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 a strong June 2020 quarter, the major drops in February and March has resulted in those options that have higher allocations to growth assets generally faring slightly worse over the financial year. Over longer periods those higher-risk options, which cover the younger cohorts born in the 1960s or later, have generally performed better, although not as well as the median MySuper Growth option.
According to Chant West, the reason these younger cohorts 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 not-for-profit funds. This is mainly due to the not-for-profit funds’ higher allocations to unlisted assets (unlisted property, unlisted infrastructure and private equity) – about 21% on average.
This compares with the retail lifecycle fund average of 5% for these younger cohorts, although there are a few that have 10-14% unlisted asset allocations. These assets have been proven to add value over the long term relative to listed markets while providing great diversification benefits which help to smooth returns for fund members.
The older cohorts (those born in the 1950s or earlier) are relatively less exposed to growth-orientated assets so you would expect them to underperform the MySuper Growth median over longer periods. Capital preservation is more important at those ages 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, as was evident during the past year.
Median Retail MySuper Lifecycle Cohort Performance (Results to 30 June 2020)
|
Decade of birth |
Median Growth Assets |
1 mth (%) |
Qtr (%) |
1 yr (%) |
3 yrs (% pa) |
5 yrs (% pa) |
Since Jan 2014 (% per year) |
|---|---|---|---|---|---|---|---|
| 1990s | 89 | 0.9 | 8.6 | -0.9 | 5.4 | 5.7 | 6.2 |
| 1980s | 89 | 0.9 | 8.7 | -1.0 | 5.3 | 5.7 | 6.2 |
| 1970s | 88 | 0.8 | 8.7 | -0.9 | 5.2 | 5.7 | 6.2 |
| 1960s | 67 | 0.7 | 7.0 | -0.4 | 4.6 | 5.1 | 5.8 |
| 1950s | 47 | 0.5 | 4.9 | 0.4 | 4.3 | 4.1 | 4.8 |
| 1940s | 43 | 0.5 | 4.6 | 0.8 | 4.2 | 4.3 | 4.8 |
| MySuper Growth | 71 | 0.9 | 6.1 | -0.3 | 5.6 | 6.3 | 6.9 |
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.