Bricks and mortar will be more investors' cup of tea after turmoil
There can be little doubt that the latest turmoil in share markets will trigger a decision by many super fund members towards a greater property investment.
Some will choose to do so changing their exposure through their existing industry funds, while others will decide to do it through self-managed super funds.
Given the overly high allocation of shares in the typical balanced super portfolio, Australian super fund members are particularly vulnerable to every tumultuous swing in the world’s share markets.
The pro-property push will come not necessarily because Australian funds have underperformed the OECD average in the GFC aftermath. (And pity those whose assets have not recovered in the six OECD countries in local currency terms; Belgium, where assets are 10% lower than in 2007; Ireland, 13%; Japan, 8%; Portugal, 12%; and Spain and the US, which were both down by 3%.)
But the shift towards bricks and mortar will come rather from the desire to control one’s own destiny and forego the anxiety of waking up to find one’s fate after the overnight trading on Wall Street.
The Organisation for Economic Co-operation and Development report on pensions found Australian funds had the third-highest exposure to shares in the developed world.
About 46% of super money was invested in equity markets. The June 2010 report noted the best-performing funds were in New Zealand (10.3%), Chile (10%), Finland (8.9%), Canada (8.5%) and Poland (7.7%).
In most OECD countries bonds were by far the dominant investment class, accounting for at least half the funds' investments. Australian funds typically have 11 per cent in bonds, and about 15% in cash and deposits.
Countries including the United States, Finland and Chile were others that showed significant portfolio allocations to equities, in the range of 40% to 50%.
Of course the bias towards shares helped compulsory super funds produce strong returns when the stock market was rising.
But the latest unsettling share market turmoil comes at a time when SuperRatings managing director Jeff Bresnahan says many funds had yet to regain all the losses suffered during the GFC.
“To say 2012 is shaping up to be a challenging one is a mild understatement, with ongoing European debt crises, political jousting in the US, massive daily stock market swings and now the threat of recession,” Bresnahan notes.
No doubt many fund members will be switching to a more conservative investment option within their existing funds, and the super industry will be content to keep them in the tent.
But the latest episode in stock market turmoil will trigger an exodus towards self-managed super funds with property investment prospects at top of mind.
Jeremy Cooper, who chaired last year's review of the super industry, acknowledged this week that the industry funds had a “one-size-fits-all soup of assets.”
“And that may need to change, especially in retirement where people feel losses the most.''
''I get the sense people are saying not again, and are overwhelmed by the powerlessness of it all,'' Cooper, who is the head of Challenger retirement income division, told the SMH.
Cooper says the recent sell-off was irrational, and that small investors worried about their superannuation portfolios ought to have a cup of tea and leave it to the experts.
Since it was the share market and super industry experts at whom much of the blame rests, the property industry stands ready in anticipation of an investment fillip once the mums and dads have had that cuppa.
Let’s just hope the shift is orderly.
