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Evaluating Strategic and Dynamic Property Asset Allocation Approaches for Australian Superannuation Funds

Author/s: Wejendra Reddy

Date Published: 1/01/2014

Published in: Volume 20 - 2014 Issue 1 (pages 55 - 74)

Abstract

For Australians, the $325 billion not-for-profit industry superannuation funds are a popular retirement saving option. To achieve their investment objectives, industry funds commonly apply the strategic asset allocation approach across seven diversified benchmarked asset classes. Fund managers regularly make adjustments to the strategic policy to reflect changes in investment markets. However, more recently, the volatile behaviour of the global financial markets has made it difficult for institutions to follow long-term strategies and polices. Consequently Australian fund managers are increasingly changing their asset allocation strategies to shorter term timeframe. In particular, adopting the dynamic asset allocation approach, which works on a medium term (3+ years) timeframe, is now viewed as a more effective strategy by fund managers. Covering a 17 year period, this research compares the performance of the industry fund strategic investment approach against two dynamic asset allocation models. In addition, the research investigates the role of property in these asset allocation strategies. The results show that the dynamic investment models provide a better risk-adjusted return profile compared to the industry fund strategic investment approach with scope to increase the property allocation level from current 10% to the 15-28% range.

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Keywords

Asset Allocation - Diversification - Portfolio Construction - Property Investment - Superannuation

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