Super funds call for calm amid market fall

As misery spreads through global stock markets, Australian investors are reminded to wait patiently for a turnaround in fortunes to ensure they don’t lock in their losses.

The continued extreme volatility saw the Australian stock market fall to its lowest level for two years yesterday, with more overnight woes in the US and Europe bringing further bad news today.

However, for superannuation members such periods of negative returns are par for long-term course, although for those people approaching or recently in retirement the situation is more urgent.

"We completely understand that they will be hyper-sensitive to this situation and they should be getting personal advice either from their super fund or from those advisers that act in their best interests," said Paul Schroder, general manager, growth and opportunities, AustralianSuper.

"That always gets down to a proper judgement of their personal circumstances, their appetite for risk, the things that are worrying them."

The message to the average super fund member though, is to leave things as they are.

"We do know that historically people have switched out of one option and into a different option at the wrong time," said Schroder.

"It can be a very costly business to move to a different option after the markets have fallen."

Schroder said AustralianSuper was experiencing heightened levels of calls from worried members, while its investment team is constantly monitoring the situation with an eye on the long term.

As the nature and depth of problems in the US and European debt markets become better known, funds will be considering how best to position their portfolios.

Kristian Fok, deputy director of consulting at Frontier Investment Consulting said that despite the expectation of prolonged volatility and the possibility of a slowdown in demand from China, the fundamentals of Australian stocks remained strong.

"We still support investing in equities, they look particularly attractive given the way markets have priced them and also other risk assets like credit." said Fok.

"We don’t think it’s the time to run into a very defensive portfolio because the safe areas are where you’re going to lock in low returns."

Fok said that real assets such as infrastructure and property remained attractive particularly compared to fixed income, which is offering relatively low rates against inflation.

A clear sign of the lack of confidence in markets is that the bank deposit sector currently has more money in it than super, according to Rainmaker, with figures of $1.5 trillion and $1.4 trillion respectively.

"We need to make sure that the people we invest on behalf of are able to withstand the volatility because we don’t want to invest in these opportunities but then have the members say ‘no we can’t handle the volatility, we’re going to lock in the losses and move to cash ourselves,’" said Fok.

"We need to communicate with members a clear message about why we invest in these markets because you need to be able to participate in them to maintain the real value of your investments."

Hear more from the Australian Institutional community at Asset Allocation Australia 2012