Colonial First State data reveals surge in super switches

Scott Tully

New data from Colonial First State (CFS) reveals switches by super members were three times the usual rate in March as a number of Australians moved their superannuation to cash in the midst of the coronavirus impact on markets.

Thirty nine per cent of members who switched their super, switched to cash. Against this trend, the second most popular investment category was Australian shares (26 per cent).  Interestingly, the number of members who switched to growth assets (including Australian shares) was almost exactly the same as the number that switched to cash.

Switch call volumes peaked on Monday 23 March after the S&P/ASX shed 5.6 per cent to 4,546, down 36.5 per cent from its peak just over two months ago. The market reaction was in response to news that businesses across the country should prepare to scale down their operations. CFS experienced the highest number of switches to cash (65 per cent) and the lowest percentage of switches by dollars to growth assets (9 per cent) on this day.

While looking to avoid losses caused by the sharp declines in the share market in March, members who switched to cash at the bottom of the market may have also missed out on the gains in the markets in the period after.

Commenting on member behaviour Scott Tully, General Manager Investments, said: “We recognise the importance of being focused on investing for the long term and we’ve been talking to our members directly about this to help them navigate what are understandably a concerning set of circumstances.

“We saw some people switching to cash, which means those members missed out on upside as markets rebounded. But we’re encouraged that many of our members also stayed the course and remained focused on the long term.

“Fear of volatile markets can drive decisions that might not be in a member’s long term interests. The switching activity we have seen is directly linked to how the Australian market is performing on the day. However, selling after markets have fallen means that you lock in those losses and longer term investment outcomes may be more difficult to achieve.

“During this challenging time it’s important to remember that super is the longest-term investment many of us may ever have.

Commenting on how CFS was helping people through these challenging times Mr Tully said, “We are committed to equipping our members and advisers with all the tools they need to get through this difficult period.

“We’re making it easier for members and advisers to interact digitally with their super, pension or investments and we’re sending out more regular and timely communications. We’ve also created a dedicated webpage for all Government support elements and are hosting a number of interactive webinars.

“Reacting to short-term market movements, regardless of whether you’re switching to defensive or growth assets, can have an impact on the long-term performance of your super. It’s crucial for members not to lose sight of their long term goals and personal investment objectives and seek quality financial advice about managing market volatility before making a change.”

Mr Tully said it was also really interesting to see that that were as many switches to growth assets as to cash during the month of March.

“Our data showed that while we had many super members who were spooked by the volatility, there were just as many people looking to invest after the market had fallen.  This suggests there are members who understand that super is a long term investment but are prepared to take advantage of lower prices in the middle of a crisis.”

Other key findings from the March data included:

• Pre-Retirees (members aged 50-64) were the most likely to switch to cash (47 per cent of all switches to cash) followed by wealth accumulators (members aged 40-49) with 19 per cent of all switches to cash
• Retirees (members aged 65+) were least likely to switch to growth assets (9 per cent of all switches to growth assets)
• Younger members (aged 49 or under) were more likely to switch to growth assets than cash (45% of all switches to growth assets were by members aged 49 or under with this group comprising only 34% of those switching to cash).
• Switches to growth had a lower average amount switched than switches to cash. The average switch to growth was $19,000 compared to the average switch to cash of $99,000 suggesting that switching to growth was more of a partial reallocation of members’ portfolios.