Experts predict super funds to generate lower returns

Linda Santacruz
— 1 minute read

Investors should expect lower super fund returns in the coming year, but that is not a reason to get discouraged, according to a panel of global market experts.

Speaking at AIST’s Thought Leadership Luncheon in Sydney this week, Macquarie Investment Management’s executive director and head of fixed income and currency, Brett Lewthwaite, said the ability to generate high returns is becoming a challenge.

“As we go along, I think it gets harder to foresee how [high returns]) can continue. And I don’t think anyone will outright say there’s no chance for another good year in equity markets but I think structurally its beginning to get harder and harder,” he said.


“We have to start having conversations around ‘sometimes it’s a sensible thing to take a lower return and take a lower risk than ride the roller coaster’. We might be getting closer to that point in the next 12 to 18 months.”

However, the dip in returns isn’t expected to be extreme, said Vanguard Asia-Pacific’s head of investment strategy group Jeffrey Johnson.

He said while he doesn’t predict returns to be as high as the past few years, it’s not enough to take aggressive action to reposition portfolios.

“We’re not projecting inflation to be anywhere close to historical levels. So when you blend all that together the way many super fund investors do, it gets us to around six per cent or so nominal return over the next 10 years. Take inflation out of that you get a CPI+ of about four,” Mr Johnson said.

“That’s after a period of time where investors become used to CPI+7, CPI+8. Certainly, nobody would expect that over an extended period of time but if the target is CPI+5, now is probably the time to think about how comfortable you are with something just slightly below some of those longer-term averages.”

Colonial First State Global Asset Management’s head of economic and market research Stephen Halmarick echoed those sentiments, adding that the next step is to “educate our clients that that’s what the future looks like”.

In addition, Mr Johnson recommends investing overseas as opposed to concentrating solely on Australian markets.

“The Australian market is dominated by the top 10, 15 companies [and] they are coming primarily from two sectors: the banks and the mining companies, [which] are going to be having their fair share of challenges over the coming years,” he said.

“There are a lot of very good reasons for Australians to have such a big home-country bias, but at the same time this is also an environment where we’d be thinking hard about the risks of being so concentrated domestically and the benefits that might accrue from investing internationally, notwithstanding the risks coming from the US, Greece, and China.”


Experts predict super funds to generate lower returns
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