Super funds have failed to be rattled by the softening economic outlook, delivering solid returns in April and boosted by market momentum through early May. Despite yesterday’s correction, funds remain on track to beat expectations for the June quarter, which is historically the weakest period of the year.
According to estimates from leading superannuation research house SuperRatings, the typical balanced option return was 1.7% in April, mostly driven by gains in Australian and international share markets. This brings the financial year-to-date return to 5.3%, which remains beaten down due to large market falls in the December quarter.
Members in a growth option have enjoyed an even stronger result, with an estimated median return of 2.1% in April. The typical Australian shares option rose 2.3% while the median international shares option grew by an estimated 3.8%.
|Period||Accumulation returns||Pension returns|
|Month of April 2019||1.7%||1.8%|
|Financial year return to 30 April 2019||5.3%||6.0%|
|Rolling 1-year return to 30 April 2019||6.5%||7.8%|
|Rolling 3-year return to 30 April 2019||8.5%||9.4%|
|Rolling 5-year return to 30 April 2019||7.6%||8.2%|
|Rolling 7-year return to 30 April 2019||8.8%||10.0%|
|Rolling 10-year return to 30 April 2019||8.7%||9.7%|
|Rolling 15-year return to 30 April 2019||7.7%||8.5%|
|Rolling 20-year return to 30 April 2019||7.1%||–|
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.
It remains to be seen if super funds can maintain their momentum in the final quarter of the 2019 financial year, but there are some dark clouds on the horizon that could dash hopes of a strong finish. Downside risks to the Australian economy, including weak inflation, falling home prices, and tighter credit conditions are taking their toll on consumer confidence, while the return of geopolitical risks in the form of US-China trade negotiations will also contribute to near-term uncertainty.
As the chart below shows, the June quarter has historically been the weakest for superannuation and tends to be a time when investors take profits and rotate out of equities. While markets have been risk-on for the past four months, there are signs pointing to volatility ahead, along with fears that markets have come too far too quickly.
Based on average per quarter returns over 10 years to March 2019
However, while there are reasons to be cautious, there is no guarantee that history will repeat itself.
“The Australian economy has entered the federal election in a relatively vulnerable position, but it’s not all bad news,” said SuperRatings Executive Director Kirby Rappell.
“We have seen strong performance from super funds since the start of 2019, and there’s no reason why this momentum can’t be sustained through to the second half of the year. But there are certainly risks to the near-term outlook, and members should not expect a bumper year for super returns.”
“Super is a long-term game, and those in the accumulation phase should not be too concerned about market volatility or periods of lower performance.”
The positive performance for super funds in April has helped to boost total balances over the ten-year period ending 30 April 2019, with $100,000 invested in the median Balanced option in April 2009 now estimated to have reached an accumulated $220,332. The median Growth option is estimated to be worth $236,587 over the same period, while $100,000 invested in domestic and international shares ten-years ago is now worth $244,679 and $274,732 respectively. In contrast, $100,000 invested in the median Cash option ten years ago would only be worth $129,835.
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