Strong finish to 2019 lifting superannuation returns, says Chant West

Super funds now have a good chance of finishing the year in double-digit territory, but investors shouldn’t get carried away.

Superannuation funds look set to chalk up another year of double-digit returns, but that sort of growth may not be sustainable, says Chant West. Picture: iStock

Australian super funds were up about 14.3 per cent on average for the year to mid-November, according to research group Chant West.

After getting a lift from positive global sharemarkets in October, super funds now have a good chance of finishing the calendar year in double-digit territory.

The median growth fund, which has 61 to 80 per cent of its funds in growth assets, returned 0.4 per cent in October, pushing the return for the first ten months of 2019 to an impressive 12.8 per cent.

Midway through November, that figure has increased further to an estimated 14.3 per cent, Chant West senior investment research manager Mano Mohamkumar said.

The research follows similar findings published by SuperRatings last week.

“It has been a terrific year for super funds with a double digit return on the cards for the median growth fund, which is the category in which most Australians have their money invested,” he said.

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“The performance so far is significantly better than what we could have expected at the start of the year.”

The most recent data represented a major turnaround from the December 2018 quarter, when growth funds lost 4.6 per cent and investor sentiment was decidedly negative.

Even if super fund performance retreats in the remaining six weeks of the year, a positive return for the year would represent the 10th positive calendar year out of the past eleven.

But while that would be great news for super fund members, Mr Mohankumar cautioned super fund members not to get carried away.

“The returns that funds have delivered since the end of the GFC really aren’t sustainable over the long term, and we expect more challenging times ahead,” he says.

“Given the tremendous run investment markets have had for over a decade, most asset sectors are fully valued, or close to it. and the global economic backdrop is still dogged by uncertainty.”

While there have been signs of progress in trade negotiations between the US and China, those tensions still remain unresolved and could quite easily escalate again, while Britain’s future relationship with the EU remains uncertain.

There is also the ongoing concern over the pace of global economic growth and, while central banks remain supportive, doubts are being raised about how effective they can be from here on as global growth inexorably slows.

“Whatever the outlook, Australians should take comfort that their superannuation is generally invested in well-diversified portfolios with investments spread across a wide range of asset sectors,” Mr Mohankumar said.

“The typical growth fund has more resilience built in than it did a decade ago, so it is better positioned to weather a period of investment market weakness if that eventuates.”