In short, take a long view
Motor Trades Association of Australia (MTAA) superannuation fund has been criticised by some sections of the media for coming last, or near last, in league tables of performance for the year to June 30. Finishing near the bottom is an unusual placing for MTAA. Over the long term, its default option, where 80 per cent of its members are invested, is one of the best performers and has been recognised as such by researchers. So what has gone wrong?
The fund is advised by Access Capital Advisers and it has done much better than other funds over the long term because of its big tilt (about 60 per cent of members' money) to unlisted investments. Most other industry funds have only 15 per cent to 20 per cent invested in unlisted markets.
Retail funds, run by the large financial institutions, have an even smaller exposure. That means that with the onset of the global financial crisis, the losses show up immediately in the retail funds. For funds with big tilts to unlisted assets, however, the losses are delayed as they are progressively re-valued.
But people forget super is the ultimate long-term investment and while a focus on one-year returns might make headlines, it is the long-term returns that matter. The point is MTAA invests in steady-yielding infrastructure, including assets such as the RG Casey Building in Canberra, which was bought by the fund in 1998 and has Federal Government tenants, airports and ports.
Unlike listed companies that have been cutting dividends, the income from these unlisted investments has kept coming in. While the asset values have been hammered, along with all other assets, it has to be kept in perspective.
We are in the early stages of a global economic recovery and that means the recovery in the value of unlisted assets may be just as rapid as was their collapse going into the downturn.
One of the hallmarks of the better-performing funds is their willingness to adjust asset allocations in the light of changing market conditions. MTAA principal executive officer, Michael Delaney, says the unlisted portfolio is being reduced but the fund is sticking to its guns and will not be panicked into knee-jerk reactions.
He says the long-term strategy is still a good one, particularly given the young age of its members. Only about 5 per cent of MTAA members are over 45. Infrastructure investments are long-term investments and well matched to the long-investment time horizons of most members (also see Page 14).
The investment option members end up with, if they don't make a choice ??? the default option ??? is designed to do the best job for most of its investors. For most members, as long as the investment strategy still makes sense, the best policy is to do nothing and sit tight. A poor one-year performance will not be a big deal for most people, it is a different matter for older members. They have to become "engaged" with their super, otherwise a big loss a couple of years out from retirement leaves them with less time to make good the losses.
The problem for fund members is that there are no hard and fast rules about how to balance a portfolio as retirement approaches. And there is no real uniformity in the names of the investment options.
Most default options, including MTAA's balanced option, have an asset allocation of about 70 per cent to growth assets such as shares and property and 30 per cent to defensive assets. Some experts say that for those aged 55 and over, a 50-50 split between growth and defensive assets may be appropriate.
Super funds have a suite of diversified options with differing risk and rewards characteristics. The funds are now able to give some limited advice on the phone about switching between investment options, which is a welcome improvement.