In the bank’s currency effect survey 2013, NAB found that 83 per cent of respondents said currency was important to their fund – up from 73 per cent in 2011.
“Why is it so important? First, superannuation funds are investing more offshore, and second, historic returns show us that currency [movements] can totally swamp the returns of other asset classes,” NAB currency overlay director Danica Hampton said.
According to the survey, which interviewed 64 retail, industry and corporate funds with an estimated $650 billion of funds under management, average exposure to foreign currency had increased from 17 per cent in 2011 to 18.2 per cent in 2013.
“Currency can be correlated with multiplying assets and having some foreign exposure can induce some benefits,” Ms Hampton said.
“As people are seeking out their optimal level of foreign exchange exposure we are seeing people make decisions at a portfolio level,” she added.
While decisions about currency risk are important, the survey also found that super funds acknowledge that forecasting is particularly difficult, with 80 per cent believing nobody is able to predict where the currency is going in the next 12 months.
However, there was still some agreement around likely currency trends, with 67 per cent of respondents expecting the Australian dollar to fall further against the US dollar.
In terms of the MySuper regulation, the survey found this had little effect on the hedging decisions of super funds.
“The MySuper regulation has not had a large impact on most super fund currency management strategies … only 15 per cent of affected funds were considering changing their hedging as a result of MySuper,” NAB head of superannuation funds Stephen Wells said.
