The median superannuation growth fund gained 2.6% in value for the month of January (and 10.9% for the first 7 months of this financial year), with shares and listed property being the star asset classes, according to rating company Chant West.
Australian shares jumped 5% for the month of January 2013, and international shares surged 5.4% (in hedged terms) and rose 4.6% (in unhedged terms). Australian listed property (A-REITs) rose 4.4% while international REITs rose 3.7% for the same period.
Note: Briefly, when a super fund hedges your international investments against movements in the Australian dollar or foreign currency, your investment return is solely based on the merits of the investment rather than the strength or otherwise of the Australian dollar. If your super fund chooses not to hedge your international investments, then the return you may receive on this part of your portfolio may have very little to do with the merits of your investment, but may have more to do with what is happening to the Australian dollar. I explain the significance of hedging in more detail in the SuperGuide article Ban unhedged international shares in default investment options.
Expect double digit returns for 2013 financial year (July 2012 to June 2013)
According to Chant West, with the 2.6% gain for January delivering the 12th positive return in the past 13 months, and “barring disasters, fund members can look forward to a fourth consecutive positive financial year return”.
Chant West director, Warren Chant, says: “In recent weeks we’ve seen US shares back at levels not seen since October 2007. While memories of the GFC haven’t quite faded away, investors are finally feeling confident enough to forsake the safety of cash and bonds and venture back into equities. The same thing is happening in Australia and our share market has run up strongly, although we’re still nearly 10% of our all-time highs.”
Chant believes there are several positive factors at work. He says: “One is relief that the US ‘fiscal cliff’ was negotiated or at least postponed. Company profits, here and in the US, have also come in rather better than expected. Then we’ve had data out of China that suggests the slowdown there was only temporary and that growth is now back on track. In Japan, too, the government has taken bold steps to devalue the yen and stimulate the economy.
“All of this is occurring against the background of low interest rates across the world, and clearly investors are prepared to take on a little more risk and are shifting funds out of cash and bonds into shares. Whether this is the start of a cyclical bull market remains to be seen, but if the GFC ‘flight to safety’ continues to unwind, there will be a lot of money flowing into growth assets.”
See performance tables below (listing returns for 1 year, 3 years, 5 years, 7 years and 10 years). The tables appear immediately after the explanation of a growth investment option, a balanced investment option, a default investment option, and a median fund.
Growth vs balanced investment performance
Background: 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 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.
Note: 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.
Performance tables for 5 main investment options
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, to 31 January 2013.
Note: The median Conservative investment option has outperformed all other investment options over a 5-year and 7-year period. Over the 12-month period to January however, the median All Growth fund (16.1%) outperformed all other super investment options. More significantly, over the 10-year period, the median Growth investment option (6.8%) and the median High Growth option (6.8%) just beat the All Growth option (6.5%), and outperformed the other 2 options. According to Chant West the performance figures for the 10-year period are slowly improving with the effects of the ‘tech wreck’ of 2000 to early 2003 working its way out of the figures. Over the shorter timeframes (1 month, FYTD, 1 year), the higher risk investment options (with higher percentage in shares) outperformed the lower risk options.
|Diversified Fund Performance: Results to 31 January 2013|
|Fund Category||Growth Assets (%)||1 mnth (%)||FYTD (%)||1 Yr (%)||3 Yrs (% pa)||5 Yrs (% pa)||7 Yrs (% pa)||10 Yrs (% pa)|
|High Growth||81 – 100||3.3||12.7||14.6||6.9||1.7||2.9||6.8|
|Growth||61 – 80||2.6||10.9||13.0||7.0||2.7||3.7||6.8|
|Balanced||41 – 60||1.9||8.4||10.6||6.8||3.6||4.1||6.2|
|Conservative||21 – 40||1.2||6.3||8.7||6.4||4.3||4.7||5.9|
Source: Chant West 20 February 2013 media release (www.chantwest.com.au)
Industry funds outperform retail funds over longer term
According to Chant West, the growth investment options for master trusts outperformed similar investment options in industry super funds during the 7 months to 31 January 2013, returning 11.8% compared with 10.4% return from industry funds. The outperformance was due to master trusts/retail funds having higher weightings to shares and listed property compared with industry super funds. For the month of January, master trusts delivered 2.8% return, and industry super funds delivered 2.6% return.
Note: Over 10 years to the end of January 2013, industry funds outperformed master trusts by 0.9% per annum, returning 7.2% against 6.3%, according to Chant West. Industry funds have also outperformed master trusts over 7 years, 5 years and 3 years. Master trusts outperformed industry funds over the 1-year period to 31 January 2013, returning 13.7%, compared with industry fund performance of 12.9%.
|Industry funds vs retail funds (Growth fund performance to 31 January 2013)|
|Segment||1 mnth (%)||FYTD (%)||1 Yr (%)||3 Yrs (% pa)||5 Yrs (% pa)||7 Yrs (% pa)||10 Yrs (% pa)|
Note: Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions.
Source: Chant West 20 February 2013 media release