A recent research report released by Investec, Diversified growth strategies and their role in Australian Superannuation Funds, discusses why Australian super funds should be using diversified strategies more, and taking funds overseas instead of sticking around domestic markets.
The report suggests that since funds can’t rely on domestic assets alone to hit performance targets, diversified growth strategies should be considered very attractive as a liquid alternative solution. Investec modelled these strategies historically, finding a higher realised return, lower volatility and therefore an improved risk-adjusted return. The result was even better when substituting from Australian equities instead of international equities.
The paper explains the history of the concept of a diversified growth strategy – a result of the dotcom crash in the 2000s – and how the global financial crisis tested the subsequently-implemented strategies. The results, the report states, were many and varied, allowing the new incarnation of the diversification strategy to be more finely tuned in the now-AU$230 billion market. There has been a move away from just ‘owning lots of assets’ into predicting how these assets will behave and the role they play in the strategy.
The report explains the benefits diversified growth strategies can have on Australian super funds, and details why institutional investors should shy away from relying on domestic assets, what they should be doing instead, and why it matters.