Not such a super year for funds

On track for rare negative return

AUSTRALIAN super funds lost ground in April amid ongoing global sharemarket volatility and are heading towards a potential negative performance for the financial year.

Research house Chant West estimated that the median growth fund (61 to 80 per cent in growth assets) was down 1.2 per cent in April, after notching up a 1.1 per cent gain the previous month.

For the 10 months of the financial year to the end of April, the median growth fund return has been pegged back to 1.2 per cent.

“With share markets down so far in May we estimate that, with only about six weeks remaining, the financial year return is near breakeven, at -0.5 per cent,” Chant West says. If growth funds finish the financial year in negative territory, it will only be the fifth time since the introduction of compulsory super in 1992, it says. Funds last fell in 2019-20, then had a bumper year in 2020-21, their second best on record, with returns of 18 per cent.

Chant West senior investment research manager Mano Mohankumar said super fund members should feel comfortable about how well super funds could navigate through tough times.

“The last time we saw a loss was in 2020 and it was limited to 0.6 per cent despite the Covid-induced share market meltdown in February/ March 2020,” he said.

“Super fund members need to remember that super is a long-term investment and not to get distracted and caught up in the short term.

“If you make decisions based on short-term outcomes, you can actually hurt your long-term investment.”

Analysts at research house SuperRatings calculated the median balanced fund option fell 1.1 per cent in April.

“It is challenging to say whether super funds will end the financial year to 30 June 2022 in the red or the black at this stage, as it could go either way,” said SuperRatings executive director Kirby Rappell. “However, we have seen funds continue to deliver above their investment objectives over the longer term which typically sit around CPI plus 3 per cent. Sticking to a long-term strategy and blocking out short-term noise is as important as ever, with long-term performance being what really matters.”

The benchmark Australian share index, the ASX 200, has dipped almost 1.8 per cent for the financial year to date, as the war in Ukraine, rising global interest rates to tackle inflation and China’s harsh Covid lockdowns take a toll.

Mr Rappell said rising interest rates might have a dampening effect on share prices that could impact people’s super returns but could also improve returns for members with more cash exposure as part of their investment. Mr Mohankumar said members could not continue to expect the same returns they had seen this past decade as it was not sustainable.

“Looking back over the past decade, we’ve seen an unusually strong run of returns, averaging 8.4 per cent per annum,” he said.