The Motor Trades Association of Australia (MTAA) super fund has reintroduced fixed income to its default investment option, having abandoned bonds in 2007 on the basis that its ‘target return’ portfolio of unlisted assets could provide higher returns with less volatility. Leeanne Turner, deputy executive director (superannuation) at MTAA, said the fund had not made any recent adjustments to its unlisted holdings, however it had changed the strategic asset allocation of the default, or balanced option, to include a small allocation to fixed interest. The strategic asset allocation has risen from zero per cent in the balanced option for Australian and international fixed income in October 2008 to 1 per cent each, with a range of 0-10 per cent.
The actual allocation as at 31 July 2009 was 1.1 per cent for both global and domestic. The new SAA includes a 48 per cent weighting to the target return portfolio, a 3 per cent weighting to cash, a 26.5 per cent allocation to Aussie shares and a 20.5 per cent allocation to international shares. Despite the small bond presence in the default option, and a zero per cent allocation in the growth option, MTAA does offer a diversified fixed interest option which comprises nothing but fixed income, Turner noted. Many industry funds, which typically have higher allocations to unlisted assets than their retail counterparts, have endured public scrutiny during the last 18 months due to the so-called ‘valuation lag’ in unlisted markets.
MTAA’s default option has a strategic allocation to unlisted assets of 48 per cent – with an actual allocation of 64.8 per cent at 31 July this year. The long reign of MTAA’s balanced option as best performer (8.7 per cent net compound return over five years according to SuperRatings) ended in July this year when the fund came near last in performance league tables for the year to June 30. Recent statistics from Chant West show the gap between listed and unlisted property performance has narrowed to 22 per cent since February, when the 12 month return for unlisted property was more than 57 per cent higher than the unlisted sector.
The resurgence in listed markets has helped master trusts, which have a much higher exposure to listed property and shares catch up ground on industry funds, with the median master trust (growth fund category) outperforming the median industry fund for the sixth consecutive month – a cumulative outperformance over the period of 7.2 per cent. Over one, three, five and seven years, industry funds still lead by about 1 per cent per annum.
Mano Mohankumar, investment research analyst at Chant West, said earlier this year, many funds saw their unlisted allocations blow out, with one fund outside of its permissible range in February. “At the end of February we saw a number of funds at the upper end of their permissible ranges for allocations to unlisted assets,” he said. “In the last six months we’ve seen listed markets rally and unlisted assets marked downwards, so as a result the actual allocations are probably moving back towards their strategic targets.” Mohankumar said while Mercer’s Unlisted Property Funds Index had returned -12 per cent over the last 12 months, some industry funds had valued their unlisted property component down by as much as 18 to 20 per cent.