DateAugust 20, 2018
Australia’s superannuation funds are participating in the global share market rally, with big gains from US and European markets showing up in members’ accounts and providing a promising start to the 2018-19 financial year.
According to SuperRatings’ data, the median balanced option grew at an estimated 1.1% in July, while the median growth option delivered 1.3%. The results compare favourably to the average monthly return over the past five years, which is around 0.7% for both balanced and growth options, meaning super funds have entered the new financial year in good shape.
Australian shares continued to build through July, but it has been the significant outperformance of global shares that has provided the kicker to super returns. Super funds with global exposure have been able to take advantage of the strong momentum on the back of the US and European earnings season, which saw the SR50 International Shares Index jump 2.2% in July, compared to a 1.1% rise in the SR50 Australian Shares Index.
Interim results only. Median Balanced Option refers to ‘Balanced’ options with exposure to growth style assets of between 60% and 76%. Approximately 60% to 70% of Australians in our major funds are invested in their fund’s default investment option, which in most cases is the balanced investment option. Returns are net of investment fees, tax and implicit asset-based administration fees.
“Super funds have ridden a wave of positive sentiment over the past few months, and this has been reinforced by strong earnings growth, especially in the US and Europe,” said SuperRatings CEO Kirby Rappell. “Despite the imminent threats to the market rally, from trade wars to Brexit to the emerging economic crisis in Turkey, nothing seems to be putting a dent in confidence.”
Locally, share performance has been less impressive, in part due to the financial sector, which took a beating during the Banking Royal Commission. But the great strength of the super system is that it can diversify across different asset classes, including global shares, fixed income and property.
Best and worst performing balanced options to 31 July 2018*
*Interim results only
Spectre of GFC still haunting super returns
Over the last ten years the median balanced option has returned 6.7% p.a., meaning an account balance of $100,000 at the end of July 2008 has now accumulated to $183,158. Growth members have enjoyed some extra upside, with the same starting balance growing to $187,571.
Ten-year returns remain impacted by the Global Financial Crisis (GFC), which began hitting super returns hard in September 2008. Over the six-month period between September 2008 to February 2009, the median balanced option fell 18.5%, while the median growth option experienced a drawdown of 23.2%.
Growth in $100,000 invested for 10 years to 31 July 2018*
*Interim results only
“The ten-year return figure includes the six months of severe pain for super members at the start of the GFC,” said Mr Rappell. “Once these acute negative returns fall out of the 10-year return period, we will start to see a noticeable lift, which will provide a truer picture of the health and stability of super funds over the long term.”
Top 20 super funds
SuperRatings’ data shows HOSTPLUS was the best performing balanced option for the 2017-18 financial year, returning 12.5%, followed by AustSafe on 11.4% and AustralianSuper on 11.1%.
Over 10 years, the results show UniSuper narrowly moving ahead of both CareSuper and Rest in the balanced option rankings, while Equip has moved up into third sport. Each has returned well over 7.0% p.a. over the past 10 years, compared to the median balanced option return of 6.5% p.a.
*Interim results only
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