Super returns not easy
THE nation’s super funds turned negative in August as markets were hit by central banks’ efforts to contain rampant inflation.
The median balanced option delivered a return of minus 0.5 per cent in the month, driven by losses across developed markets, according to research house SuperRatings.
It comes after funds swung to a positive performance in July, with a short-lived recovery in equity markets boosting returns in the month following a volatile June.
The 12-month return figures illustrate the challenge facing the nation’s biggest investors: the median balanced option returned minus 3.8 per cent for the year to August 31, while the median growth option returned minus 4.8 per cent.
Over the month, the median growth fund returned minus 0.4 per cent.
SuperRatings executive director Kirby Rappell said investment performance in the month was hit by higher interest rates across developed markets.
“Over the month of August we have seen a slight pullback in the strong recovery in returns we saw in July. While it is a small negative result this month, this reflects the volatility across investment markets, with elevated inflation levels continuing to pose challenges across markets,” he said.
“Another interest rate rise impacted investment returns, though the silver lining here is that this may benefit retirees who are deriving an income from their pension accounts through exposure to cash.”
Central banks have been pushing through rate hikes for months in a bid to get inflation under control.
The Reserve Bank has hiked five times in as many months, pushing the cash rate from its ultra-low 0.1 per cent to 2.35 per cent to dampen demand and keep a lid on rising prices.
Economists are expecting the central bank to hike at least a couple of more times in this cycle, bringing the cash rate above 3 per cent.
Meanwhile, central banks in the US and Europe have been on a similar path to get inflation back to target, to little avail.
Inflation in the US is tracking above 8 per cent, while in Europe it sits at 9 per cent. Australia’s inflation rate is about 6 per cent.
Central banks’ interest rate push has spurred volatility in markets, pushing the local sharemarket down 15 per cent between April and mid-June, before it climbed 10 per cent in July. It gave up a portion of those gains in August.
The negative median return in August comes weeks after performance test results revealed the ‘‘dud’’ funds not delivering for their members.
Five funds failed the Australian Prudential Regulation Authority’s latest annual performance test, with MySuper offerings from Australian Catholic Super, Westpac’s BT Super, Energy Industries Superannuation Scheme and AMG Super barred from taking on new members after failing for a second year. The funds manage $28bn in retirement savings.