Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Despite authorities taking their foot off the environmental, social and governance pedal and recent volatility in equities and bonds, the benefits of Artificial Intelligence and improved investor transparency are just beginning.
More funds set to pass YFYS test with flying colours
Ninety per cent of trustee-directed super products should pass the Your Future Your Super (YFYS) performance test, according to new data from SuperRatings (headed up by Kirby Rappel, photo at top). It’s an improvement on data from 31 March that would have seen 20 per cent of assessed options fail the test, and the volatile market in in the second half of the financial year has “emphasised the importance of diversification and long-term strategy within superannuation investments.”
“The shift in the proportion of options passing the test also highlighted the impact a single quarter can have on reported performance test outcomes,” the SuperRatings report says. “Despite the limited ability of funds to improve upon eight-year performance over a short period of time, those who are close to failing the test need to ensure they position themselves as strongly as possible, as the rolling nature of the test means the test result is impacted by both performance today and from the same period eight years ago.”
SuperRatings anticipates that some products that failed the test last year will fail again, but draws attention to the fact that two of the underperformers produced returns within the top 10 MySuper products for the 2021/22 financial year.
Balanced options were particularly strong, with the median fund in SuperRatings’ SR50 Balanced Index exceeded the performance test benchmark by 0.95 per cent (made up of 0.45 per cent investment performance and the 0.50 per cent underperformance threshold). Balanced options performed the best out of all option types assessed, with 93 per cent estimated to pass. All options have improved their performance in the final quarter, but high growth and capital stable are “comparatively more likely to fail the test, with high growth options being the most at risk.”
“The expansion of the performance test has been put on hold for 12 months, and changes to the test are likely to be eagerly anticipated; however, we believe that the test in some form is here to stay,” the report says. “We suggest providers remain focused on meeting their long-term strategic objectives in a manner that is consistent with passing the test.”
“Of particular importance will be the impact of historically strong performance, given the rolling nature of the test and the short-term outlook around increased volatility and lower expected returns.”
