Coronavirus hit to superannuation not as bad as feared: Chantwest

Typical super funds will return their first negative results since the GFC this financial year, but they’ll still be in better shape than anyone expected.

Superannuation funds will suffer loses in the 2020 financial year but they will be much smaller than was expected earlier in the year.

Super funds have escaped the havoc wrecked by the coronavirus pandemic on the broader economy, with Chant West predicting an average return of -1.3 per cent for the median growth fund for the 2020 financial year.

It’s the first negative result since the global financial crisis in 2008, but Chant West senior research manager Mano Mohankumar welcomed the results, saying they were better than expected.

“Given all the medical and economic turmoil, funds have delivered a better result than many people would have expected,” he said.

“One key reason is that they maintain 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 most Australians were invested in a growth fund, with 61 to 80 per cent of capital invested in growth assets, confining larger losses and some gains to funds with a different investment mix.

Funds comprising 96 per cent or more of growth assets are predicted to return a median growth rate of -3.2 per cent, while funds with 81 to 95 per cent of their capital in growth assets are expected to return a median rate of -2 per cent.

More defensive funds are predicted to deliver a near-neutral return for the year, with balanced funds featuring a 41 to 60 per cent growth asset weighting marked to return a median growth figure of -0.5 per cent, while conservative funds with 21 – 40 per cent of capital in growth assets is predicted to return a median growth rate of 0.2 per cent.

Growth funds managed to avoid losses in line with the Australian sharemarket’s broader decline of 8.9 per cent due to exposure to better performing foreign equities.

“The typical growth fund has on average 54 per cent allocated to listed Australian and international shares, so the performance of those sectors has the greatest influence on overall returns,” Mr Mohankumar said.

“With only one day remaining, Australian shares are down 8.9 per cent over the financial year. However, international shares are actually up 2.4 per cent in hedged terms and the depreciation of the Australian dollar has pushed that up further to 4.5 per cent in unhedged terms.”

Funds weighted towards listed property assets were more likely to see a larger than average decline, with Australian REITs and global REITs down 20.3 per cent and 17.7 per cent respectively.

Australian bonds increased by 4.2 per cent, global bonds by 5.2 per cent and cash by just 0.8 per cent.

Mr Mohankumar urged fund members to keep the year’s results in perspective, with the average growth fund returning 5.6 per cent per year in real terms since compulsory Super began in 1992, despite four separate years of negative growth.

“If the current financial year finishes in negative territory as we expect, it would only be the fourth negative year in 28, an average of one every seven years,” he said.

“The typical risk objective for growth funds is no more than one negative year in five so, even if this year is in the red, funds will easily have achieved their risk objective as well as their return objective.”