Super funds are on track to return to positive territory in 2020 on the back of strong returns from Australian shares and optimism about progress towards a COVID vaccine.
The median growth fund (61% to 80% in growth assets) was up 0.5% in October, the sixth positive return in seven months after a brief stumble in September. Chant West senior investment research manager, Mano Mohankumar estimates that the median growth fund is up over 4.5% for November to date and up a remarkable 14% since the end of March, more than erasing the 12% loss experienced in February and March.
“With just over six weeks of 2020 remaining, we estimate that the median growth fund is up over 2% for the calendar year to date,” he says.
While Australian shares underpinned super’s solid performance in October, international shares fell 3.2% in hedged terms on uncertainty over the US election results and surging COVID cases in the US and Europe. However, the depreciation of the Aussie dollar (down from US72c to US70c) limited that fall to 1.1% in unhedged terms. Mohankumar says funds currently have about 70% of their exposure to international shares unhedged, which provides a natural buffer against sharemarket falls.
“November has been extremely positive for markets so far. Joe Biden’s election victory has removed much of the uncertainty that was weighing on sharemarkets, although President Trump seems set on making the transition a difficult one. Additionally, last week pharmaceutical company Pfizer, and biotechnology company BioNTech, announced that they have developed vaccines that in testing was more than 90% effective in preventing COVID-19. While there is still a way to go before the trial is complete, sharemarkets around the world have reacted euphorically,” says Mohankumar.
In Australia, COVID cases are under control albeit with occasional outbreaks to be expected. Mohankumar says this has supported local shares, as did the Reserve Bank’s decision earlier this month to lower the official cash rate to a new historic low of 0.1%. The Reserve also unveiled measures to support the post-COVID economic recovery, including a quantitative easing program whereby the Bank will purchase $100 million in government bonds over the next six months.
The following table shows the median super performance for five investment risk categories across various timeframes.
Super fund performance (Results to 30 October 2020)
| Fund Category (% Growth Assets) |
1 mth (%) | 3 mths (%) | FYTD (%) | CYTD (%) |
1 yr (%) |
3 yrs (% pa) |
5 yrs (% pa) |
7 yrs (% pa) |
10 yrs (% pa) |
15 yrs (% pa) |
|---|---|---|---|---|---|---|---|---|---|---|
| All Growth (96-100%) | 0.7 | 2.1 | 3.2 | -4.1 | -1.7 | 5.3 | 7.0 | 7.7 | 8.2 | 6.5 |
| High Growth (81-95%) | 0.6 | 2.0 | 3.1 | -3.1 | -1.1 | 5.3 | 6.9 | 7.5 | 8.1 | 6.5 |
| Growth (61-80%) | 0.5 | 1.7 | 2.6 | -2.3 | -0.4 | 5.0 | 6.3 | 6.8 | 7.3 | 6.2 |
| Balanced (41-60%) | 0.4 | 1.3 | 2.0 | -1.1 | 0.1 | 4.0 | 4.9 | 5.5 | 6.1 | 5.4 |
| Conservative (21-40%) | 0.3 | 0.9 | 1.6 | -0.2 | 0.7 | 3.6 | 4.2 | 4.7 | 5.2 | 4.9 |
Note: Performance is shown net of investment fees and tax, before administration fees and adviser commissions.
Source: Chant West
As you can see in the table above, all five risk categories, ranging from All Growth to Conservative, have met their typical long-term objectives over 3, 5, 7, 10 and 15 years. These objectives range from CPI + 2% for Conservative funds to CPI + 4.25% for All Growth. While past performance is no guarantee of future returns, Mohankumar says members can take comfort in the fact that their funds run generally well-diversified portfolios that have proved to be resilient in the face of external shocks.
The chart below shows the year by year performance of the median growth fund since the introduction of compulsory super in 1992. Since then, the median growth fund has returned 8.1% a year. The annual CPI increase (a measure of inflation) over the same period is 2.3%, giving a real return of 5.8% a year. This is well above the typical 3.5% target set by funds.
Even looking at the past 20 years, which includes three major market downturns – the tech wreck, the GFC and now COVID – super funds have returned 6.4% per year, well ahead of the typical return objective.
Despite the latest year’s negative return, this was only the fourth negative year in 28, or one every seven years. The typical risk objective for Growth funds is no more than one negative year in five, so super is more than delivering on its long-term objectives.
