Top retail superannuation funds outperformed industry fund rivals in the worst year for the sector since the global financial crisis of 2009, according to  Chant West ranking tables.

Top retail superannuation funds outperformed industry fund rivals in the worst year for the sector since the global financial crisis of 2009, according to Chant West ranking tables.

BUSSQ Super, with around $5 billion under management, increased exposure to catastrophe bonds, agriculture and international equities while reducing holdings in the local market and China. It came in third with a 2.5 per cent return.
Still, Mano Mohankumar, Chant Wests senior investment manager, describes the median loss of 0.5 per cent as a pleasant surprise following a tumultuous period when key global sharemarkets posted double-digit losses followed by the sharpest rally in history.
Mohankumar says: About 40 per cent of the funds in the growth category managed to generate a positive return, albeit a small one, despite the worst economic conditions since the global financial crisis (a period of extreme stress in global financial markets and banking systems between mid-2007 and early 2009).
Most growth funds aim to beat inflation by about 3 to 4 per cent a year. The annualised return over the past 28 years has been 8 per cent which, with CPI at 2.4 per cent, provided a real return of 5.6 per cent annual growth.
Even looking at the past 20 years, which now includes three share market downturns the tech wreck in 2001-2003, the global financial crisis in 2007 2009, and COVID-19 super funds have returned 6.3 per cent per annum, says Mohankumar.
Longer term
Niche retail funds topped the performance charts in fiscal 2020 but giant industry funds dominate performance over the longer term.
UniSuper chief investment officer John Pearce. Supplied
Managers say shut-downs and working from home will create opportunities from the faster transition to existing digital technologies, such as online shopping, and pose hard questions about the scale of the commitment to some traditional strategies, including commercial and retail property.
John Pearce, chief investment officer of UniSuper, says: Our big investments (which start around $500 million) are usually confined to large companies.
Performance of key investments included Apple, which has been at the forefront of the smartphone revolution, returning more than 86 per cent; technology blue chip Microsofts 54 per cent, and CSL, which is currently working on a treatment for COVID-19, returning 35 per cent.
But others, such as shopping centre specialist Scentre Group and so-called fortress asset Sydney Airport tanked by up to 40 per cent.
Mark Delaney, AustralianSupers chief investment officer, says digital and technological changes affecting business and personal lives that had been coming for some time are being supercharged
Kristian Fok, Cbus chief investment officer, says COVID-19s impact has big implications for building design, airflows, natural light, wellness and connectivity that must emerge to attract people back to an office environment.
AustralianSuper CIO Mark Delaney says market corrections are part of the long-term investment cycle.  Eamon Gallagher
Chant Wests growth category includes funds with allocations to growth assets of between 61 and 80 per cent. Growth assets are also known as return-seeking assets, which are typically aiming for capital growth.
These assets often have the potential for higher investment returns over the longer term, but also tend to have higher investment risk, which means a greater likelihood of short-term volatility.
Most of the $2.7 trillion held by more than 10 million Australians in super is in growth funds.
Year of pain
Gains of about 6.5 per cent to the end of January were demolished by the onset of the pandemic during February and March, causing a 12 per cent fall in a few weeks. But the market rallied by about 6.5 per cent during the June quarter to end the year flat.
The better-than-expected financial year result is because super funds are so well diversified in their investment policies, Mohankumar says.
Wow performers of recent years, such as Australian shares and listed property, became ow with 12-month losses of nearly 8 and 21 per cent respectively, Chant West’s analysis shows.
Listed property was the worst performer. The sector includes companies such as Scentre Group and GPT, a listed real estate investment trust, that slumped more than 30 per cent.
About 25 per cent of a typical growth fund is Australian shares with international accounting for another 29 per cent, according to Chant West analysis.
That leaves another 46 per cent invested across other growth and defensive asset sectors, says Mohankumar. That diversification works to cushion the impact during periods of share market weakness.
“The better-performing funds over the year were generally those that had lower allocations to Australian shares and higher allocation to international shares and bonds.
Australian and international bonds rose more than 4 and 5 per cent respectively. All-time low interest rates contributed to cash returning just 0.8 per cent.
Regular event
None of this years top five performers was among 2019s leaders, which has traditionally been dominated by industry fund giants including Australian Super, which has $180 billion under management, UniSuper, $80 billion and QSuper $91 billion, and UniSupers $80 billion.
But these industry funds continued to lead performance over 10 years with returns from the best five ranging from AustralianSupers 8.8 per cent to 8.5 from Cbus, according to ChantWest.
Stock market corrections, which involve a downturn of at least 10 per cent, are a regular event for most long-term investors, despite market pundits usually being caught by surprise.
According to AustralianSupers Delaney, there has been a bear market in the US every decade since the 1950s caused by events ranging from economic crisis, collapse of a long-term speculative bubble, or a major catastrophe, such as a global pandemic.
Veteran investment managers compared the speed of this years collapse to 1987s Black Monday (or Black Tuesday in Australia due to time differences) when major bourses around the globe crashed by more than 20 per cent in a day as investor panic activated computer-program driving trading models that automatically sold at pre-arranged levels.
Back then saver and 10-year Treasury rates were comfortably above 10 per cent, providing a defensive asset class with reasonable returns.
This time round, central banks and governments responded to collapsing economies with rate cuts and massive support and spending policies that dwarfed the response to the GFC.
Equity markets appear to be pricing in a vaccine becoming available over the next 12 months. Delaney says its review of scientific research found a high probability of a cure.
If this is wrong we could be in for some more volatility, adds Simon Mather, chief investment officer for BUSSQ.
Fund managers are generally cautious about the short-term outlook but alert to the longer-term changes expected to flow from the crisis, regardless of whether a vaccine is found anytime soon.
Its also unclear what the impact on liquidity will be of about 2.3 million scheme members accessing super early under the governments first early access scheme.
Some 500,000 members emptied their retirement accounts, according to the Australian Taxation Office. It is not known how many dipped into their accounts during the second tranche of the scheme.
BUSSQs Simon Mather says defensive asset classes are expensive. Elke Meitzel
Suncorp executive general manager Shailendra Singh says: We expect ongoing volatility due to uncertainty around COVID-19, reported earnings, corporate balance sheet strength, unemployment and geo-political issues.
BUSSQs Mather, says: This time defensive asset classes are expensive. There is a need to find (alternative) niche strategies that provide a sufficiently defensive return at a reasonable price.
Mather expects the local economy to contract over the next 12 months amid other stability risks, such as the US election and China-US trade negotiations.
Australian Ethicals chief investment officer, David Macri, will continue looking for value in small-cap biotechs and software companies targeting explosive growth in cloud computing, which is delivery of services through the internet, and data centres.
Australian Ethical CIO, David Macri will continue looking for value in small-cap biotechs and software companies. Jessica Hromas
UniSupers Pearce adds that although it might be tempting to buy after prices have fallen so far, its hard to see a catalyst that will underpin significant price appreciation, over the general market.
That means the manager is looking for other ways of playing a post-COVID recovery.
Sydney Airport, which fell about 28 per cent during the downturn, is expected to recover and does not have the same structural problems as shopping centres, says Pearce.