Superannuation funds have increased their allocations to offshore investments to an average of 46.8%, up from 41% over the past two financial years, according to a survey from NAB.
The NAB 2021 Superannuation FX Survey found that 61% of funds reported plans to further increase the amount invested in foreign assets.
Drew Bradford, NAB markets executive general manager, said findings revealed some funds had already crossed the 50% threshold for the first time.
“This survey shows the move to increase offshore investments is continuing and funds are taking on more foreign currency exposure,” Bradford said.
“Notably, many public sector funds have crossed the 50% threshold for the first time within the past two financial years.
“Currency is now the biggest investment risk in the portfolio after equity market risk and super funds are increasingly treating foreign exchange as an asset allocation, just as they would for any other asset class.
“What’s really interesting is that funds have started hedging more of that risk – reversing earlier declines – but continue to move away from traditional hedge ratios that used to dominate their offshore investments.”
Despite the challenging economic period, the survey also found the top 20 balanced funds closed out the 2020-21 financial year with an average return of 18% and funds that fully hedged their AUD/USD exposure during the 2020-21 financial year would have added approximately 6% to member returns.