Data Analysis Research Report
By analysing data from historical and present standpoints, it will become evident which superannuation funds have the ability to prosper in the future, while other funds may plummet, essentially reviewing the entire Australian superannuation industry. 2. 0 Outliers In every set of data, whether it be from a population or sample, there is the possibility of outliers. These outliers have the ability to distort or misrepresent the data and can have harmful effects through the analysing process, and can often taint the results.
To find the outliers in a set of data, the z-scores of each figure must be found (see Appendix 1).If the z-score calculated is below negative three or above positive three, it is considered on outlier. For this set of superannuation data two of the z-scores fell just below negative three, making them outliers. A decision has been made however, to leave them in as they are just on the outskirts of the data and are not likely to taint or distort the data. This also means that the data being analysed gives a review of the entire superannuation industry. 3.
0 Historical Analysis Analysing past data can give some direction as to where a particular industry is headed in the future.In the case of the superannuation industry, a consistent history gives the consumer confidence in the company they are investing with, whereas an inconsistent history will not promote consumer confidence. The graph below (Figure 1) shows the annual rate of return on superannuation in Australia over the past fifteen years. Figure 1 – Annual Rate of Return Figure 1 – Annual Rate of Return During the past fifteen years, the average yearly return has varied considerably, in 2007 the average rate of return was at its highest at 14. 5 per cent, whereas in 2009 it reached its lowest of the period at -11. 5 per cent.
The major fluctuations in the annual rate of return can be accredited to real life events, the first of which, occurring in 2000. This could be a result of the introduction of Goods and Services Tax (GST), this occurrence was a ‘one-off’and that economically, Australia recovered quite quickly, as GST swiftly regulated itself into the economy. The second major slump in the annual rate of return; occurring in 2008 could be a result of the Global Financial Crisis (GFC), similar occurrences was seen all around the world, and compared to other major nations of the world, Australia performed strongly under the pressure.This fast recovery through 2009, 2010 and 2011 was due to Australia’s mining boom and close trade relationship with China, and other Asian nations. Both of these events had diverse effects on the Australian economy, and as can be seen on the above graph, the Australian superannuation industry. Even with these slumps however, the current performance of superannuation funds is on the last leg of a steady recovery, and is encompassing more consumer confidence as days go by.
4. 0 Current Data (One Variable Analysis)Over the past year, Australia has continued its steady economic recovery which is reflected in the superannuation market. In this section, the superannuation market will be investigated to discover the current levels of returns being achieved. Figure 2 – Distribution of One Year Returns Figure 2 – Distribution of One Year Returns Over the last year, the average rate of return was just 0. 37 per cent, while the lowest return achieved was -18.
1 per cent and the highest return achieved was 11. 7 per cent. This gave the graph above a slightly right-skewed shape, with the most common returns being between 0-0. 5 per cent. These returns could be caused by a number of different factors, including investment strategy, three year returns, investment style or the segment of fund. Investment strategy involves how Australian’s are investing their money, and three year returns could put bad one year returns into a different context, making the figures positive in relation to past years.
Both investment strategy and three year returns have the ability to have a major impact on one year returns, and will be analysed in the following section using bivariate and trivariate analyses. 5. 0 Bivariate and Trivariate AnalysisIn this section several potential factors that may influence the one year return of superannuation funds will be considered. 5. 1 Impact of Investment Strategy on One Year Returns The investment strategy of any given superannuation fund is a major factor in what returns can be achieved.
Strategic investment in the superannuation industry can be broken down into two smaller categories; diversified and specialist. Within these two categories there are different options in regards to risk and return levels, both of which run parallel to each other meaning the higher the risk the higher the rate of return. The below graph Figure 3) shows the average one year return for each of the investment strategies. Figure 3 – Average One Year Return Figure 3 – Average One Year Return Each strategy will be used in a different way or ‘style,’ leaving funds of the same strategy with varying results.
For example Australian Equity had an average one year return of -6. 76 per cent, while Australian Fixed Interest had an average one year return of 6. 99 per cent. Comparing the average one year return for each strategy illustrates which funds have the most reliable or steady rate of return, and in this case the most reliable funds are those with fixed interest.This is coherent with the risk factors associated with the different strategies, even though fixed interest is considered low risk and offers low returns, these returns are more reliable than strategies with a high risk, and therefore still perform positively under times of economic crisis. After one year, all superannuation strategies offered returns between -0.
