MySuper lacks risk and return correlation: Research

New research suggests investment objectives of superannuation funds should be assessed on their own merit as the level of risk does not always directly link to returns.

Rainmaker's inaugural RMetrics MySuper report took a deep dive into the relationship between performance and volatility of MySuper products in the three years to March 2019 and found the level of risk within underlying investments is not commensurate with the reward.

There is a lack of relationship between the performance of MySuper products, level of volatility and the riskiness of underlying investments as recognised by growth asset weighting, the report said.

Growth asset weighting is traditionally a measure of risk in a fund that highlights the percentage of underlying investments held in riskier asset classes.

Given that no correlation can be found between performance and growth asset weighting, the research said it is time to develop a new conversation around risk-adjusted returns.

It went on to say that "superannuation products should be assessed individually" to see if they are achieving investment objectives for members, as performance cannot be assumed relative to their level of risk.

In comparing the risk-adjusted returns of MySuper products, Rainmaker assessed the performance of the products alongside three measures of volatility using its Combined Risk Adjusted Rank.

Media Super, Hostplus, Cbus, Sunsuper and Club Plus' MySuper products topped the ranking using this measure (see Figure 1).

The hierarchy shows the best-returning MySuper products beat the lowest-performing products by 70%, while volatility differed by 80%. Top-performing funds are also routinely delivering nearly twice the returns of the lowest-performing funds.

Rainmaker executive director of research Alex Dunnin said: "While returns are given the most attention, risk and volatility measures are important to consider as funds are not just aiming to achieve the greatest performance, they are aiming to protect the capital of their members by achieving consistent returns."

Some funds however, are deliberately conservative because they have a lot of older members and are more focused on downside protection, minimising volatility and capital protection, he added.

"We can now check to see if funds are achieving what they say they have set out to do using this analysis of performance and risk.

"Super funds need to be accurately communicating their strengths (relative to the market) to members and the RMetrics MySuper report will allow them to see where their performance and risk is actually placed," Dunnin said.

1. While these are life cycle options, they operate as de facto single strategy options until members approach retirement.

Read more: MySuperRainmakerAlex DunninHostplusSunsuper
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