Super funds continued their positive start to the new financial year in August on the back of surprisingly resilient global share markets. Not surprisingly, funds with high exposure to shares were the top performers.
The median growth fund (61% to 80% growth assets) returned 1.7% in August, taking the return for the first two months of 2020/21 to 2.7%.
Chant West senior investment manager, Mano Mohankumar says that after losing 12% over February and March when the impact of COVID hit hard, the median growth fund has since returned an impressive 9.5% on the back of a “surprising” share market rally.
“Listed share markets, which are the main drivers of growth fund performance, had a terrific month in August. Australian shares returned 3%, while international shares surged 5.8% in hedged terms,” he says. However, a stronger Aussie dollar (up from US$0.72 to US$0.74) trimmed that gain to 2.9% when no currency hedging is in place.
“In the US, share markets hit a new all-time high despite the US-China trade tensions worsening. Markets were driven instead by optimism about the development of COVID-19 vaccine, the Federal Reserve’s ongoing commitment to providing support measures and the release of economic data that showed some modest signs of recovery.”
In Australia, Mohankumar says the focus was on Victoria’s controversial but successful drive to lower COVID case numbers and the extension of the Federal Government’s JobKeeper and JobSeeker support measures.
There are signs though that the share rally may be running out of steam, along with increased volatility in September as economic and political uncertainties reassert themselves. “
“The global economy is in recession, but we don’t know what pattern the downturn and eventual recovery will take. Trade tensions between the US and China continue to escalate and of course we have the US election less than seven weeks away. Meanwhile in Europe the final Brexit arrangements are still up in the air,” he says.
The following table shows the median super performance across various timeframes for five investment categories.
Super fund performance (Results to 31 August 2020)
|
Fund Category (% Growth Assets) |
1 mth (%) | 3 mths (%) | FYTD (%) |
1 yr (%) |
3 yrs (% pa) |
5 yrs (% pa) |
7 yrs (% pa) |
10 yrs (% pa) |
15 yrs (% pa) |
|---|---|---|---|---|---|---|---|---|---|
| All Growth (96-100%) | 2.9 | 5.3 | 4.2 | 1.1 | 7.2 | 7.6 | 8.6 | 9.0 | 6.6 |
| High Growth (81-95%) | 2.2 | 4.3 | 3.3 | 1.1 | 6.8 | 7.4 | 8.1 | 8.7 | 6.7 |
| Growth (61-80%) | 1.7 | 3.6 | 2.7 | 1.3 | 5.9 | 6.7 | 7.2 | 7.7 | 6.3 |
| Balanced (41-60%) | 1.2 | 2.8 | 2.0 | 1.0 | 4.8 | 5.2 | 5.9 | 6.4 | 5.5 |
| Conservative (21-40%) | 0.7 | 1.9 | 1.3 | 1.2 | 4.0 | 4.3 | 4.9 | 5.3 | 5.0 |
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 + 4.75% 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!!!!!