Australia’s super funds could end the financial year in positive territory despite recent losses

Resilient share markets helped super funds to make gains in March and get back on track to finish the financial year in positive territory.

Super funs are back on track for a positive financial year.

Australia’s superannuation funds could end the financial year in positive territory despite recent losses spawned largely by the war in Ukraine, inflation, supply chain problems and other global economic challenges.

Market analysts at research group Chant West said Wednesday that resilient share markets helped super funds to make gains in March following losses in the two prior months.

The median growth fund gained 1.1 per cent over the month, narrowing the overall decline over the quarter to 2 per cent.

“The possibility of a positive 2021/22 result is still very much alive, with the median return sitting at 2.3 per cent over the first nine months of the financial year,’’ research manager Mano Mohankumar said.

Mano Mohankumar

Kirby Rappell, executive director of research house SuperRatings, shares that view.

“We are currently on track to end the 2022 financial year in positive territory, depending on how investment markets perform over the June quarter, though performance will be far more muted than that observed in FY2021,’’ he said earlier this month.

Mr Mohankumar noted that the turnaround in March came despite a raft of concerns influencing investment markets, especially Russia’s brutal assault on Ukraine, growing inflationary pressures and rising interest rates.

“The geopolitical and economic implications of the war are still a major unknown. So far, it has resulted in an energy and commodity price shock that has amplified the surge in inflation,’’ he said.

“So central banks around the world are faced with a dilemma: either increase the pace of interest rate hikes to combat inflation or hold back on the tightening in an effort to support economic growth.”

Inflation now appears to be the more urgent threat to neutralise, Mr Mohankumar said, as evidenced by the US Federal Reserve boosting its target rate by 25 basis points and additional increases expected later this year.

“That pattern is likely to continue in the US and elsewhere unless the outlook for economic growth worsens significantly,’’ he said.

“Against this uncertain background, share markets showed great resilience in March. In particular, the Australian share market has continued its relative outperformance, buoyed by its high weighting to resource companies which have benefited significantly from rising commodity prices.

“Financials were also key contributors to the strong performance with large gains from the major banks. Over the month, Australian shares surged 6.9 per cent. While international shares didn’t fare as well, they were still up a healthy 3 per cent in hedged terms.”

Mr Mohankumar said it was clear the world had entered “a very turbulent period’’ and he warned that out-sized investment returns would be increasingly hard to source.

“Super fund members need to be reminded that they can’t expect a continuation of the returns we’ve seen over the past decade, when the median growth fund delivered 8.5 per cent per annum,’’ he said.

“That’s not sustainable and it’s not what these funds are designed to achieve. The typical long-term return objective for growth funds is to beat inflation by 3.5 per cent per annum. That translates to about 5.5 per cent to 6 per cent per annum in absolute terms, which is far more realistic in the current climate.”

Originally published as Australia’s super funds could end the financial year in positive territory despite recent losses