INVESTING

What asset classes have worked for super funds?

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The final results for super funds for 2015-16 are in and it's worth looking at how their underlying investments in various asset classes drove the returns they delivered to their members.

Driving this year's 2.9% average result and 8%pa over five years was property, because even though it makes up only 9% of the average MySuper product it accounted for almost half the total return.

While only three of last year's top 10 MySuper products are in this year's top 10 measured by one-year returns, this three in 10 ratio doubles to six in 10 if we look at MySuper five-year returns. Look deeper into the top 20 or top 50 lists over longer periods and these ratios get even higher.

asset classes

Bonds were the other big earner in proportional terms as, despite accounting for 21% of fund portfolios, they comprised a third of total returns.

But offsetting these star performers were Australian and international shares, which only managed to hold their ground. Given equities were about half of all superannuation assets this year, they were lead in the super fund saddle bag.

On the other hand, cash and "alternatives" such as infrastructure, hedge funds and private equity earned their keep as their combined 25% portfolio share contributed the same proportion of total return.

What to expect next year

Super fund returns are on average 90% correlated with sharemarket returns.

Predicting next year's super fund returns as a result forces you to think about what sharemarkets in Australia and overseas will do, how currency movements will impact this and whether the July-August recovery will continue.

Bond markets are just as complex because ratings agencies are reporting that almost half the bonds being traded on world credit markets have negative yields, meaning investors only make money from trading their capital value, not from holding them.

But offsetting this deflation is the huge glut of governments around the world - including Australia's - desperately trying to borrow more money, which should push up market rates if not official rates.

All this means the big indicators to watch will again be the pace of China's recovery, how the US economy reacts to its new president and whether Australia's unstable political environment will translate into low consumer and business confidence.

No wonder there is still so much interest in property and its sister asset class, infrastructure.

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