20 per cent and 0. 15 per cent, and are exemplified in the graph below (Figure 4). Figure 4 – Impact of Investment Strategy on One Year Returns Figure 4 – Impact of Investment Strategy on One Year ReturnsEach investment strategy shows an approximately equal share in the market, with the exception of the fixed interest strategies, who have between a five and seven per cent market share. Although some if these funds have a larger market share than others, this does not mean they will receive the highest rate of return.
This graph clearly shows that even though Australian Fixed interest has the smallest market share, they are making some of the highest returns, and even though Australian Equity has one of the largest market shares, they still have some of the lowest returns.This leads to the conclusion that investment strategy has quite an impact on one year returns. 5. 2 Impact of Three Year Returns on One Year Returns Three year returns are a variable that can impact one year returns. Comparing one year returns with three year returns will provide a clearer indication of whether the three year returns have in fact influenced the one year returns. The graph below (Figure 5) displays this comparison.
Figure 5 – Impact of Three Year Returns on One Year Returns For a larger view please refer to appendix 2Figure 5 – Impact of Three Year Returns on One Year Returns For a larger view please refer to appendix 2 As the trend line on the graph shows, there is a moderate/weak relationship between one year returns and three year returns. This relationship is also a negative one, and is suggested by the downward slope or negative gradient of the trend line. This outcome is not what would normally be expected under these circumstances, in fact there is an expectation that three year returns would have a positive relationship with one year returns.This outcome however, does link in with the real world in the sense that the economic climate is quite unpredictable. Although Australia managed to avoid recession during the GFC, Australia’s market still felt the sting of the sudden downturn. Up to the point when the GFC hit, many people were still predicting growth to continue into 2009, however the GFC very much proved the fact that anything can happen in economic markets.
Even if a superannuation fund had good three year returns up to late 2008, this only gave funds a slight advantage, as they had a higher return to fall from.This proved that three year returns only have a weak influence on 1 year returns. 5. 3 Impact of Investment Strategy and Three Year Returns on One Year Returns As earlier discussed, one year returns are most likely to be influenced by investment strategy and three year returns.
The graph below (Figure 6) shows how both of these variables can influence one year returns at the same time. Figure 6- Impact of Investment Strategy and Three Year Returns on One Year Returns For a larger view please refer to appendix 3Figure 6- Impact of Investment Strategy and Three Year Returns on One Year Returns For a larger view please refer to appendix 3 As can be seen in Figure 6, each different strategy has different trends when comparing one and three year returns. Each trend line, with the exception of property and international equities shows positive growth. This would suggest that when considering each individual investment strategy, three year returns have a positive influence on one year returns and carry a stronger relationship within each strategy than in a review of the entire industry.
In reality, each different strategy comes with different risk and return levels, so to have trends within each strategy reflects the different risk levels associated with each respective fund. For example in the last few years the Australian property market has taken a dive so the negative relationship between its one and three year returns makes sense, but the Australian fixed interest has had positive growth over the last few years so having a positive relationship between its one and three year returns also makes sense.It does not make sense however to judge each strategy by trends across the whole superannuation industry (see Figure 5), as this does not give accurate information about funds that might actually have positive growth. Figure 6 also confirms that the investment strategy used by the consumer has a strong relationship with the rate of return on both one year and three year returns. 6.
0 ConclusionThe superannuation industry can be a tough road to navigate, but by analysing the right data and identifying trends and relationships, informed, positive decisions can be made. By analysing past data and trends, some insight can be made in regards to what might happen in the future. The current performance of each fund is dependent on many variables including the investment strategy of the fund and three year returns. Investment strategy has a strong influence on one year returns of a superannuation fund.Three year returns however, do not have a strong relationship with one year returns by itself, but when analysed in conjunction with the investment strategy, it too has quite a strong influence over one year returns. 7.
0 Appendix| Appendix 1: Z Score Calculation| Z-Score Calculation | Average/Mean| | Standard Deviation | | Z-Score| | Any scores that are below -3 or above 3 are considered outliers. | | Appendix 2/Figure 5: Impact of Three Year Returns on One Year Returns Appendix 3/Figure 6: Impact of Investment Strategy and Three Year Returns on One Year Returns