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Important
Past performance is not necessarily a guide to future performance. The returns that super funds achieve will change over time and readers should continue to monitor their super’s performance.
All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs. You should consider whether any information on SuperGuide is appropriate to you before acting on it. If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions.
Click here to jump to the latest returns for lifecycle super funds.
Close to 70% of Australians with super in one of the major funds are invested in their fund’s MySuper option, the default option for employees who don’t wish to choose another super fund. If you are a member of a retail fund, this is most likely a lifecycle product which is designed to reduce your exposure to higher risk growth assets as you age.
A small number of not-for-profit funds also use a lifecycle design, but most use their traditional balanced or growth option as their MySuper default.
This makes it difficult to compare MySuper returns. Whereas balanced or growth default options have a single strategy for all members with somewhere between 60% and 76% of members’ money in growth assets such as shares with the remainder in defensive assets such as cash and bonds, lifecycle defaults might hold as little as 40% or as much as 88% in growth assets, depending on your age.
For this reason, Chant West reports returns for lifecycle funds separately (see latest returns at the bottom of this article). Most lifecycle funds are based around age groups; when you join the fund you are assigned to a group based on the decade you were born. While your group stays the same, over time your exposure to growth/risk assets changes. So members born in the 1990s are currently invested in 88% growth assets while Baby Boomers born in the 1940s hold only 40% growth.
You will notice that the table below includes median returns for MySuper Growth (balanced) default products. This is not as a direct comparison but to illustrate how the lifecycle design functions relative to balanced funds with an average weighting of 72% growth assets.
Why lifecycle funds?
Lifecycle funds, also called lifestage or target date funds, have been around since the early 1990s but didn’t really catch on until after the global financial crisis of 2007-09.
Definition
Lifecycle funds are products available in the accumulation phase of super that automatically increase the relative weight of defensive assets (such as cash and bonds) versus growth assets (such as shares) as members age.
Despite positive returns for all age groups in April, the big sharemarket falls in February and March have left younger members of lifecycle funds (those born in the 1970s, 1980s and 1990s) with greater losses for the financial year to date. That’s because younger cohorts have a relatively higher exposure to shares.
The median MySuper Lifecyle fund for members born in the 1990s fell 12.2% in the 10 months to the end of April. At the other end of the age and risk curve, members born in the 1940s and 1950s with lower exposure to shares experienced falls of 12% and 2.3% respectively for the 10 months to April.
Capital preservation is more important as people near retirement, so while they miss out on the full benefit in rising markets, older members in retail lifecycle options are better protected in the event of a market downturn such as the one we’re currently experiencing. These members would have been better protected against the market falls than members in MySuper Growth options where the median fund is down -8.6% for the 10 months to April.
According to Chant West, the reason younger members in retail lifecycle funds have underperformed the MySuper Growth option is that, while they are generally well-diversified, these funds don’t have the same level of diversification as many of the industry funds.
This is mainly due to the industry funds’ higher allocation to unlisted assets such as property, infrastructure, and private equity – about 21% on average. This compares with the retail lifecycle fund average of 5% unlisted assets for these younger cohorts, although some have as much as 10-14%.
These assets have been proven to add value over the long term, not just for their diversification qualities but also because they generate an illiquidity premium in their returns relative to listed markets. However, any performance comparison at the end of April is further complicated by the fact that some funds have devalued their unlisted assets more aggressively than others.
Median Retail MySuper Lifecycle Cohort Performance (Results to 29 February 2020)
|
Decade of birth |
Median Growth Assets |
1 mth (%) |
FYTD (%) |
1 yr (%) |
3 yrs (% pa) |
5 yrs (% pa) |
Since Jan 2014 (% per year) |
|---|---|---|---|---|---|---|---|
| 1990s | 89 | 4.5 | -5.8 | -4.4 | 4.0 | 4.7 | 5.7 |
| 1980s | 89 | 4.5 | -5.3 | -4.0 | 3.9 | 4.6 | 5.9 |
| 1970s | 88 | 4.5 | -5.0 | -3.4 | 3.8 | 4.4 | 5.8 |
| 1960s | 67 | 4.1 | -4.1 | -2.4 | 3.6 | 4.0 | 5.4 |
| 1950s | 47 | 2.7 | -2.3 | -0.4 | 3.6 | 3.5 | 4.6 |
| 1940s | 43 | 2.3 | -1.6 | 0.1 | 3.5 | 3.4 | 4.4 |
| MySuper Growth | 71 | 3.0 | -3.0 | -1.2 | 4.8 | 5.6 | 6.6 |
Source: Chant West
Note: Past performance is not necessarily a guide to future performance. This information about returns can change and readers should continue to monitor their super’s performance.