AustralianSuper warns of tough times in the share market to come

AustralianSuper Mark Delaney chief investment officer share market
Mark Delaney who oversees the country's largest super fund, AustralianSuper, plans to cut the fund's exposure to equities over the course of the current financial year.

When Australia’s biggest superannuation fund scales back on its allocation to local and international shares, all investors should be taking notice.

Mark Delaney, the chief investment officer of the AustralianSuper, has just reported an excellent 11.08 per cent for the year to June 30, 2018 – easily beating the typical return of the biggest-50 superannuation funds of 9.1 per cent, according to SuperRatings estimates.

Higher return due to overweight position

Mr Delaney openly acknowledged that the good returns of AustralianSuper’s balanced option were due to a high allocation to listed equity markets and an underweight allocation to the lower-returning defensive asset classes such as fixed income and cash.

However, at the same time he said that the A$140 billion fund which has 2.2 million members would be significantly cutting its exposure to local and overseas shares from the current level of 62 per cent to around 55 per cent or less over the current financial year.

That is a really significant wind back in the exposure to shares and indicates that the AustralianSuper investment team are concerned about markets pulling back and also that they expect overall super returns to be lower in the future.

Rising US interest rates and trade fights

The two big factors which Mr Delaney pointed to as being potentially negative for shares were rising US interest rates and the rising tide of protectionism and tariffs for world trade.

He was also very careful to reduce the expectations of super fund members so that they are not expecting to simply “dial up’’ an 11 per cent return in the current financial year.

While the AustralianSuper balanced fund has seen a prolonged period of very strong growth, at some point in the future markets will be more subdued.

“Members should always be focused on longer-term results as fluctuations in returns are expected,” said Mr Delaney.

He also pointed out that the prolonged resilience of global markets over the previous financial year had gone against what many had been expecting.

Global political uncertainty and increased trade protectionism “did not have a sustained negative affect on markets,” he said.

“We will be keeping an eye on key policy makers, particularly the US Federal Reserve in relation to interest rates, while also monitoring any action in relation to tariffs or other measures which may affect global trade,” Mr Delaney added.

Long run of good returns

AustralianSuper’s balanced fund option – which is where 90 per cent of its members invest their money – has enjoyed a protracted run of excellent returns.

It has produced an average annual return of 10.51 per cent over the past five financial years, compared to the SuperRating’s large fund estimate of 8.7 per cent over the same period.

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.