- Looking back at monthly returns for the 2015/2016 financial year
- Investment commentary for June 2016
- Long-term return of 7.86%, over 24 years
- Growth vs balanced investment performance
- Performance tables for 5 main investment options
- Table 1: Diversified Fund Performance: Results to 30 June 2016
- Industry funds outperform retail funds over longer term
- Table 2: Industry funds vs retail funds (Growth fund performance to 30 June 2016)
The median superannuation growth fund gained 3% in value for the 12 months to 30 June 2016, although the median fund lost 1% for the month of June, according to superannuation ratings agency, Chant West.
The 1% median loss in June 2016, follows the 2.3% gain in May 2016, the 1.4% gain in April 2016 and the 1.8% gain in March 2016, but follows the 0.4% loss in February 2016, and the heftier 2.3% loss in January 2016 for the median growth superannuation fund. Refer to other SuperGuide articles for previous monthly performance figures.
According to Warren Chant, director of Chant West, the 2015/2016 financial year was a “great example of the benefits of diversification at play”. He says, “Of the main asset sectors, Australian shares only just made it into positive territory and global shares lost ground, but despite that the median growth fund still produced a return of 3%”.
Chant explains that the positive return of 3% was due to super funds being so well diversified “across a wide range of growth and defensive asset sectors, including alternative and unlisted assets, they can successfully smooth out returns when listed share markets are struggling”.
“While this year’s return is significantly lower than the previous three years (15.6% in 2012/2013, 12.8% in 2013/2014 and 9.8% in 2014/2015), member shouldn’t be too disappointed with the result given that super funds are faced with a very uncertain global political and economic environment,” says Chant.
Performance tables to 30 June 2016, for the 5 main investment options offered by super funds, are set out later in this article. Investment returns spanning up to 15 years are also listed in the table.
Looking back at monthly returns for the 2015/2016 financial year
Although the 2.3% median return delivered in July 2015 and the 3.2% gain in value in October 2015, offset the loss in value suffered in August 2015 (loss of 2.9%) and September 2015 (loss of 1.1%), and notwithstanding the moderate loss in November 2015 (loss of 0.3%) and the moderate gain in December 2015 (gain of 0.1%), the loss of 2.3% in January 2016, and loss of 0.4% for February 2016, meant that the median growth fund had lost 1.6% for the first eight months (July to February) of the 2015/2016 financial year, according to Chant West. The gain in value of 1.8% for March 2016, and the further gain of 1.4% for April 2016 and 2.3% for May 2016, meant that that the median growth fund was sitting on a positive return of 4.0% for the 11 months to May 2016. The loss of 1% in value for the month of June 2016 meant that the median superannuation growth fund gained 3% in value for the 12 months to 30 June 2016.
Note: The slight discrepancy in monthly median results, and the 12-month median result is due to measuring the median fund for each period. A return for a median super fund is the return for the fund in the middle of the list of funds assessed by the ratings company.
Investment commentary for June 2016
Australian shares delivered mediocre results for the year gaining only 0.9% in value for the year, and a loss of 2.4% during June 2016. The asset class delivering the main contribution to the 3% annual result was Australian listed property gaining a massive 24.6% for the year, and 3.5% for the month of June 2016, according to Chant West. International Listed Property gained 3.5% for the month of June, and 12.3% for the 12 months to June 2016.
Over the same month (June 2016), international shares (hedged) lost 1.3% in value, while unhedged international shares lost a massive 3.8% in value, in a month. The large loss on unhedged international shares (compared with the smaller loss for hedged international shares) was due to the Australian dollar appreciating in value against the US dollar. Looking over the 12 months to June 2016 however, international shares (unhedged) (gain of 0.4%) performed better than hedged international shares (loss of 2.7%), although neither result could be considered a strong performance. The depreciation of the Australian dollar over the 12 months (down US$0.77 to US$0.74) meant that unhedged international shares outperformed hedged shares.
