Super funds gain 15.6% for 11 months to November 2013

The median superannuation growth fund gained 0.8% in value for the month of November, and 15.6% for the 11 months to November 2013, according to rating company Chant West. Performance tables for the 5 main investment options offered by super funds are set out later in this article.

The increase in the value of international shares, and a lower Australian dollar contributed to the gain in returns for super funds during November 2013. The International shares rose 2.3% in hedged terms during November, and 5.7% in unhedged terms (due to the depreciation of the Australian dollar from US$0.95 to US$0.91).The Australian sharemarket fell 1.4% during November, and listed property also dropped in value, with Australian REITs losing 2.7% in value, and international REITs losing 3.5% during November 2013.

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.

Why are investment returns so strong for 2013 calendar year?

Warren Chant, director of Chant West observes that 2013 has been an excellent year for super fund members, in particular, the majority whom have their super savings invested via growth funds. Chant says: “While those funds are well diversified across different sectors, listed shares and property are still the biggest components of their investment mix, and share market performance is the main influence on their performance. So the strength of the listed share and property markets over the year is what’s driven these excellent returns.

Chant also offers some analysis on the strong investment performance over the past few months. He says: “We’ve only had two negative months (in March and June) this year, against nine positive months. And even though share markets are down so far in December, we estimate that the median growth fund is up 14.3% from 1 January to 17 December 2013. …We can say with great confidence that the final return for the year will be a healthy one.

“This will be the fourth positive calendar year return in the past five [years], and the ninth positive in the past eleven [years]. Of course, one of those negative years was the severe 21.5% loss in 2008 during the height of the GFC. However, growth funds have bounced back from the setback, and now stand about 20% above their pre-GFC high achieved in October 2007. They’ve gained an impressive 62.5% since the GFC low-point at the end of February 2009, so members who hold their nerve and stuck with their investment choice during those dark days have been well rewarded,” explains Chant.

According to Chant, the strong performance of listed share markets in 2013 is largely the result of confidence that economic conditions are steadily improving in the United States. Further, Chant notes that during the year, there were some signs of recovery in the Euro zone, although he says it’s too early to talk of a sustainable recovery there.

“Domestically, the Reserve Bank has cut interest rates twice this year to a new all-time low of 2.5%, arguing that the economy needed some additional stimulus after previous cuts failed to spark any real improvement in activity,” says Chant.

Chant believes the key issue for 2014 will be how the US economy fares and how markets react if or when the US Federal Reserve cuts back on its bond buying program, which has been pouring money into the US economy. Chant also believes that that investors will be watching the China economy which appears to have resumed a stable, but slower, growth pattern

See performance tables below (listing returns for 1 month, financial year to date (FYTD), calendar year to date (CYTD), 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 return for a median fund 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, FYTD, CYTD, 1 year, 3 years, 5 years, 7 years, and 10 years, to 30 September 2013.

Note: Over the 12-month period to November 2013, the median All Growth fund (25.1%) outperformed all other super investment options. The median All Growth fund also outperformed other investment options over 3 years (10.4%) and 5 years (10.9%). While, over the 10-year period, the median High Growth investment option (7.6%) outperformed all other investment options, and over the 7-year period, the median Conservative investment option (4.8%) outperformed all other options.

According to Chant West the performance figures for the 7-year period are still weighed down by the ‘GFC effect’, while the 5-year returns have improved markedly. The one-year and 3-year returns reflect the strong performance of listed shares and property, which means the investment options with a higher proportion of growth assets will have performed better.

Diversified Fund Performance: Results to 30 November 2013
Fund Category Growth Assets (%) 1 mnth (%) FYTD (%) CYTD (%) 1 Yr (%) 3 Yrs (% pa) 5 Yrs (% pa) 7 Yrs (% pa) 10 Yrs (% pa)
All Growth 100 1.4 11.7 21.9 25.1 10.4 10.9 3.3 7.4
High Growth 81 – 100 1.0 9.5 18.8 21.1 10.0 10.2 3.9 7.6
Growth 61 – 80 0.8 7.8 15.6 17.9 9.2 8.9 4.3 7.3
Balanced 41 – 60 0.6 5.7 11.1 12.7 8.0 8.2 4.6 6.7
Conservative 21 – 40 0.4 3.8 7.1 8.6 6.8 7.0 4.8 6.2

Note: Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions.

Source: Chant West 19 December 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 and for industry super funds delivered identical returns (0.8%) for the month of November 2013. For the 11 months to 30 November 2013, industry funds (15.6%) slightly outperformed master trusts (15.4%). For the 5 months to 30 November 2013, industry super funds (7.7%) slightly underperformed master trusts (7.9%).

Note: Over 10 years to the end of November 2013, industry funds outperformed master trusts by 0.5% per annum, returning 7.4% (industry funds) against 6.9% (master trusts), according to Chant West. Industry funds have also outperformed master trusts over 7 years, although master trusts outperformed industry funds over 3 years, and over 5 years to November 2013.

Industry funds vs retail funds (Growth fund performance to 30 November 2013)
Segment 1 mnth (%) FYTD (%) CYTD (%) 1 Yr (%) 3 Yrs (% pa) 5 Yrs (% pa) 7 Yrs (% pa) 10 Yrs (% pa)
Industry Funds 0.8 7.7 15.6 17.9 9.0 8.4 4.5 7.4
Master Trusts 0.8 7.9 15.4 17.5 9.1 9.7 3.8 6.9

Note: Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions.

Source: Chant West 19 December 2013 media release 

© Copyright Trish Power 2009-2014

Copyright for this article belongs to Trish Power, and cannot be reproduced without express and specific consent.

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