Why don’t super funds time markets?

The past financial year has been one of the most volatile on record for stock markets, yet almost every Australian super fund has delivered similar returns. This not only demonstrates that super funds very rarely make large calls about when to buy and sell, it also gives an insight into what we should do when making our own investment decisions. Back in mid-February stock indices in Australia and overseas were at all-time highs. As COVID-19 took effect stock markets collapsed about 40% in less than five weeks.

Then over the following three months amid massive injections of stimulus, both monetary and fiscal, many of those markets rallied by close to 40%. A super fund prepared to trust its judgement on timing could have done very well indeed, selling “going underweight in shares” as the news of COVID hit, and then buying “going overweight” when the market hit bottom. In fact, few did. The data insights firm Chant West reports that most so-called growth funds (exposed to growth assets such as shares) did much the same thing, recording a median loss of 0.6% over the year, gaining 6.4% in the seven months to the end of January and losing it in the five months that followed Advanced market analysis. Why don’t super funds time markets? Super funds are hesitant to aggressively time markets because it is both challenging and risky. Even with the benefit of hindsight it is difficult to identify all the reasons why a market moved in a particular direction. It is harder in real time, when a judgement needs to be made about whether a movement will continue. No single person or firm has access to all information, both public and private, and knows how to weigh each piece of information through time. It’s even harder for us Consumers find it even harder to time markets. Institutions have better access to information and insights, and the people who run them generally have better qualifications and experience. And we are misled about how consistently they can get it right. Investment funds usually don’t mention the managers who under-perform, and the media loves winners.