How Much Investment Choice is Enough for Members?

In recent years Australians have been given increased responsibility in making investment strategy decisions for their superannuation contributions. The investment choices superannuation funds typically offer include ready-made options with a strategic asset allocation or a "do-it-yourself option where the members choose their own asset allocation. This paper examines a sample of choices by members of a large industry fund which allows members any combination of six ready-made pools and eight asset classes. About one-quarter of these decisions involve choices which suggest a possibly naïve view of diversification unless members are conscious of resulting asset allocations.     

Captured Legislators and Their Twenty Billion Dollar Annual Superannuation Cost Legacy

By December 2010 total superannuation assets had reached $1.3 trillion, covering 94% of all Australians. This substantial growth was not a natural evolution. Rather it can be directly traced to three decades of bipartisan reform strategies based on a claimed public interest ideology. This article investigates the concerns raised by Superannuation Select Committees, consumer and union organisations, independent researchers and actuarial experts that, in contrast to the public interest rhetoric, the regulatory reforms have primarily achieved major private interest gains for powerful lobbyists. The findings of this analysis indicate that the democratic power of Australian governments to set economic policy agendas has been progressively eclipsed by the power of the financial services industry's producer groups. Rather than producing a best practice governance structure, fund members remain trapped in a post‐reform cost paradox: no right of exit regardless of the deepening cost burden imposed. In an industry set to control a projected nominal figure of $6.7 trillion in superannuation assets by 2035, these findings suggest that the real change necessary to improve the deepening cost burden faced by fund members within a life‐long, mandatory superannuation investment is now beyond any government's reach.     

Asset allocation and age effects in retirement savings choices

We examine the asset allocation decisions of members of three large Australian retirement savings funds. Superannuation Guarantee legislation in 1992 made Australian employees compulsory investors by requiring employers to contribute a fixed proportion of earnings to a superannuation fund on behalf of employees. A majority of these employees can choose an investment strategy for these contributions. We examine how actual investment strategy and asset allocation choices of members change with age in view of the conventional wisdom that individuals allocate less to risky assets as they age and investments theory which provides conflicting advice on the issue.     

Effect of fund size on the performance of Australian superannuation funds

This study examines the relationship between fund size and performance for two major superannuation industry sectors in Australia: retail and not‐for‐profit, using a unique but confidential database. Results suggest that members benefit from being invested in larger superannuation funds for three reasons: (i) larger not‐for‐profit funds provide diversification benefits of investing in more asset classes including unlisted property and private equity, (ii) larger funds in both sectors avoid the scale diseconomies in investment returns documented in studies of equity mutual funds and (iii) larger funds make substantial savings by spreading fixed operating costs (such as IT infrastructure) over a larger asset base.     

Recent Superannuation Reforms: Choice and Flexibility in Retirement

This introduction to AAR's Forum on superannuation surveys the increased choice and flexibility available to retirement savers, with particular emphasis on the proposals announced in the May 2006 commonwealth budget. In an environment of greater reliance on defined-contribution superannuation arrangements, increased member choice means an increased responsibility on individual fund members to make active and appropriate decisions. As indicated in the analysis of papers in the Forum, some guidance may be required to ensure an adequate standard of living in retirement for all.     

Institutional investment flows and the determinants of top fund manager turnover

This study examines how the termination of superannuation investment mandates contributes to the departure of top fund managers in companies delegated the portfolio management role. Terminations of superannuation plan mandates increase the probability of a fund company changing the responsible fund manager. Objective‐adjusted returns are also significant managerial turnover considerations. These results illustrate that significant losses of superannuation fund clients act as an external control mechanism in the investment management industry that complements internal managerial performance measures.     

Director expertise and co-option in industry superannuation funds?

This study examines whether independent directors who possess financial expertise and are independent from the CEO (i.e., non-co-opted) are associated with improved outcomes for industry superannuation funds. Our results highlight that independence alone is insufficient to improve fund outcomes. Instead, we find that only non-co-opted independent directors benefit fund members in terms of higher performance and lower fees. Moreover, we find that independent directors' financial expertise is not associated with fund performance and fees. Our study has implications for regulators and superannuation funds who are currently debating the need for one-third independent directors on the board of Australian superannuation funds.     

