Australian super funds would benefit from more diversification among assets which weren't correlated and did not depend directly on growth, according to Standard Life Investments global fund manager Guy Stern.
Mr Stern said relying on equities to bail investors out in the long term was no longer adequate.
"Most investors have a greater demand for positive returns with a shorter time horizon but with a smoother path," he said. "After all, consistency of returns has a substantial impact on what you end up with at the end.
"Many superannuation portfolios are spread across domestic and international equities, bonds, property and private equity. However, as soon as a market shock or major economic stress occurs, the correlation between assets increases."
He added that while investors still wanted to capture equity upside, they wanted less volatility and more certainty and stability. Therefore, more work needed to be done on diversifying Australian super funds.
Mr Stern said an absolute return strategy aligned a fund manager's objective of making money in all market conditions with investors' needs.
"A portfolio that isn't biased to one market outcome, that doesn't need growth to hit a target level, but is constructed on a variety of economic outcomes offers true diversification," he said.
"Absolute return managers aren't tied to any central asset allocation benchmark. Returns are usually referenced to a cash or inflation benchmark, allowing a manager to invest across a wide range of markets and asset classes."
According to Mr Stern, investors needed to generate a consistent level of return and protect themselves against gross changes in their liabilities.
"By adding an allocation to an absolute return fund, investors can expect a better reward/risk ratio compared to conventional long-only equity investment," he said. "In other words, funds can better manage investment risk, reduce volatility and improve overall portfolio performance."
Standard Life Investments has sought to address the lack of diversification by introducing Multi Asset Investment Strategies, including Global Absolute Return Strategies (GARS), to provide consistent returns to investors.
