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 choose a 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.
Another strong performance from global sharemarkets in November has set up younger members of lifecycle funds for bumper returns in the 2019 calendar year.
Younger members born in the 1970s to the 1990s, with a higher allocation to growth assets such as shares and property, received returns of 2.3 per cent for the month and between 18.6% and 18.9% for the 11 months to November.
Members born in the 1960s also fared well, with a monthly return of 1.8% or 15.9% for the calendar year to date.
Even older members born in the 1940s and 1950s with more defensive portfolios missed have been delivered some Christmas cheer, with a monthly return of 1% and 1.1% respectively. They are both set to notch up annual returns in double digits.
In other words, over the long run Lifecyle funds are performing as intended, with older members protected from share market volatility as they approach retirement.
Chant West senior investment manager, Mano Mohankumar says: “We have mostly seen strong performance from growth assets in recent years so, as we would expect, the options that have higher allocations to growth assets have generally done best.
“Younger fund members of retail lifecycle products – those born in the 1970s, 1980s and 1990s – have outperformed the MySuper Growth median over all periods shown (in the table below). However, they have done so by taking on more share market risk,” he says.
The MySuper Growth option is the default option for most members of not-for-profit super funds. The median MySuper Growth option with 72% growth assets returned 14.3% in the 11 months to November, placing it mid-way between low-risk older lifecycle cohorts and the higher risk younger cohorts as you would expect.
However, Chant West says care should be taken when comparing the performance of lifecycle cohorts and the median MySuper Growth option because they are managed differently so their level of risk varies over time.
Median Retail MySuper Lifecycle Cohort Performance (Results to 30 November 2019)
Decade of birth
Median Growth Assets
Since Jan 2014
(% per year)
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.
Disclaimer: This article is general information only and does not provide any recommendation on investing with lifecycle super funds in general, or any specific super fund. It is important to get independent financial advice when considering what financial products may be suitable for you.