An analysis of the antecedents of satisfaction for superannuation fund members

The factors influencing the satisfaction of superannuation fund members are poorly understood at present, due to a paucity of research. This study looks at the relative influence that five key aspects of the superannuation offering of a mid-size Australian Superannuation Fund have on overall satisfaction. A survey of 500 members suggests that despite the long-term nature of the product and efforts to educate members to think otherwise, short-term financial performance remains a strong influence on member satisfaction levels. Furthermore, the strong focus on short-term returns mean that many of the favourable actions undertaken by this fund were comparatively unimportant to members. With financial returns varying annually and to a large degree being out of the control of fund managers, the focus of members on this aspect as the main influence on satisfaction levels is problematic. The evidence suggests that shifting the focus of members towards longer period assessments (eg returns over the past five years) and towards aspects of the funds' offering that are points of differentiation (eg enquiry handling) is the only way to prevent large, uncontrollable fluctuations in satisfaction levels and possible defections.     

The effect of management team characteristics on risk-taking and style extremity of mutual fund portfolios

This paper investigates the effect of management team-level characteristics on portfolio risk and style extremity using a unique dataset of 1678 mutual fund managers. Results show that teams with more members, longer tenure, and more members with graduate business training hold less risky portfolios. The opposite is true for teams whose members engage in side-by-side management; that is, they manage multiple funds simultaneously. Member diversity is related to less extreme style decisions. These findings have important implications for fund management companies as they make decisions about the composition of management teams as well as for individual investors’ investment allocation decisions.     

An individual level analysis of the mutual fund investment decision

This study investigates the manner in which consumers make investment decisions for mutual funds. Investors report that they consider many nonperformance related variables. When investors are grouped by similarity of investment decision process, a single small group appears to be highly knowledgeable about its investments. However, most investors appear to be naive, having little knowledge of the investment strategies or financial details of their investments. Implications for mutual fund companies are discussed.     

基金网络能够提高投资绩效吗？

基金网络在金融市场的信息流动中发挥着重要作用。本文利用基金共同持股关系构建了一个有效的基金网络数据集,以中国资本市场股票型基金2005-2018年季度数据为研究样本,考察基金网络是否以及如何影响投资绩效。结果表明,基金在基金网络中越处于网络中心地位,基金的投资绩效越高。使用基金家族网络作为工具变量缓解内生性偏误后,基金网络仍然对投资绩效具有显著的正向影响。进一步地,本文考察了基金网络影响投资绩效的渠道,结果表明,基金网络主要通过提高基金的选股技能、资产配置技能和管理技能影响投资绩效。最后,本文考察了基金网络对基金市场份额的影响,研究发现基金网络会显著提高基金的市场份额,对基金在市场上的占有率有积极的正向影响。     

Superannuation in Society: What are the Accountability Relationships and is there a Role for (Group) Accounting?

Superannuation fund reporting is a topical issue: it is in a state of flux and currently on the Australian Accounting Standards Board (AASB) work program for 2012, with the release of ED 223 Superannuation Entities in December 2011. Issues under debate include uncertainty regarding the users of superannuation financial reports, and the application of the principle of ‘transaction neutrality’ to accounting for corporate groups by superannuation entities. Accountability reporting by superannuation funds has remained largely unchanged since the introduction of compulsory superannuation 20 years ago. This paper describes the changing nature of superannuation from a managerial gratuity to a type of deferred pay, and how accounting for superannuation is likely to increase in significance as it responds to the shifting economic nature of superannuation, especially since the global financial crisis. This paper uses basic content analysis to analyse member submissions to the Australian Government's Review into Governance, Efficiency, Structure and Operation of Australia's Superannuation System 2009, and submissions to the AASB's consultation paper on consolidation accounting for superannuation entities in 2007. Limited characterisations of members as being not interested in financial reporting are out of step with the underlying nature of superannuation, and will likely change as the economic significance of superannuation increases in the future.     

