Tell the truth, the whole truth

Investment labels such as ‘balanced’ don’t always mean what they suggest

- Vita Palestrant

Super fund members rely on labels such as growth, balanced, conservative and cash to help them choose an investment option. They match their risk profile and goals with the most suitable product. But how true to label are the options?

Each has a different exposure to growth and defensive assets. The growth option aims for higher returns and invests in more volatile assets such as equities and property. The cash option is least risky, but also less rewarding.

But since the introduction of super, options have taken on a life of their own as funds compete for members and a bigger slice of the industry’s $3.3 billion pie.

What are members to make of labels like alternative growth, conservative balanced, sustainable balanced, balanced growth and capital stable, to name just a few? It’s challenging enough for researchers, let alone the layperson .

Yet members are regularly urged to compare their product with others on the market and ditch it if it’s underperforming. Confronted by so many confusing labels, what are their chances of comparing apples with apples?

Consumers generally expect the product to be true to label and assume there is a standard definition somewhere that determines its asset allocation. But they couldn’t be more wrong. The default balanced, or MySuper, option, where most members have their money invested, isn’t spared any of the confusion.

“Traditionally the balanced option was 50% growth and 50% defensive, while growth was 70% growth 30% defensive, and capital stable 30% growth and 70% defensive,” says Mark Berry, a director of Berry Actuarial Planning.

“But over the years the growth portion grew as it delivered higher returns as expected and funds did not rebalance back to the original benchmark.”