AustralianSuper’s returns have gone negative for the first time since the Global Financial Crisis

Millions of superannuation fund members across the nation are staring down the barrel of their first negative returns since the Global Financial Crisis.

Millions of superannuation fund members across the nation are facing their first negative returns since the Global Financial Crisis, with estimates of the potential dip in retirement savings as high as 5 per cent.

The nation’s largest fund, AustralianSuper, kicked off the super fund reporting season on Monday by telling its 2.7 million members that its balanced option – which 90 per cent of them are invested in – delivered a return of negative 2.73 per cent for the financial year.

This is better than expected from the industry across the board, with estimates from analysts polled by The Australian ranging from a 3 per cent fall to as much as 5 per cent for the most popular balanced options.

And all are warning that the strong rebound in super fund returns that occurred in the 2021 financial year is unlikely to be replicated soon, as interest rate increases, inflation and global political turmoil continue to unsettle investment markets.

AustralianSuper delivered the first negative return for its balanced fund since 2009, when member balances fell 13.3 per cent in the wake of the GFC.

Unlike many funds that turned negative as the pandemic hit in the 2020 financial year, AustralianSuper squeaked over the line with a 0.52 per cent return in that period, before delivering a barnstorming 20.43 per cent in 2021.

But the fund’s chief investment officer Mark Delaney is warning members not to expect similar results, saying returns will be “more modest” over the medium term.

“After more than 10 years of economic growth our outlook suggests a possible shift from economic expansion to slowdown in the coming years,’’ Mr Delaney said. “In response, we have started to re-adjust to a more defensive strategy, as conditions become less supportive of growth asset classes such as shares.’’

Mr Delaney pointed out that the balanced fund had returned 9.32 per cent annually over the past decade, and urged members not to react to short-term volatility. “As a long-term investor, we know from experience that while periods of market volatility can be unsettling, they also create new investment opportunities,’’ Mr Delaney said. “AustralianSuper is actively looking for investment opportunities that have been mispriced by the market in the short term, while also making new investments where we see long-term value.’’

Mr Delaney said that members invested in the fund’s balanced option for the past 20 years would have more than quadrupled their retirement savings. AMP Capital chief economist Shane Oliver said balanced funds were estimated to have fallen between 3 and 5 per cent, as events conspired to deny fund managers traditional defensive plays such as bonds.

“Thanks to central bank monetary tightening on the back of the worst inflation break-out in decades, not helped by the invasion of Ukraine, bond yields surged over the last financial year (resulting in an 8-10 per cent loss for bonds) and shares fell (with Australian shares returning minus 6.5 per cent and global shares returning around minus 10 per cent),’’ Dr Oliver said.

Chant West senior investment research manager Mano Mohankumar said his organisation was expecting the median balanced fund to return between negative 3.5 and negative 4 per cent.

“Those are the investment options that have between 61 and 80 per cent allocated to growth,’’ he said. “It has been a particularly interesting year in that shares have retreated … and Aussie bonds were down double digits and global bonds were down a fraction lower than that. So bonds didn’t play the traditional diversifier role over the last 12 months which they have played in previous periods of sharemarket weakness, so it has been an incredibly ­challenging year.’’

Mr Mohankumar said it was also notable that the difference in performance between balanced options – which are weighted to growth – and more conservative investment settings was expected to be much narrower than in previous years. “That differential may only be a little more than 1 per cent, say,’’ he said.

“Again that comes down to the fact that bonds are down, in or near, double-digit territory.’’

In the case of AustralianSuper, the balanced and conservative balanced options returned almost identical figures, with the latter returning a fall of 2.9 per cent for the past financial year.

SuperRatings executive director Kirby Rappell said his organisation was predicting a 3 per cent decline for most balanced funds, with AustralianSuper tending to outperform its peers.

Mr Rappell said that from the bottom of the GFC to just before Covid, “the consistency of returns on the upside has been pretty strong’’. “We don’t expect to see repeats of those more bullish returns (such as the 2021 result),’’ he said.

Mr Rappell said fund members should not be trying to time the market, and a period of increased volatility was likely.

“If you look over a two-year period super returns remain pretty strong. We were looking at a negative 5, negative 6 per cent return … halfway through June so it’s come back a fair bit in the positive,’’ he said.

Mr Rappell said over the long term a bias towards growth had paid off for fund members.

Dr Oliver said among asset classes, commodities had a good run until March but, except for oil, had come under pressure in the June quarter.

Cryptocurrencies, which had been touted as a hedge against inflation, had crashed, and gold was down from its highs.

“I think it will remain volatile and I would also caution against expecting a bounce-back to the very high returns we saw pre-pandemic,’’ Dr Oliver said.

“I reckon over the next 12 months we will see a rebound but it’s not going to be as strong as the 2020-21 period.

“The environment that we’ve been in for the last few decades – very low inflation and ever-lower interest rates – it does seem as if that environment may be over, so that’s going to act as a constraint on returns as well.’’

There are 23.2 million superannuation fund accounts in Australia, with the largest asset allocations international shares at 27 per cent and Australian shares at 24 per cent.

AustralianSuper has more than $261bn under management and 2.7 million members from more than 398,000 businesses.

By the numbers

• AustralianSuper’s balanced option has returned 5.59 per cent per annum over three years, 7.28 per cent a year over five years, 9.32 per cent a year over 10 years, and 6.13 per cent a year over 15 years.

• $100,000 invested with the balanced option 20 years ago would now be worth $453,258

• More than 90 per cent of fund members are invested in the balanced option.

Originally published as AustralianSuper’s returns have gone negative for the first time since the Global Financial Crisis