The Introduction of Choice of Superannuation Fund: Results to Date

Commonwealth legislation providing for choice of superannuation fund has now been in operation since 1 July 2005. This paper explores the extent to which employees have exercised choice in the period immediately following the implementation of fund choice. The data available suggest that choice of fund has had only a modest impact. However, while community awareness of superannuation has increased and the level of member attachment to the main superannuation fund has increased, a downturn in investment returns, and subsequently in member sentiment, could have a significant impact on member preparedness to choose another fund     

Optimal Number of Stock Holdings in Mutual Fund Portfolios Based on Market Performance

Among the decisions that most mutual fund portfolio managers make is the number of stocks to hold. We posit that there is an optimal number of stocks for each mutual fund, reflecting the trade‐off between diversification benefits versus transactions and monitoring costs. We find a significant quadratic relation between number of stock holdings and risk‐adjusted returns for U.S. equity mutual fund portfolios during 1992–2000. Moreover, we find that changes in the number of stocks held over time are more highly correlated with mutual fund flows than with funds' investment returns.     

Are investors compensated for their sophistication and informedness for company takeovers – An Australian study

I determine the sophistication and information level in takeovers for four investor classes which are individuals, nominees (fund managers), superannuation (pension) funds and incorporated companies. I also calculate their takeover returns. I find that the superannuation funds are informed and sophisticated; individuals are informed but unsophisticated; nominees are uninformed but sophisticated; and incorporated companies are uninformed and unsophisticated traders, and that the investors realise a return which is commensurate with their information and sophistication. This study improves on existing takeover return research which assumes, as a group, institutions are synonymously informed and sophisticated, and individuals are synonymously unsophisticated and uninformed.     

The Value and Risk of Defined Contribution Pension Schemes: International Evidence

We use historical data on investment returns and labor income from 16 countries to quantify the value and risk of defined contribution pension plans, building frequency distributions of pension fund and pension replacement ratios for each country. We show that pension risk is substantial and find that pension fund ratios are lower and less variable than when the correlation between wage growth and investment returns is ignored, typically halving the median pension fund ratio. We also show that an all‐equity fund is the dominant investment strategy across all countries, although sometimes a life‐cycle strategy insures against downside risk.     

Attribution of investment performance: an analysis of Australian pooled superannuation funds*

This paper evaluates the market timing and security selection capabilities of Australian pooled superannuation funds over the eight‐year period from January 1991 to December 1998. Evaluation of both components of investment performance is surprisingly scarce in the Australian literature despite active investment managers engaging in both market timing and security selection. The paper also evaluates performance for the three largest asset classes within diversified superannuation funds and their contribution to overall portfolio return. The importance of an accurately specified market portfolio proxy in the measurement of investment performance is demonstrated. This paper employs performance benchmarks that account for the multi‐sector investment decisions of active investment managers in a manner that is consistent with their unique investment strategy. Consistent with U.S. literature, the empirical results indicate that Australian pooled superannuation funds do not exhibit significantly positive security selection or market timing skill.     

Attribution of investment performance: an analysis of Australian pooled superannuation funds*

This paper evaluates the market timing and security selection capabilities of Australian pooled superannuation funds over the eight‐year period from January 1991 to December 1998. Evaluation of both components of investment performance is surprisingly scarce in the Australian literature despite active investment managers engaging in both market timing and security selection. The paper also evaluates performance for the three largest asset classes within diversified superannuation funds and their contribution to overall portfolio return. The importance of an accurately specified market portfolio proxy in the measurement of investment performance is demonstrated. This paper employs performance benchmarks that account for the multi‐sector investment decisions of active investment managers in a manner that is consistent with their unique investment strategy. Consistent with U.S. literature, the empirical results indicate that Australian pooled superannuation funds do not exhibit significantly positive security selection or market timing skill.     

Cash flow timing skills of socially responsible mutual fund investors

This paper studies, for the first time, the cash flow timing skills of socially responsible (SR) mutual fund investors. Our findings show that SR investors neither worsen nor improve their returns according to their cash flow timing decisions, although they show good timing for net purchase and perverse timing for net withdrawal decisions. When controlling for fund characteristics, investors in larger, institutional, with longer mean manager tenure, lower expense ratio, no load, lower mean turnover ratio and a fee level below the average funds, show better timing results; in other words, sophisticated and better informed investors make better cash flow timing decisions. Controlling for SR strategy, green fund investors (our proxy for profit-seeking investors) had the worst results (similar to those obtained for conventional investors in the prior literature), and religious fund investors (our proxy for the values-driven profile) had results that were most different from conventional investors.