The median superannuation growth fund jumped 2.5% in value for the month of January, although the median fund is sitting on a loss of 1.4% for the financial year to date (July 2011 to January 2012), according to rating company Chant West.
The gains in January were due to strong Australian and international share markets, which were the main drivers of performance for growth funds. During January 2012, Australian shares gained 5.1%, international shares rose 4.3% (in hedged terms) but rose only 1.2% on unhedged terms due to the appreciation of the Australian dollar. Real Estate Investment Trusts (REITs) also gained during January, with Australian REITs gaining 5.4% and international REITs gaining 6.1%.
Chant West director, Warren Chant, says: “The strong share market performance in January was on the back of positive economic data coming out of the US, which indicated that the US economy is showing signs of strengthening. And although the debt problems persist in Europe, there are signs that the recession in the region may end up being relatively mild. Since the end of September 2011, international share markets have now rallied 17% in hedged terms.”
GFC still hurting super fund accounts
The more disturbing performance fact is that super fund members have not yet recouped the losses suffered during the Global Financial Crisis (GFC), according to Chant West director Chant West.
“Despite the positive news in 2012 to date, and the fact that growth funds have returned a healthy 29% since listed markets bottomed in late February 2009, it’s sobering to think that they still need another 7% to get back to their pre-GFC (October 2007) highs. That just shows the severity of the impact of the GFC, which is still being reflected in the medium- and long-term performance figures,” says Chant.
“The ‘GFC effect’, which resulted in growth funds posting a huge loss of 21.5% in calendar 2008, will gradually work its way out of the picture. That unprecedented negative return has almost completely dropped out of three year performance data, and over the next few years it will drop out of the five and seven year data as well. In time, we would expect the performance numbers to revert to more ‘normal’ levels and to align more closely with the funds’ stated objectives.”
Looking longer term then, the median superannuation growth fund has returned 7.6% each year, on average, for the 3-year period to January 2012. The median growth fund has delivered an unimpressive 0.4% each year, on average, for the 5-year period to January 2012, and a disappointing 4.9% each year, on average, for the 10-year period to January 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 1.8% for the 12 months to 31 January 2012, and a gain of 1.9% for the month of January. 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.
|Diversified Fund Performance: Results to 31 January 2012|
|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||3.0||-2.7||-2.5||8.0||-1.2||3.8||4.4|
|Growth||61 – 80||2.5||-1.4||-0.7||7.6||0.4||4.3||4.9|
|Balanced||41 – 60||1.9||0.3||1.8||7.5||1.7||4.5||5.2|
|Conservative||21 – 40||1.3||1.8||3.5||6.6||3.4||4.9||5.2|
Source: Chant West 20 February 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 31 January 2012, with industry funds delivering a small gain of 0.2%, compared with the loss of -1.2% suffered by master trusts/retail funds. This represents a gap in performance over 12 months of 1.4%.
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 January 2012, industry funds outperformed master trusts by 1.3% per annum, returning 5.5% against 4.2%, according to Chant West.
Over a 3-year period however, master trusts outperformed industry funds by 1.2% (see table below). This outperformance was linked to the post-GFC recovery in listed markets, according to Chant West.
|Industry funds vs retail funds (Growth fund performance to 31 January 2012)|
|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. Negative returns appear as follows: -1.2% means a loss of 1.2%.
Source: Chant West 20 February 2012 media release