While much ado is made of the science that goes into fund manager research, real assessment puts comparable weight on the art as well according to investment leaders.
While financials and materials dominated trades leading into 2024, the popularity of other sectors like healthcare and information technology followed generational, and even demographic, lines.
Australians’ retirement angst running high as economy wobbles
Australians’ confidence around retirement and their retirement experience both declined in 2022, with a darkening economic outlook weighing even on wealthier investors and making a comfortable retirement seem more elusive across the board, according to several recent reports.
In October, Natixis Investment Managers released a report called The Million Dollar Question, which evaluated retirement sentiment among high-net-worth investors. It found millionaires were nearly as likely as investors overall to have concerns over their retirement prospects, with 35 per cent of the former category and 40 per cent of the latter reporting they believe it would take a miracle to retire securely.
The report noted that a key reason for the angst may be that the ‘million-dollar mark’ is becoming less significant than it once was. Challenging economic conditions like inflation, rising rates and market volatility are also weighing heavily on those approaching retirement age, and declining sentiment about retirement prospects shows a need for more fit-for-purpose investment products and better investor education and engagement, observers say.
Market research consultancy CoreData in September released the third iteration of its Best Possible Retirement (BPR) Index, which assesses retirement preparedness for those still in the workforce and retirement satisfaction for retirees to reach an overall score of retirement experience.
The index showed a BPR score of 53 out of 100 for the preceding 12 months, down from 56 in 2021. The overall drop was driven by a decline in the retirement satisfaction reading, with the number of retirees reporting they are not satisfied increasing 9 per cent to one in three.
The report – based on data from more than 5,900 Australians over 45, including 3,300 pre-retirees – also showed Australians’ satisfaction levels dropped more in later stages of retirement, with 39 per cent of those retired 10 years or more reporting they were ‘not satisfied’. And the share of all retirees reporting they were ‘satisfied’ – as opposed to just ‘somewhat satisfied’ or ‘fairly satisfied’ – in retirement nearly disappeared in 2022, falling from 9-12 per cent to 1-2 per cent.
According to Andrew Inwood, founder of CoreData, the 2022 index illustrates the effects of a nearly 30-year-long economic boom reaching its end as baby boomers approach retirement and shows the need for retirement solutions that are not dependent on market performance.
“After 27 years of constant real growth in our economy, it’s starting to wobble, and that’s causing concern,” Inwood told The Inside Investor. “We are shifting from an economy based in accumulation to one based in de-accumulation.”
Most satisfying fund sectors
The BPR Index also scored retirement funds across sectors, finding small funds to have just outperformed the industry sector thanks to a one-point advantage on the retirement experience measure, though it gave both sectors equal marks on retirement satisfaction, confidence and comfort, and financial discipline.
The index showed retail sector funds performed best across all measures for pre-retirees, followed by small funds and industry-sector funds.
“An interesting thing we see happening is that the funds that exist now, which are designed to help people accumulate money in their working lives, are not necessarily going to be the ones that help them toward their best possible retirement,” Inwood said, noting that most superannuation funds are designed for accumulation rather than retirement.
“When accumulating funds, you are just piling on as much as you want and are not very focused on the numbers,” he added. “As you approach retirement – beginning at around age 52 for women and 55 for men – you start to look at the numbers and pay attention to the wobbles and what’s going on in the economy.”
With the economy entering uncharted waters, a super fund should be designed to give its members the best possible retirement, Inwood said. “The idea that the one with the most assets under management is the best might not be true,” and the biggest supers tend to do worse than smaller ones in areas such as service, member engagement and flexibility that are increasingly important to the retirement journey.
“Smaller funds to a better job of answering the phone, of making a difference in people’s lives – the bigger ones simply aren’t designed to do that,” he said. “There was a strong belief for a while that digital tools would change that, but there has been no evidence to support that so far.”
‘Comfortable’ retirement more elusive
Underscoring the deterioration in Australians’ attitudes toward retirement, financial services research firm Investment Trends on November 10 released its 2022 Retirement Income Report, showing consumer confidence in a ‘comfortable’ retirement nearing historic lows, driven by concerns about healthcare costs and inflation.
According to the report, 51 per cent of non-retirees feel prepared for retirement. Only 47 per cent expect to outlive their retirement savings, reflecting that non-retirees perceive they will need $4,300 per month for a comfortable retirement but expect their monthly income in retirement to be closer to $3,200.
Dougal Guild (pictured), research director at Investment Trends, said the sentiment around retirement generally ties back to the broader economy, so the weakening economic outlook is “having a real impact on the broader trend in sentiment”. At the same time, he pointed out that the lowered sentiment falls more in line with historical levels, which hover around 50 per cent, after a recent period of heightened sentiment.
“Last year, we were coming off the back end of solid returns post-COVID, and the outlook was much more favourable than it has been in the last 12 months,” Guild told The Inside Investor.
“In the year through the end of June, super returns generally were negative, whereas they were at 15-plus per cent the year before,” he added. “That swing in returns and what’s going on in the economy are certainly affecting people’s mindsets about the future.”
One issue, according to the report, is that many Australians are largely unaware of the retirement income products their super funds offer or do not believe they are fit for purpose. “Preference for retirement products varies significantly by age [and] super balance and evolves over time,” Guild said. “We found that many members are unable to articulate their requirements, highlighting the importance of providing both education and advice at this life stage.”