Source: Chant West
Super has been marvellous for so me over the last 49 years where I don’t recall the contributions being that great, nor the 15% tax on them, but look at the $1.7m that I invested into managed tax-free pensions at retirement… all due to the system and the magic of compound interest.
To those who think residential real estate is the answer, do your homework. The GFC had house prices fall at a time when many vendors had no control over when their sale had to take place – just like the share market last January. And when there is eventually an increase in interest rates, the price of houses reduce… and there goes your capital gain, not to mention deplorable tenants, maintenance, etc
We all were warned by various comentators in the leadup to the March crash that the market was overpriced and driven by greed. Why are you disappointed that prices reduced… it was going to happen regardless of Covid19. And that correction has yet to play out with so many businesses losing money, that a depression is inevitable.
Good luck over the next two years and don’t panick as so many appear to be doing.
Alan
When I compare my super balance with AS against my wife’s super balance (VS) there is a huge difference in growth over the past 2 – 3 weeks. Before Corona hit, the two funds showed same growth. I might leave AS if this continues.
If you were paying attention mid January the first signs of catastrophe were apparent.
This was the moment when you all had the the choice of converting your superannuation balance to cash thus limiting the substantial losses that took place through February – March and beyond.
Therefore the onus is on the individual to monitor what is going on in the financial world – the share market is an excellent barometer. I personally lost $10,000 from my balance before converting to cash.
This exact behaviour occurred during the GFC and its happened again noticeably across funds.
The problem with moving to cash is knowing when to move back into growth investment options. On average, everyone gets it wrong and loses money.
I studied movements over the GFC, comparing 3bn worth of Choice Super investors with 3bn sitting in MySuper accounts.
6 years after the GFC those who left their money in MySuper products had their balances back. The Choice members? they lost 800m….those same members never got their money back. Gone.
Be very careful trying to pick the market. If your close to retirement you would already be(or should be) in a conservativly managed funds, those funds have maintained members balances.
The smart people let the experts pick the market – thats who your fund manager employs, the customer is not always right.
My advice, and its general in nature 🙂 Don’t gamble with your superannuation.
Super in Australia is a high risk gamble, nothing more. In no way can we trust the massive drops in Super funds as reflecting the true market situation – it is Super funds covering their losses by raiding our accounts.
That the government insists we contribute to Super is appalling. I plan to wait until recovery to Feb levels then empty all of my Super and use it to buy residential real estate. In that way I least have some control and am not subject to Super fund management fear and greed.
Super is a 30 year asset. The high risk gamble over this time period is not to have your money is super.
Cash is low risk over 6 months but high risk over 10 years and very high risk over 30 years.
If you keep your money in cash or 12 month term deposits over 30 years you are guaranteed to lose money. Why, because inflation will eat away at your capital.
Super, invested in a low fee balanced option will grow your money , even after inflation over 30 years. I
I find it absurd that all the while the planet has been dying and vast numbers of people have been suffering, the middle class has continued on their life style trajectories, of international flights, hotels, cruises and other types of needless consumption, pollution and carbon emissions, because they deserve it after “working so hard”. Not once did the middle class vote according to the needs of the planet, the unemployed or homeless, since there are not enough jobs to go around. First it was the pesky bush fires of 2020 that caused us great inconvenience and smoke inhalation and now the “virus we had to have”, as a cover for the white collar crime syndicates to steal your money. Led by blind ignorance and hubris, the middle class continued to support and trust the same system that rewarded them, but punished everyone else (Centrelink). One day they did awake, but only after the smoke had lifted and their money was gone. I have no sympathy, but welcome to the real world anyway comrade!
I seriously want to cry right now. I have 10 years to go before I was going to retire and my super was on track with fabulous ROI. This month I have lost over $50,000k in the last month from the stockmarket drop. One third of my super is completely wiped out.
HI Michelle
lots of working people are facing the same nightmare. I am going to retire in 4 years and my situation is worst of yours. The superannuation system IN AUSTRALIA is not safe and my question is ,why the Government encouraging all of us to put more and more in this bloody funds which are not secure ?? Doesn’t matter which way you decide to invest your money…you lose anyway. The contribution system MUST be changed like in Europe where at the end of you working life you receive the pension you deserve which will be safe until you die. The more you work the more you receive. HERE in Australia is the opposite!! PITY!!!!!