The median superannuation growth fund gained 4.5% in value for the 3 months to March 2013 (and 12.9% for the first 9 months of this financial year), with shares and listed property being the stand-out asset classes, according to rating company Chant West.
Australian shares rose 8% for the 3 months to March 2013, and international shares jumped 9.8% (in hedged terms) and jumped 7.2% (in unhedged terms) over the same 3-month period. Australian listed property (A-REITs) gained 5.3% while international REITs rose 8.8% for the same 3-month 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 positive returns for 2013 financial year (July 2012 to June 2013)
According to Chant West director Warren Chant, super funds are on track to deliver a fourth consecutive positive financial year return, which is likely to be in double digits. Chant predicts this year’s return will be the highest since the pre-GFC period.
Chant says: “The median growth fund is now 8% above its pre-GFC level achieved at the end of October 2007. Even the more aggressive high growth category (with an 81% to 100% allocation to growth assets) surpassed its pre-GFC level during the quarter. So the vast majority of members are ahead of where they were before the GFC struck – and of course that doesn’t include post-GFC contributions which have been buying assets for them at depressed prices.”
It may not sound very compelling to learn that it has taken more than 5 years to recoup the losses suffered during the global financial crisis of 2008 and 2009, it is positive news that your super account balances are now above what they were 5 and half years ago.
Say goodbye to the GFC, nearly
According to Chant West, despite the hiccup in March, triggered by the debt crisis in Cyprus, all major asset classes delivered positive returns, although Australian bonds only delivered 0.2% and international bonds returned 1.2% (reflecting a return to risker assets).
Chant says: “The strong share market rally has been driven largely by improved sentiment, with investors reacting optimistically to good news and looking past the current subdues growth rates. Economic data out of the US was mainly positive over the quarter, and the Federal Reserve indicated that it’s in no hurry to end its quantitative easing and low interest rate policy. And although China’s most recently reported growth rate fell marginally short of expectations, there have been indications that its economy is now back on track. However, it wasn’t all smooth sailing as we were reminded that the Euro debt crisis still lingers, with concerns surrounding Cyprus’ debt woes and the political uncertainty in Italy.
“While the share market rally isn’t yet supported by company earnings growth, it is underpinned by the flow of money into shares from cash and bonds. However, the rally won’t be sustainable if we don’t see tangible economic progress at some point.”
See performance tables below (listing returns for 3 months, financial year to date (FYTD), 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: 3 months, financial year to date (FYTD), 1 year, 3 years, 5 years, 7 years, and 10 years, to 31 March 2013.
Note: The median Conservative investment option has outperformed all other investment options over a 3-year, 5-year and 7-year period. Over the 12-month period to March however, the median All Growth fund (17.5%) outperformed all other super investment options. More significantly, over the 10-year period, the median High Growth investment option (7.2%) and the median Growth option (7.1%) and the median All Growth option (7.1%) outperformed the more conservative 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, with high risk investment options outperforming low risk options. Over the shorter timeframes (3 months, FYTD, 1 year), the higher risk investment options (with higher percentage in shares) outperformed the lower risk options.
|Diversified Fund Performance: Results to 31 March 2013|
|Fund Category||Growth Assets (%)||3 mnths (%)||FYTD (%)||1 Yr (%)||3 Yrs (% pa)||5 Yrs (% pa)||7 Yrs (% pa)||10 Yrs (% pa)|
|High Growth||81 – 100||5.4||15.1||12.1||5.7||2.8||2.6||7.2|
|Growth||61 – 80||4.5||12.9||11.1||6.1||3.5||3.6||7.1|
|Balanced||41 – 60||3.3||10.0||9.3||6.1||4.3||3.9||6.4|
|Conservative||21 – 40||2.3||7.4||7.8||6.2||4.7||4.7||6.1|
Source: Chant West 22 April 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 3 months to 31 March 2013, returning 4.6% compared with 4.4% 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 12 months to March 2013, master trusts and industry super funds delivered an identical 11.1% return.
Note: Over 10 years to the end of March 2013, industry funds outperformed master trusts by 1% per annum, returning 7.6% against 6.6%, 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 9 months to 31 March 2013, returning 13.8%, compared with industry fund performance of 12.6%.
|Industry funds vs retail funds (Growth fund performance to 31 March 2013)|
|Segment||3 mnths (%)||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 22 April 2013 media release