Master trusts have been shaken by the out-performance of industry funds over the past six years or so and are very conscious that under-performance on a relative basis can have a crucial effect on contribution inflows. This has forced master trusts to look at what they are doing.
The question is whether the adjustments by the master trusts to their strategic asset allocations – which are responsible for as much as 80% of a fund’s returns – and the changing investment outlook are enough to close the performance gap? We believe the gap has narrowed considerably.
The strategic asset allocations of master trusts should be considered in the context of why industry funds have outperformed them. Looking specifically in this article at growth funds (funds with growth assets of 61% to 80%), the out-performance by industry funds, measured over thefive years to June 2006, is attributable to:
- Lower exposure to international shares, which hasbeen the worst performing sector with a negativereturn of 2.3% per annum on an unhedged basis – seeTable 1.
- A higher allocation to property. Listed property hasbeen the highest-performing sector over this periodwith a return of 16.2% per annum.
- A higher allocation to Australian shares. This sectorreturned 12.3% per annum over the five years toJune.
- Significantly more alternative assets such as privateequity, opportunistic property and infrastructure.