AustralianSuper Cuts Back on Equities as Portfolio Returns Turn Negative

By Nick Hedley

Australia’s largest superannuation fund is trimming its exposure to equities amid a market downturn that saw the fund post its first negative return in 13 years.

AustralianSuper, which manages A$260 billion (US$175 billion) in assets on behalf of 2.6 million members, says its balanced option delivered a return of -2.7% in the financial year to June 30. This was the first annual loss for members since the global financial crisis, and the fourth in 36 years.

The decline takes average annual returns over the past 10 years from AustralianSuper’s balanced option to 9.3%.

The fund’s chief investment officer, Mark Delaney, said in a statement the slump in equities and bonds had been partially offset by positive returns in infrastructure, real estate, private equity and credit.

He warned of lower returns ahead, saying: “We’re expecting a shift from economic expansion to slowdown in the coming years.

“In response, we‘ve shifted the portfolio to a more defensive strategy. This means we’re increasing our investments in fixed interest and reducing our investment in growth assets like listed shares.”

AustralianSuper will continue to adjust its asset allocations to manage risk as the economic cycle progresses, he said.

Nevertheless, opportunities remain.

“As long-term investors, we know that periods of market volatility can create good investment opportunities. We’re actively looking for investment opportunities that may have been mispriced by the market in the short term and to make investments where we see long-term value.”

The firm’s balanced option invests in equities, fixed income, cash, infrastructure, property, private equity and credit assets.

“We estimate the option could have about five negative annual returns over any 20-year period,” AustralianSuper said.

AustralianSuper has been bulking itself up through mergers and acquisitions, having recently absorbed LUCRF Super and Club Plus Super.