Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Trustee-directed funds take hit in YFYS test as super assets surge
Only one MySuper product – the already-closed AMG MySuper – failed the 2023 Your Future Your Super (YFYS) performance test, while nearly 100 trustee-directed products (TDPs) failed in their first year subject to the test. Meanwhile, total superannuation assets grew 7.6 per cent in value over the year.
The Australian Prudential Regulation Authority on Thursday released the results of the 2023 YFYS test, the third annual report assessing MySuper products, with platform and non-platform TDPs also analysed this year.
The high pass rate among MySuper products, observers say, is a result of funds managing towards the constraints of a test they’ve now lived with longer, as well as the opportunity to switch up or close underperforming options ahead of failure.
“The annual performance test remains a powerful tool to help APRA hold trustees to account for product performance, fees and costs,” APRA deputy chair Margaret Cole (pictured) said. “Since its introduction in 2021, nine underperforming MySuper products have exited the market and a total of 800,000 members, with combined assets of $39 billion, have moved to better-performing products.”
The inclusion of 805 TDPs – a subset of the choice segment broadly covering multi-asset products where the trustee has control over the investment strategy’s design – for the first time this year wasn’t quite the wave of mutilation that some expected, but it was still plenty bloody: 20 out of 500 TDPs failed, as did 76 of 305 TDPs housed on platforms.
That represents 4 per cent of TDP options and 1 per cent of members and assets, and 25 per cent of options in platform TDPs and 12 per cent of members and assets. AMG MySuper, the sole MySuper option to fail this year’s test, is already closed to new members, with plans to wind it down completely.
The penalty for failure for TDPs is the same as for MySuper products: funds must send out letters to members informing them, and a second failure will see the product closed to new members.
“Members in trustee-directed products make active decisions about their investment options and some might select products for reasons beyond performance,” Cole said. “Nevertheless, all trustees must take responsibility for the products they make available and ensure the products they offer are in their members’ best financial interests.”
One notable failure was the QSuper Socially Responsible option, still offered by Australian Retirement Trust (ART) post-merger, which returned -0.41 per cent p.a. for the 2022/23 financial year. The option, which currently has 8,500 members, will be closed from 1 July 2024, with members able to choose other options, though ART has made “a range of changes” to the option’s investment strategy and asset allocation that it believes will improve its performance.
Cole acknowledged that some trustees have rationalisation programs under way to improve products that have failed the performance test. “APRA expects heightened focus on those underperforming products and will be monitoring the progress of product consolidation programs closely.”
Super assets surging
The performance test results followed APRA’s August 22 release of a quarterly superannuation report showing a 7.6 per cent increase in total Australian super assets over the past year, rising to more than $3.5 trillion through June 2023 from nearly $3.3 trillion a year earlier. Funds benefitted from strong contribution inflows and strong investment market returns.
APRA-regulated assets increased 9.3 per cent to nearly $2.5 trillion. MySuper products saw the most growth of any subset, with assets rising 13 per cent to $996 billion.
Self-managed super funds (SMSFs) saw a 3.9 per cent increase in assets, to $876.4 billion in June 2023 from $843.7 billion in June 2022.
According to Peter Burgess, CEO of the SMSF Association, the SMSF sector tends to outperform APRA-regulated funds when markets are contracting and underperform when markets are performing well. He contrasts the new figures with the 2021/2 financial year, when SMSF assets grew 3 per cent, compared with a 1.1 per cent decline for the APRA-regulated sector.
“The SMSF sector has been a beneficiary of recent legislative developments, including the relaxation of the contribution work test rules for older Australians and the lowering of eligibility age for making downsizer contributions,” Burgess tells The Inside Investor. “It is pleasing to see SMSF members taking advantage of these measures that are designed to provide older Australians with greater flexibility to save for retirement.”
With observers now expecting a higher-for-longer interest rate environment, he says, some of the more conservative asset classes are likely to have improved performance, which will impact both SMSFs and the APRA fund sector.