Note: The majority of international share investments held in super funds are unhedged, although you will need to check your individual super fund’s policy on hedging. Briefly, when a super fund fully hedges your international investments against movements in the Australian dollar or foreign currency, your investment return is solely based on the merits of the investment rather than the strength or otherwise of the Australian dollar.
Chant has previously advised fund members not to panic when they see media reports about share markets falling sharply. He said: “[fund members] need to remember that growth funds, which most Australians are invested in, typically only have about 55% of their assets in listed shares and REITs. These funds are diversified across a wide range of other assets as well, including alternative and unlisted assets that are far less volatile…”.
More recently, Chant says that fund members have had a particularly good run since the ending of the GFC: “Even including this more subdued year, the median growth fund has delivered a cumulative return of about 80% over the past seven financial years, or an average of 8.8% per annum. That’s about 6.5% above the annual rate of inflation, so it’s comfortably ahead of the typical longer-term return objective for these funds which is to beat inflation by between 3% and 4% annually.”
Note: The next few paragraphs provide a summary of annual returns over the past 7 years. If you want to go directly to the performance tables to 30 June 2016, for the 5 main investment options offered by super funds, then scroll down the page. Investment returns spanning up to 15 years are also listed in the table.
Long-term return of 7.86%, over 24 years
According to Chant West, since the introduction of compulsory 24 years ago, median growth funds have delivered an annualised return of 8.1 for the 24 years up to the end of the 2015/2016 financial year. With the long-term annual CPI (inflation) running at 2.5% a year, the long-term return after inflation is 5.6% a year, which is ahead of the typical return objective, to beat inflation by 3% or 4% a year.
When I divide the total returns (minus the investment losses) over the 24-year period, I reach an average annual median return of 7.8625%, rounded to 7.86%.
Financial year performance: The median growth superannuation fund has delivered a positive return for each of the past 7 financial years, and according to SuperGuide calculations, translates into average annual return of 8.76% (which Chant West has rounded up to 8.8%. Chant West has outlined the performance for median growth super funds for the past 7 financial years as follows:
- 3.0% for 2015/2016 year
- 9.8% for 2014/2015 year
- 12.8%, for 2013/2014 year
- 15.6%, for 2012/2013 year
- 0.5%, for 2011/2012 year
- 9.2%, for 2010/2011 year
- 10.4%, for 2009/2010 year
Reminder: A financial year runs from 1 July to 30 June of the following year. A calendar year runs from 1 January through to 31 December.
Calendar year performance: Although the discussion above relates to financial year performance (July to June of the following year), it may also be useful to look at past calendar year (January to December) performance. Looking back at super fund returns, the median growth superannuation fund has delivered a positive return for each of the past 4 calendar years, and according to SuperGuide calculations, translates into average annual return for that 4-year period of 11.1% (5.8% for 2015, 8.5% for 2014, 17.2% for 2013, and 12.8% for 2012).
Based on previous comments made by Warren Chant of Chant West, and updating these comments with reported results since December 2011, growth funds have delivered 40 positive monthly returns out of 54 up to June 2016. The month of June 2016 resulted in a loss in value of 1%.
See performance tables below (listing returns for 1 month, 3 months, 1 year, 3 years, 5 years, 7 years, 10 years and 15 years) to 30 June 2016. The tables appear immediately after the explanation of a growth investment option, a balanced investment option, a default investment option, and a median fund.
Growth vs balanced investment performance
Background: Based on Chant West’s rankings, a growth fund typically holds between 61% and 80% in growth assets, such as shares and property. A return for a median fund 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 balanced/growth asset allocation is the default option for most large super funds which means that the majority of 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.
Note: 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.
Performance tables for 5 main investment options
The table below lists the performance figures for the five main asset allocations for: 1 month, 3 months, 1 year, 3 years, 5 years, 7 years, 10 years, and 15 years to 30 June 2016.
