Superannuation fund returns expected to be flat this financial year, says Chant West
Even if super returns come in negative this financial year, it would only be the fourth negative year in 28.
Superannuation research company Chant West found there was a growth spurt in funds through May, despite volatility in the sharemarket during lockdown and the economy’s move into recession with the effects of the coronavirus crisis.
Chant West said median growth funds gained 2.2 per cent over the month, with continued rises in June expected to bring a flat line return for the 2020 financial year.
Chant West senior investment researcher Mano Mohankumar said a yearly return of zero would be an excellent outcome given the impacts of the pandemic on Australia’s near $3 trillion retirement pool.
“One key reason that funds appear headed for a better than expected result is that they manage well-diversified portfolios invested across a wide range of growth and defensive asset sectors including, for many, a meaningful allocation to unlisted and alternative assets,” Mr Mohankumar said.
However, Chant West flagged sharemarket rises in April and May would probably not be enough to offset declines to MySuper products in February and March.
MySuper products group investments within age demographic cohorts. They showed the overall fall at 1 per cent year-to-date.
According to Chant West, people holding life-cycle MySuper products usually hold their wealth in growth portfolio categories.
Younger MySuper account holders experienced the largest gains in May, with both the 1990s and 1980s age demographics increasing by 2.9 per cent.
The 1970s bracket increased by 2.8 per cent over the month, while the 1960s cohort experienced a 2.3 per cent rise.
All MySuper cohorts except for the 1940s age bracket are still tracking negatively with respect to year-to-date growth.
“While this financial year’s result may still finish in the red, it’s important to remember that funds have had an unprecedented run since the Global Financial Crisis (GFC), returning an impressive 8.4 per cent per annum since the GFC low point in early 2009,” Mr Mohankumar said.
Growth portfolios in traditional diversified funds also experienced a 2.2 per cent increase over the month, however year-to-date performance came in at negative 1.1 per cent.
Higher risk exposures
Portfolios with higher risk exposures had the biggest increase in May, with all-growth portfolios recording an upswing of 3.2 per cent. However, monthly gains have been overshadowed by the overall impacts of the downturn, which has seen a year-to-date fall of 3 per cent for the investment category.
Conservative portfolios year to date are up 0.4 per cent, while balanced portfolios are down 0.5 per cent over the same period.
Chant West said long-term fund performance remained on target, with median growth investments currently giving a real return of 5.6 per cent - above market expectations of 3.5 per cent.
“Even if the current financial year does finish in negative territory, it would only be the fourth negative year in 28, an average of one every seven years,” Chant West said.
“The typical risk objective for growth funds is no more than one negative year in five, so even if this year is negative it will still be well within the expected risk parameters.”
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