Super crash

29/07/08
Super crash

The median balanced super fund lost 3.9 per cent in June, and 6.39 per cent over the year to June according to data released by SuperRatings yesterday.
The losses are the worst annual results for super funds since superannuation became compulsory in 1992.
SuperRatings found that the gap between the best and worst performing balanced funds over a 10 year period was 5.56 per cent.
Had two people invested the same amount in the balanced options of these two funds, the difference in their current benefits would be approximately 68 per cent.
Many super funds are holding up to 20 per cent of their funds in cash investments, up from an average of about 5 per cent.
The funds that performed the best for the year to June 30 were Vision Super, PSS and MTAA.

Source: News.com.au

 

Hi Tropo,

Interesting read.
I'm amazed that the MTAA Super fund has only dropped -2.46% in the July 07 to June 08 period (MTAA Super: Interim crediting rates)

I know that the MTAA Balanced fund is extremely agressive for a balanced fund (ie, about 80% to 85% or so in growth, whereas the industry standard is around 70%).

Having a closer read they invest in what they call "Target Return Assets" which include Subordinated debt, property, infrastructure, private equity and natural resources. It sounds like there is not daily pricing for these investments so it could be hard to tell what the actual price of these investments are if they were to be sold today (could be more, could be less).

Cheers,

Dan

PS Before making an investment decision speak to your FPA registered Financial Planner.

 

Hi Dan,

To me the most amazing stuff is here = “Had two people invested the same amount in the balanced options of these two funds, the difference in their current benefits would be approximately 68 per cent”.

It makes you wonder isn't it?

 

Tropo

I agree, but perhaps one of them had shares in Centro and others shares that dropped a lot and the other option didn't.
Under a normal share market correction the difference between the 2 options would have been small but this is no normal correction.
Also, who would have thought that our very wealthy banks would be hit so hard?

Cheers

 

Bill,

Personally, I would not care less what the reason is (Centro, XYZ , ZYX or flood in lower Mississippi Delta Region).
Who told you that current correction is not normal?.
What you are witnessing, is normal bear market behaviour, which is not as bad as 1987 (as yet).

What made you think that banks are immune and wealthy?
Every time I listen to TV ‘gurus’ and/or ‘experts’ I apply salt, Cayenne Pepper and bottle of Calvados.

 

Yeah the MTAA fund is 100% growth assets so not a balanced fund (which is why it has out done all other balanced funds over the long term). but for a 100% growth a loss that small is very good. However 50% of it is invested in unlisted assets such as private equity and infrastructure, which as you say are not priced daily nor are they priced by a volatile market.

a rather dangerous position to be in if you ask me, but as long as the **** doesn't hit the fan it should be alright. but there are better 100% growth funds out there...

 

I hear it on the news.
Wait for the usual "increased profit announcements" soon
and I also see it on my bank statement.
5 words "They are ripping us off"...

Cheers

 

"5 words "They are ripping us off"..."

Now you’re talking...

 

I'll be interested to see what happens one day when a whole swag of MTAA members try and pull their funds out and it becomes apparent that MTAA's AA is illiquid and are in a similar position to westpoint, fincorp etc!

Also, how ASIC haven't forced them to rename their funds. Their balanced fund is 99% growth assets, and their growth fund is only 95% growth assets???????

Anyway, i was expecting MTAA's results to look very poor come July, but looking at their figures they apparently don't even value their unlisted assets once a year! I'd love to be a fly on their investment committee's meetings......."What return will we have this month fella's???" "Well everyone else is losing 10% this month, so we better be realistic and make it -2.4%; but don't worry, next month we'll declare a 3% gain to make it up"

Ben

 

If you expect your investment to grow in a straight line, invest into Fix interest.

getting 4 years of 20%+ PA returns, and then the 5th year comes back down 20%, and your upset at this, then you have a mis-understanding of the investment your in.

 

I've been pondering this recently. For my personal super, the portion that is in growth funds has, like everyone else, taken a hit, and the portion that I've got in 'safe' funds has actually gone up by a few % in the 07/08 FY.

Which got me to thinking.

'Chasing the market' never seems to work, except in hindsight. But Blind Freddy can see that shares have dropped and are still dropping. So what about the options to mitigate those losses? If I bailed out of growth funds and shifted into conservative or defensive funds then I'd be shielded from future drops, but of course I'd miss out if the market picked up the next day. And once the unit price has fallen there comes a point where there's no point in switching because the buy/sell spread may well eat up any savings you make from switching. But the main argument against switching is that you're effectively locking in those losses.

But how to work out whether it's worth 'locking in' those losses and switching to less aggressive funds and waiting to ride out the rest of the market dip? That's the tricky bit. I've played about with unit prices and buying and selling in excel but to be honest I've got no real idea if I'm doing it right.

 

Oh it's definitely long term. I've got another 30 or so years to go before retiring. But on the other hand, I get about half a dozen 'free' switches during the year so it's tempting to try and dodge another six months or so (or whatever it turns out to be) of negative returns.

 

Hi Thudd,

Where do you think the stockmarket will be in 30 years?
Before you answer this, pull out a long term chart.

Don't waste your time trying to time switches.

While past performance is no guarantee of future performance, we can discuss it in about 30 years

Cheers,

Dan

 

Thud

I know some people @ my workplace who've recently switched over to cash.
Their thinking is the same as yours.
They know that they've already lost 8% or so but they fear that there is more to come.
I think that when we receive our super statement there will be more people running for the exits...
and this could trigger more falls and more losses....
Cheers

 

The other things that's crossed my mind is whether it's worth thinking about switching the growth portion - unit price currently 12.5ish - to another growth fund with a lower unit price. Basically to take advantage of the 'buy in gloom sell in boom' maxim to increase my quantity holding while prices are down, and aim for instead of 1 unit @ 12.5 moving (say) one point up to 13.5, have 8 units @ 1.5 moving that same point or so up to 2.5. Does that work? Or to put it another way, in general terms if unit prices of similarly invested funds go up (or down) do they tend to move by roughly the same relative percentage amount or by the same absolute dollar amount?
(it sounds like a dumb question, I know...)

 

switching to cash is a dangerous thing to do, becuase once the market turns around, you might miss out 50% of the rebound before you switch back into shares..

if your switching, then your in the wrong fund to start with. if you can't accept the risk of the fund, then don't enter it in the first place, regardless if we are in a bull run.

 

It makes for an interesting contradiction in advice.

On the one hand, when it comes to super it seems to be "suck up the losses, you're in it for the long haul."

Yet there's also a fairly common consensus when it comes to individual investment in funds that holding onto a declining fund is not a good strategy because you're throwing good money after bad waiting to 'get your money back'. (often based on an emotional decision that selling up is admitting you backed a loser which people are sometimes reluctant to do)