Super members are expected to see a negative return from their funds for 2022

Super funds are on track to end 2022 in the red, notching up their worst annual performance in 14 years and more volatility is tipped for 2023.

Super funds are this year expected to deliver the worst return since the Global Financial Crisis after navigating soaring levels of inflation and market volatility, a top superannuation research house says.

SuperRatings estimates the median balanced option fund will generate a return of minus 2.5 per cent to minus 3 per cent for the year, with just several trading days remaining.

That would make it the worst performance since 2008 during the GFC when the median balanced option fund slumped minus 19.7 per cent. The 2022 result is on track to be only the fourth negative return in the past 22 years.

This dip comes on the back of a strong year in 2021 when funds notched up a 13.4 per cent return.

SuperRatings market insights manager Camille Schmidt said that despite an improvement in equity market sentiment in the past few months which has helped in recuperating some of the losses from earlier in the year, an overall annual positive return result was unlikely for the majority of funds.

“Despite some positive returns in October and November, funds just missed out on getting back into the black for the 2022 year, however the result is still stronger than what was being predicted earlier in the year,” she said.

“There is a real chance that funds will manage to provide a positive return for the 2023 financial year, with much of the downturn for 2022 occurring in the first half of the year.”

The Reserve Bank of Australia has lifted the cash rate eight times. Picture: Getty Images

According to SuperRatings estimations, the median balanced option generated a return of 2.6 per cent in November while the median growth option increased by 3.2 per cent.

The median stable option also experienced a small but positive growth last month with a rise of 1.6 per cent.

For the upcoming year, how super funds will perform will depend on the interest rate path central banks opt for and how quickly inflation rises, SuperRatings says.

“If super funds achieve long-term average returns around the CPI+3 per cent mark for balanced options over the long term, then I think that would be a good outcome,” Ms Schmidt said.

Research experts at Chant West have estimated a minus 4 per cent return for the median growth fund for the year to date.

Chant West senior investment research manager Mano Mohankumar said the performance was helped by growth in November from the share and bond markets, when the median growth fund, holding 61 to 80 per cent in growth assets, increased 2.6 per cent over the month.

Chant West senior investment research manager Mano Mohankumar.

“Over the month (November), Australian shares surged 6.5 per cent, international developed market shares were nearly as strong gaining 5.6 per cent in hedged terms, but the stronger Australian dollar limited the gain to 2 per cent in unhedged terms,” Mr Mohankumar said.

“After underperforming for much of the year, emerging markets shares were the strongest performing sector, gaining a stunning 9.6 per cent.”

Source: SuperRatings

While inflation remains high, during the coming year there could be a turnaround as price peaks were estimated to have been reached in the US and Europe – which could result in smaller interest rate rises in Australia.

“Remember that this year’s result follows a particularly strong 2021 when growth funds returned an impressive 13.5 per cent and despite the challenging backdrop over the past three years, the medium growth fund is still more than 11 per cent ahead of the pre-Covid high that was reached at the end of January 2020,” Mr Mohankumar said.