Super funds consider alternatives to cash

Australian superannuation funds look set to move up the risk curve in the next year as the institutional market looks to alternatives to cash, according to UBS Wealth Management Australia associate director Abby Macnish.

With such a focus on financials and resources, Australians need to come out of their home bias and begin to look to sectors that the local market cannot currently access.

These include sectors such as technology, large infrastructure and consumer discretionary for luxury brands in China and emerging markets, she said.

Macnish said the market needs to understand that cash and fixed income together is mainly cash, so most balanced super funds are currently overweight cash and underweight fixed income.

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"So where we see the next step will be into these corporate bonds that we're starting to see listing," she said.

"The other area that's not talked about as much but will become important in the coming years is the alternatives space."

Although there is currently a limited alternatives offering in Australia, UBS sees activity lifting over the next year. Alternatives deliver a higher sharp ratio for an investor's portfolio compared to cash and fixed income, according to Macnish.

"There is that capacity there for super funds to build that (alternatives allocation) up a small bit - it would be an area they could look outside of cash," she said.