Super funds gain 0.4% in April, but expect loss for 2012 financial year

The median superannuation growth fund increased 0.4% in value for the month of April, and the median fund is sitting on a gain of only 2.5% for the financial year to date (July 2011 to April 2012), according to rating company Chant West. That’s the good news. The bad news is that there is a strong likelihood of a loss for the 2012 financial year (July 2011 to June 2012) as a result of the Australian and international share markets being hammered during May 2012, and uncertainty for June performance.

According to Chant West, share markets, which are the main contributors to growth fund performance, delivered mixed results in April. The Australian share market returned 1.3% but international shares suffered a loss of 1.6% (hedged) and 1.7% (unhedged). Listed property investments seemed to save the investment day with Australian real estate investment trusts (REITs) returning 5.4%, and international REITs returning 2.8%.

Losses for May, and for 2012 financial year

Chant West director, Warren Chant, says: “Superannuation funds were up over the first four months of the calendar year on the back of strong share markets. However, in the first half of May we have seen world markets slide on renewed fears that Greece may need to default on its debt and exit the euro zone. As a result, we estimate that the median growth fund is down 3% so far in May, bringing the financial year to date return into the red at about -0.5% [that is, a loss for the 2012 year]. What that means is that the likelihood of a third consecutive positive financial year return is now in serious jeopardy, with a lot hanging on the outcome when Greece goes back to the polls in June.

“While Greece’s political turmoil and worsening debt situation is likely to weigh heavily on share markets over the short term, there is some positive news elsewhere. China’s rate of growth has slowed, easing inflationary concerns there, while Japan’s latest growth report was better than expected. There is also optimism that the Federal Reserve is prepared to do more to stimulate the US economy if the recovery that’s underway looks like stalling.”

Can we say goodbye to the GFC carnage?

In the recent past, SuperGuide has reported that the more disturbing performance fact over the past few years is that super fund members have not yet recouped the losses suffered during the Global Financial Crisis (GFC).

In April 2012, Warren Chant made the following observation: “The median growth fund has returned a healthy 33.5% [up to March 2012] since markets bottomed in February 2009 and now only needs another 2.5% to get back to the pre-GFC peak reached at the end of October 2007. Once we pass that level, I think people will really start to believe that the GFC era is over.”

Also, Chant has commented that the negative returns experienced during the GFC, which extended from the end of October 2007 to the end of February 2009, have now completely worked their way out of the three year returns. SuperGuide suggests that the May share market rout may claw back some of the recent gains in the three-year returns up to the 2012 year.

The GFC influence continues to be evident in the five and seven year data but, as it gradually works its way out, Chant predicts that the averages over those periods should also start to look more normal.

Looking longer term then, the median superannuation growth fund has returned a respectable 8.5% each year, on average, for the 3-year period to April 2012. In depressing contrast, the median growth fund has delivered an unimpressive 0.3% each year, on average, for the 5-year period to April 2012, and a disappointing 5.3% each year, on average, for the 10-year period to April 2012, according to Chant West figures.

Growth vs balanced investment performance

Based on Chant West’s rankings, a growth fund typically holds between 61% and 80% in growth assets such as shares and property. A median is simply choosing the return for the fund in the middle of the list.

Although the term ‘growth fund’ covers those super funds with investment options having a 61% to 80% allocation to growth assets, some super funds describe the identical asset allocation as a ‘balanced’ option. Chant West’s description of ‘balanced’ however is 41% to 60% in growth assets.

The returns for Chant West’s version of ‘balanced’ option are 3.2% for the 12 months to 30 April 2012, a gain of 3.5% for the year to date (July 2011 to April 2012) and a gain of 0.4% for the month of April. You can find more detail on the investment returns for growth or balanced options in the table below.

The balanced/growth asset allocation is the default option for most large super funds which means that at least 80% of all super fund members have their superannuation money invested via a growth or balanced investment option. If you don’t actively choose your investment options for your super account, then your retirement savings will be invested in the default option.

If you do actively choose your investment option/s then your super savings may be invested in another type of investment option such as conservative or high growth.

The table below lists the performance figures for the five main asset allocations for: 1 month, financial year to date (FYTD), 1 year, 3 years, 5 years, 7 years, and 10 years.

Note: For all of the time periods contained in the table (apart from 3 years p.a. to 30 April 2012), the median conservative investment option has outperformed all other investment options, and matched the median growth option for the 10-year period to 30 April 2012.

Diversified Fund Performance: Results to 30 April 2012
Fund Category	Growth Assets (%)	1 mnth (%)	FYTD (%)	1 Yr (%)	3 Yrs (% pa)	5 Yrs (% pa)	7 Yrs (% pa)	10 Yrs (% pa)
All Growth	100	-0.1	1.1	-0.9	8.9	-2.4	3.9	4.2
High Growth	81 – 100	0.2	1.6	0.1	8.9	-1.3	4.5	4.7
Growth	61 – 80	0.4	2.5	1.8	8.5	0.3	4.9	5.3
Balanced	41 – 60	0.4	3.5	3.3	8.2	1.7	4.9	5.0
Conservative	21 – 40	0.6	4.3	4.6	7.2	3.4	5.1	5.3

Note: Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions. Negative returns appear as follows: -2.4% means a loss of 2.4%.

Source: Chant West 21 May 2012 media release (www.chantwest.com.au)

Industry funds outperform retail funds over the long term

According to Chant West, the growth investment options for industry super funds outperformed similar investment options in master trusts/retail super funds for the 12 months to 30 April 2012, with industry funds delivering a gain of 2.1%, compared with a much smaller gain of 0.9% delivered by master trusts/retail funds. This represents a gap in performance over 12 months of 1.2%.

Note: If this discrepancy in returns were to occur over a long period, then a member of a retail super fund would end up with a substantially smaller super benefit than the member of the industry super fund, assuming everything else was equal. Over 10 years to the end of April 2012, industry funds outperformed master trusts by 1.4% per annum, returning 6.1% against 4.7%, according to Chant West.

Industry funds vs retail funds (Growth fund performance to 30 April 2012)
Segment	1 mnth (%)	FYTD(%)	1 Yr (%)	3 Yrs (% pa)	5 Yrs (% pa)	7 Yrs (% pa)	10 Yrs (% pa)
Industry Funds	0.4	2.8	2.1	7.9	1.2	5.5	6.1
Master Trusts	0.3	2.4	0.9	9.1	-0.5	4.4	4.7

Note: Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions. Negative returns appear as follows: -0.5% means a loss of 0.5%.

Source: Chant West 21 May 2012 media release