1-month returns: Over the 1 month period to June 2016, only one median investment option delivered a positive return, with the Conservative option gaining 0.2% in value. The median All Growth investment option lost the most in value (minus 2.2%), followed by the High Growth option (minus 1.5%) and then the Growth option (minus 1.0%). The Balanced option lost 0.4% in value for the month of June 2016.
Returns for the 2015/2016 year: Over the 12-month period to 30 June 2016, the median Conservative investment option outperformed all other investment options with a gain in value of 3.6%. The Balanced investment option followed with a gain of 3.1%, and then the Growth option with a gain in value of 3.0%. The High Growth option gained 2.8% in value, while the All Growth option gained a measly 0.2% in value for the 12 months to 30 June 2016.
Medium-term returns: Over the medium-term, the median All Growth fund performed consistently, being the top performer for 3 years to June 2016 (9.6% a year), and for 5 years (9.2% a year), and for 7 years (9.6% a year) to 30 June 2016. The median All Growth fund was outperformed by lower risk options over 10 years and 15 years.
Long-term returns: Over the 10-year period and the 15-year period, unusually, the All Growth option delivered the poorest returns. Over the 10-year period, the All Growth option (4.8% a year) was outperformed by all other options, with the Growth option (5.3% a year) being the top performer, closely followed by the High Growth option (5.2%), the Balanced option (5.1%) and the Conservative option (5.1%). For the 15-year period to 30 June 2016, the All Growth option delivered 5.1% a year, compared with 6.3% a year for the High Growth option, 6.2% for the Growth option, 5.7% for the Balanced option and 5.5% for the Conservative option.
According to previous comments from Chant West, relating to previous years and months, the performance figures for the 7-year period had been weighed down by the ‘GFC effect’, although these returns “have improved significantly as the GFC period has nearly worked its way out of the calculation”. Looking at the figures now, ChantWest notes that the GFC effect is now weighing down the 10-year and 15-year returns.
Table 1: Diversified Fund Performance: Results to 30 June 2016
|Fund category||Growth assets (%)||1 mth (%)||3 mths (%)||1 yr (%)||3 yrs (% p.a.)||5 yrs (% p.a.)||7 yrs (% p.a.)||10 yrs (% p.a.)||15 yrs (% p.a.)|
Note: Performance is shown net of investment fees and tax. It does not include administration fees or adviser commission.
Source: Chant West 19 July 2016 media release
Industry funds outperform retail funds over longer term
According to Chant West, the growth investment options for industry funds (4.3%) outperformed retail funds (1.9%) for the 2015/2016 financial year, more than doubling the return delivered by retail funds, although both returns are below average.
For the 3 months (quarter) to 30 June 2016, industry funds again outperformed retail funds, with industry funds gaining 3.0% in value, and retail funds gaining 2.5% in value.
Over all time frames to June 2016, industry funds have outperformed retail super funfd.
Over 3 years to June 2016, industry funds (8.9%) outperformed retail funds (8.1%), and over 5 years to June 2016, industry funds (8.5%) again outperformed retail funds (8.0%).
Over 7 years to June 2016, Industry funds (9.0%) again outperformed retail funds (8.6% p.a.).
Note: Over 10 years and 15 years to the end of June 2016, industry funds outperformed retail funds, according to Chant West. Over the 15-year period, industry funds delivered 6.8% a year, compared with 5.5% a year from retail super funds – a difference of 1.3% a year for 15 years. Over the 10-year period, industry funds delivered 5.7% a year, compared with 4.9% from retail funds.
Table 2: Industry funds vs retail funds (Growth fund performance to 30 June 2016)
|Segment||1 mth (%)||3 mths (%)||1 yr (%)||3 yrs (% p.a.)||5 yrs (% p.a.)||7 yrs (% p.a.)||10 yrs (% p.a.)||15 yrs (% p.a.)|
Note: Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions.
Source: Chant West 19 July 2016 media release