With iron ore and energy prices in free-fall, the share prices of BHP Billiton, Rio Tinto and other big miners have taken a pummelling. So, what will be the effect of the bursting mining bubble on your super returns?

Few other stocks – apart from the big four banks and Telstra – have as big an impact on the fortunes of the Australian share portfolios as BHP Billiton.

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More than 550,000 Australians hold shares directly in the world’s largest miner, making it the most widely held stock in the country behind Telstra (1.3 million shareholders), Commonwealth Bank (780,000 shareholders) and Westpac (596,000).

However, most of us have some exposure to BHP through superannuation funds or listed share trusts such as Australian Foundation Investment or Argo Investments.

Super funds hold big investments in BHP that are more or less in line with the company’s weighting in leading stock market index, the S&P/ASX 200.

In the past decade, BHP and other resources stocks have rallied.

Since 2005, dividends and capital gains from mining stocks have helped Australian superannuation funds to outperform international funds.

However, recent share price falls among the miners meant that investors in Australian equities harvested lower returns in 2014.

This year, most super funds are looking to other equity sectors and asset classes to grow returns.

Iron ore prices have plunged in recent months.

BHP share price tanks – banks and telcos gain

BHP’s share price has slipped around 15 per cent since the beginning of October.

This has weighed negatively on the returns of most super funds, but during that time the key benchmark of the Australian stock market – the S&P/ASX 200 – has actually rallied by more than four per cent.

While super funds such as AustralianSuper and Energy Super have probably lost value on their investments in BHP during that time, they have gained on their exposures to non-mining sectors, such as banking, telecommunications, gambling and healthcare.

As BHP this month sunk to a five-year low of $26.50, other blue-chip investments such Commonwealth Bank and Telstra have touched record highs.

Telstra opened the new calendar year at $5.99. Since then it has rallied by around seven per cent to trade above $6.40.

CBA touched a new high of $87.65 on January 27.

Aussie shares delivering solid returns in January

The net effect of these and other share price movements is that most local super funds generated positive returns on their exposure to Australian shares in the December quarter.

They are also in line to do the same for the first month of 2015.

Mining and energy companies account for only 20 per cent of the S&P/ASX 200 index, whereas banks, insurance companies and telcos represent 55 per cent of the market.

All non-mining sectors of the ASX have gained ground in the opening weeks of trading, with telecommunications (up eight per cent) and consumer discretionary (up five per cent) garnering the biggest returns.

The S&P/ASX 200 index grew by around two per cent in January – a sign that super funds are likely to record positive returns on their holdings of Australian equities for the month.

Overseas share markets have had a mixed start to the year, making it more difficult to assess whether returns were positive or negative in January for superannuation members with greater exposure to international shares.

Diversification has kept super funds safe. Photo: Shutterstock 

Returns on international share portfolios will be weighed down by US markets, which have lost more than two per cent since January 1. But, they could be stoked by the depreciating Aussie dollar and stock market revivals in parts of Europe and Hong Kong.

Diversification pays off

While some super funds have bigger investments in energy and mining companies than others, all pursue diversified stock strategies that ensure overall returns are not unduly influenced by the impact of a single sector that may be underperforming.

Diversification gives a share portfolio a greater chance of growing consistently in the long term and absorbing the short-term underperformance of individual stocks and sectors.

This means that the sliding share prices of BHP Billiton and other mining stocks are likely to have a tangible though not decisive influence on the investment performance of Australian equities portfolios managed by local super funds.