The median superannuation growth fund lost 2.3% in value for the month of May, and the median growth fund is sitting on a miserly gain of only 0.2% for the financial year to date (July 2011 to May 2012), according to rating company Chant West. Depending on the performance of investment markets in June, the final results for the 2012 financial year (July 2011 to June 2012) could result in a small overall loss for the year or a small gain.
According to Chant West, the intensifying European debt crisis weighed heavily on world investment markets. The Australian share market lost 6.7% during the month of May, and international shares lost 6.8% (hedged). Due to the depreciation of the Australian dollar however (down from US$1.04 to US$0.97), the loss on international shares in unhedged terms was limited to 1.8%. Returns on listed property also were in the red with Australian REITs losing 1.2% and global REITs losing 3.8% during May 2012.
What are the chances of a gain for the 2012 year?
Chant West director, Warren Chant, says: “The median growth fund was up 0.2% from July 2011 to the end of May so there remains hope for a third consecutive positive financial year return. However, at best, members can expect a small positive figure which is not a bad outcome when you consider the year’s been fraught with uncertainty in global financial markets. Yes, share markets have gone backwards but, generally, funds are well diversified into other assets and this gives them the resilience to battle through the downturns.
“Global share markets slid in May on fears that Greece might need to default on its debt and exit the euro zone. Investors were also edgy on reports of a slowdown in growth in China and the US. Markets fell further early in June but have stabilised somewhat since then, with the result of the re-run Greek election seen as mildly positive. However, the debt issues in Europe remain far from resolved and there are growing concerns about Spain, where some major banks have had to be bailed out and the whole country may soon follow.”
When 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 observes that the May share market rout has clawed back some of the recent gains in the three-year average annual returns up to May 2012 (resulting in a drop of more than 1% a year in the three-year average).
The GFC influence continues to be evident in the five, seven and 10 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 7.2% each year, on average, for the 3-year period to May 2012. In depressing contrast, the median growth fund has lost 0.4% each year, on average, for the 5-year period to May 2012, and delivered a lacklustre 4.2% each year and 5.1% each year, on average, for the 7-year period and10-year period respectively to May 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 2.0% for the 12 months to 31 May 2012, a gain of 2.4% for the year to date (July 2011 to May 2012) and a loss of 1.2% for the month of May. 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 31 May 2012), the median conservative investment option has outperformed all other investment options.
|Diversified Fund Performance: Results to 31 May 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||-3.3||-1.7||-2.6||6.8||-2.5||3.5||4.6|
|Growth||61 – 80||-2.3||0.2||-0.4||7.2||-0.4||4.2||5.1|
|Balanced||41 – 60||-1.2||2.4||2.0||7.4||1.4||4.5||5.2|
|Conservative||21 – 40||-0.4||4.1||4.0||6.9||3.1||4.9||5.3|
Source: Chant West 21 June 2012 media release (www.chantwest.com.au)
Industry funds outperform retail funds
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 May 2012, with industry funds delivering a gain of 0.2%, compared with a loss of 1.3% delivered by master trusts/retail funds. This represents a gap in performance over 12 months of 1.5%.
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 May 2012, industry funds outperformed master trusts by 1.3% per annum, returning 5.7% against 4.4%, according to Chant West. Master trusts outperformed industry funds over a 3-year period returning 7.2% per year on average, compared with industry fund performance of 6.7%.
|Industry funds vs retail funds (Growth fund performance to 31 May 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: -0.5% means a loss of 0.5%.
Source: Chant West 21 June 2012 media release