Super funds kick off the financial year in positive territory

The median balanced option returned 0.9 per cent for the month of July.

Super funds are still clawing back the losses suffered through the March meltdown in financial markets.

The nation’s super funds have kicked off the financial year in positive territory but are yet to recoup all of the losses suffered through the COVID-19 market meltdown earlier this year, according to research house SuperRatings.

The median balanced option returned 0.9 per cent for the month of July, marking the fourth straight month of gains since markets went into free fall in February and March. The median growth option, meanwhile, returned 1 per cent for the month.

But the pace of the growth has slowed, with returns in April and May coming in above 2 per cent each month, compared with the less-than 1 per cent returns in both June and July.

The median balanced option, at the end of July, was 4 per cent lower than it was at the start of 2020, while the median growth option was down 5.1 per cent over the same period, the latest SuperRatings data shows. Both median balanced and growth options remain in negative territory on a one-year basis.

Super funds striving to claw back the hefty losses face a period of stark uncertainty in the near term as Australian cases of COVID-19 rise and Victoria endures harsher lockdown conditions, the research house warned.

“The outlook is still unclear but based on recent performance super funds have shown they can weather the COVID-19 storm,” SuperRatings executive director Kirby Rappell said.

“Looking at SuperRatings’ balanced option index, the sector is 4 per cent below where it was at the start of 2020.

“This is less than ideal for members, but thanks to the recovery we saw over the June quarter we have already made up a lot of ground. Hopefully this momentum can continue, and members can swiftly regain their super wealth.”

Super members should not underestimate the challenge ahead, Mr Rappell said.

“Markets are incredibly difficult to navigate at the moment. Globally, we are seeing a disconnect between the rise in share valuations and the weakness in economic data,” he said.

“Meanwhile, the low yield environment will only be exacerbated by governments issuing more debt to shore up budgets and continue providing support to those affected by the virus.”

Some super funds have also been hit hard by the government’s early super access scheme, which allows workers to take out up to $10,000 from their nest eggs this financial year, in addition to the $10,000 they were allowed to pull out last financial year.

AustralianSuper, Sunsuper, REST and Hostplus are among the funds that have been inundated with withdrawal requests from members.

As at August 2, $30.3bn had been cleared out from super accounts across the nation through the scheme, with the average withdrawal coming in at $7,695. Early access to super due to the Covid crisis was due end on September 24 but the government recently extended it out to the end of this year.

Hostplus chief executive David Elia last month partly blamed the scheme for the fund’s first negative annual return since the global financial crisis, saying it was forced to hold larger amounts of short-term liquidity to pay out members.

The $48bn Hostplus posted a -1.74 per cent return on its balanced option for the 12 months through June, well below the top performing fund, Suncorp‘s multi-manager growth fund, which returned 3.8 per cent, and below even the median return of -1.2 per cent, according to data from SuperRatings.

“This single-year return has largely been as a result of unprecedented investment market conditions and our need to carry higher levels of short-term liquidity than would otherwise be the case in order to support the Federal Government’s Early Release of Superannuation scheme,” Mr Elia said.

Despite the headwinds and recent volatility, super funds have delivered positive returns over the medium and long term.

For members putting their savings into a balanced option, a starting balance of $100,000 in 2005 would now be worth $235,877, SuperRatings said. The return for the growth option is remarkably similar over the same time frame, at $236,235.

A member with full exposure to Australian shares would have seen their balance growth to $254,188 over the fifteen-year period, while returns on cash would have seen the balance grow to $157,939.