013 to 28 per cent in 2015. For corporate funds, exposure has increased from 17 per cent in 2013 to 20 per cent in 2015.
The survey also found a clear preference for FX exposure in specific asset classes. There has been a rise in FX exposure in international equities and international fixed income, with a decline in exposure to infrastructure, international property, private equity, and hedge funds.
Moreover, FX exposure in emerging markets rose to 44 per cent in 2015, up from 15 per cent in 2013.
“The survey certainly shows that fund managers are recognising the need for greater flexibility and adapting to the changing market,” said Mr Bradford.