“They said we’d never make it”… but in a remarkable turnaround super funds sprinted home to finish 2020 on a positive note after weathering some of the most challenging conditions in living memory.
The median Growth fund (61% to 80% growth assets), where most Australians have their super, was up 1% in December and 3.7% for the year. The top performing growth fund – Suncorp Multi-Manager Growth – was up 9.6% and the top 10 performers were all up more than 5%.
Chant West senior investment research manager, Mano Mohankumar says the prospect of finishing up 3.7% would have been inconceivable back in March when the pandemic threatened to push the global economy into recession.
“Over February and March, major sharemarkets took a beating and the median Growth fund plummeted 12%. Markets rallied from that point, however, and growth funds rode the rally to surge 15.4% over the remaining nine months of the year.”
Mohankumar says the two key messages of 2020 for super fund members were patience and diversification.
“Members who sat tight generally did OK. Sadly, there were many others who panicked with markets fell and switched their investments to cash or a more conservative option. Not only would they have crystallised their losses, but they would also have missed out on some or all of the subsequent rebound.”
Super funds also benefitted from diversification. While global sharemarkets plunged by as much as 35% in February/March, super funds with an allocation across a wide range of assets classes contained their short-term losses.
“At the same time, (Growth funds) still have a sizeable allocation to listed shares – about 54% on average – so they’re able to benefit when those markets do well, as we saw from April to December,” says Mohankumar.
In fact, he says the better performing funds were those with a higher allocation to international shares. “Holding bonds rather than cash would also have helped, as would a relatively low exposure to listed infrastructure and listed property.”
The following table shows the median super performance for five investment risk categories across various timeframes.
Super fund performance (Results to 31 December 2020)
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 produced positive returns for 2020, ranging from All Growth (up 4.1%) to Conservative (up 2.4%..
While the latest annual return will be a relief to many, Mohankumar reminds fund members to think long term.
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% per year. The annual CPI increase (a measure of inflation) over the same period is 2.4%, giving a real return of 5.7% per year. This is well above the typical 3% to 4% 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 6.7% per year, well ahead of the typical return objective.
After last year’s heroic effort, Growth funds have produced positive returns in 16 of the past 20 calendar 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