Superannuation funds into positive territory for July on coronavirus support

A healthy return in July was largely on the back of international shares, mainly driven by the US market.

While super funds are off to a good start for the new financial year, there are some major hurdles ahead.

A lift in sharemarkets on the back of unprecedented support from central banks around the world in the wake of the coronavirus crisis sent superannuation funds into positive territory for July.

The median growth fund – which is made up of between 61 per cent and 80 per cent in growth assets – gained 1 per cent in July, according to the latest figures released by superannuation company Chant West. That compared to a negative return of 0.6 per cent for the 2020 financial year.

“The healthy return in July was largely on the back of international shares which advanced 4 per cent in hedged terms, mainly driven by the US market,” said Chant West senior investment research manager Mano Mohankumar.

“Despite US economic data confirming the severity of the downturn, a strong wave of new COVID-19 infections and ongoing trade tensions between the US and China, the US sharemarket powered ahead.

“This was mainly driven by strong earnings announcements from major technology companies such as Amazon, Apple and Facebook, which saw the tech-centric NASDAQ index reach a record high.”

Mr Mohankumar cautioned that while super funds were off to a good start to the new financial year, there are some major hurdles ahead.

“For a start, we still have no idea how long and deep the current global recession will be,” he said.

“Sharemarkets have risen, but that is partly due to unprecedented support from central banks worldwide which have been pouring liquidity into the system.

“Having said that, we have started to see signs of the share market rally wavering in some regions, and we expect volatility to continue.”

Still, Mr Mohankumar said that super fund members should take comfort from the experience last financial year, which he said provided a reminder that members are invested in well-diversified portfolios that works to cushion the impact during periods of sharemarket weakness.

According to ChantWest’s analysis, the median growth fund has delivered a return of 7.9 per cent per annum since the introduction of compulsory superannuation in 1992. The CPI increase over the same period is 2.3 per cent.

“Even looking at the past 20 years, which now includes three share major market downturns – the ‘tech wreck’ in 2001–2003; the GFC in 2007–2009; and now COVID-19 – the median growth fund has returned 6.3 per cent per annum, which is ahead of the typical return objective,” ChantWest said.