“The market is already heavily penalising old economy, climate laggard businesses in the way they price them,” Mr Delaney said. “As the world shifts to a more digital online model, the composition of the Australian equity market will change.”
The comments come as AustralianSuper reported its fourth lowest annual return in the now $180 billion fund’s 33-year history.
The balanced fund, in which most of its 2.2 million members are invested, returned 0.52 per cent for the year, with losses in Australian equities (-5.07 per cent) and property (-6.18 per cent) returns offset by growth in international shares (10.64 per cent).
“I’m not a huge fan of Australian equities but I wouldn’t want to be getting too bearish at this point in the cycle,” Mr Delaney said.
AustralianSuper’s balanced fund is 35.8 per cent allocated to international shares, while 19.7 per cent is invested in the local bourse. Half of the international shares are invested in US markets, which are dominated by technology stocks and Mr Delaney predicted the digitisation of bricks and mortar services would only continue to drive growth in this sector.
“Doctor appointments – they’re still done the same way as when I was a child. You go into the doctor, read the dirty magazines, wait for your turn and you’re there for ages. Why can’t you do tele-doctoring?
“All these old-fashion businesses which are hopeless will get revolutionised by digitalisation.”
AustralianSuper owns an extensive property portfolio, with assets both in Australia and offshore. Eleven out of the fund’s top 20 property assets are retail outfits, including Melbourne’s Eastland Shopping Centre and Brisbane’s Myer Centre.
Mr Delaney said the property sector had been hit by falling rental yields but also the growing preference for online shopping. “That’s a structural change that’s likely to continue,” he said, adding the fund would prioritise property in the logistics industries rather than retail.
“Even my 89-year-old mother in law likes to get things delivered to her front door,” he said. “You wonder about retail, clearly you wonder about retail.”
The chief executive of asset consulting firm JANA, Jim Lamborn, said previous returns had been pumped up by over-priced company valuations and the coronavirus pandemic had now kick-started a “lower for longer” returns environment.
“Super funds are used to printing hugely strong returns,” he said. “Average funds are delivering CPI plus 5, 6, 7, 8 [per cent]. It’s been a great period for investors.”
The next decade would be “far more challenging”, Mr Lamborn said, as companies are revalued and black swan events, from deepening recessions to climate change events, become more regular.
“The investment journey our clients are on is becoming more and more precarious. One hundred year events seem to be happening every 10 years. There is risk everywhere, danger everywhere,” Mr Lamborn, whose firm oversees a collective $600 billion in assets, said.
Mr Delaney said he was “far more optimistic” and predicted returns would stabilise within the next two to three years as governments keep interest rates low and pump stimulus into ailing economies.
“When you look out over the COVID haze, you see things much more clearly,” Mr Delaney said. “You see economies recovering, unemployment rates coming down and things looking far more optimistic.”
A growing number of Coalition backbenchers have pushed for dumping the legislated rise in the superannuation guarantee to 12 per cent by 2025, arguing it would slow wages and employment growth, but Mr Delaney said this was the wrong approach and argued limiting compulsory contributions would be “disastrous” for members.
“What should we do to support employment in the current context in the economy? That’s a question for fiscal and monetary policy, not for super policy. I think they’re trying to solve the problem with the wrong instrument.
“If people don’t get to 12 per cent, they’ll end up with inadequate retirement savings.”
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Charlotte is a reporter for The Age.