Reference no: EM133587795

Finance

Case Study: Activity 1: Group Case Study

• You must form groups of 4 to 5 members before Week 6.
• All questions for the group case study are based on the article on the following page.
• You will complete the questions in your group, but only one group member needs to submit the final answers (for the entire group).
• The questions will come from Topics 1 to 5.
• The group case study will be marked out of 10 and is worth 5% of your final mark for the subject.
• All group members will get the same mark.
• The group case study is open book.

Activity 2: Individual Test

• The individual test will take place after the group case study. The test will consist of short answer questions and multiple choice questions.
• One of the short answer questions is based on the article on the following page.
• The questions will come from Topics 1 to 5.
• The individual test will be marked out of 40 and is worth 20% of your final mark for the subject.
• The individual test is open book.

Top 10 balanced super funds ranked by risk and return

While super is a long-term investment, short-term fluctuations in the value of your super account can set the pulse racing, and not in a good way. This is especially so for members close to or recently retired and those with a large account balance.

According to super fund ratings and analysis group SuperRatings, until COVID hit, we hadn't seen
huge amounts of volatility since the depths of the GFC over a decade earlier.

"Since the onset of the COVID-19 pandemic, managing volatility has really come back into focus for funds after almost a decade of steady gains. The sharp rise in inflation and global uncertainty has been a constant over the past couple of years and we expect this to persist," says SuperRatings executive director, Kirby Rappell.

While funds benefited from a rally in international shares in the second half year, five out of the 12 months in the full financial year had a negative return.

"Superannuation is a long-term investment and patience remains key. For those Australians under 50, the recent market volatility is not expected to have any impact on their retirement.

"The result is more concerning for those nearing or in retirement, however, we often see these members sitting in investment options that are less exposed to these market movements, which can lessen the impact."

While younger investors can afford to take a long-term view, it's still important to understand the risk
and return trade-off along the way.

Taking account of volatility

For this reason, along with the usual lists of top funds rated by their investment returns over various time periods, SuperRatings also publishes the top 10 Balanced options over seven years, ranked by returns adjusted for risk (volatility).

Why does this matter?

In volatile markets a super fund that provides a smoother investment journey is likely to be attractive for people who want to earn a decent return and still be able to sleep at night.

The risk-return trade-off

CareSuper jumped to the top of the table in 2023, from 6th spot previously, delivering the best average annual return of 7.5% over the past seven years, after adjusting for volatility.

Australian Retirement Trust held onto 2nd place with an average annual return of 8.3%.

What pops out of the table above is that although CareSuper topped the list, its 7.5% average annual return over seven years was not the highest. Eight lower-ranked funds in the top 10 delivered higher returns over this period, but they did so by taking on a slightly higher level of risk.

As a mark of the increased risk in investment markets, the top 10 balanced funds in the year to June 2023 all achieved an average annual return of 9.6% or more.

Even so, it's pleasing to see that funds can deliver a somewhat smoother investment journey as well as good long-term returns. The typical long-term return objective for balanced super funds is to beat inflation by 3% to 4% a year. This has been achieved comfortably by the top 10, with inflation averaging around 2.5% a year over the past seven years despite the recent uptick.

CareSuper strategy pays dividends

Although super funds may have similar looking investment options - in this case they are all Balanced options (60-76% growth assets) - there is wide variation in how they invest members' money. The funds with the highest returns over seven years tend to hold a higher proportion of members' savings in shares.

In the case of CareSuper, however, Rappell says the fund places a very high priority on diversification which helps it cope better with difficult market conditions. It also has a bias towards value-style shares which tend to hold up better than growth shares in times of market volatility.

Suzanne Branton, chief investment officer at CareSuper, says the fund's investment approach has always been to deliver high long-term returns with lower risk.

"High returns are important, but we also care for our members by protecting their savings when markets are volatile and uncertain. Many think members don't recognise risk-adjusted returns, but we know members understand when the environment becomes difficult - they can see the cost of living and mortgage rates are much higher. Given the complex outlook, we expect our dual purpose will be valued by members in times to come."

The success of this approach was recognised when CareSuper received the SuperRatings Smooth Ride award in 2022.

Retirees lose appetite for risk

Given the challenging outlook for investment markets and people's lack of appetite for volatility as they approach retirement, providing a smooth ride is likely to remain a big consideration for super funds and their members.

"Funds have done an excellent job of both managing risk and educating their members on these issues, but more can be done in this space," says Rappell.

Attachment:- Finance.rar