Super fund returns defy pandemic

Super funds posted positive returns in August as markets continued to rebound, but there are signs the rally could waver.

Super funds have fared better than many feared when the pandemic crisis first struck.

Super funds are defying the broader economic malaise, posting positive growth in August to extend their rebound from the pandemic crash.

The median growth-orientated fund returned 1.7 per cent over August, bringing the total return for the 2021 financial year to 2.7 per cent, according to new figures from superannuation research company Chant West.

It means the median growth fund has recovered 9.5 per cent of the 12 per cent that was lost in February and March when the coronavirus crisis spooked markets and sent the ASX 200 crashing to a low of 4546 points.

Most Australians are invested in a growth-oriented fund, which have a 61-80 per cent exposure to growth assets.

Chant West senior investment manager Mano Mohankumar said the subsequent rebound of global markets was behind the turnaround in the fortunes of growth funds, as was a generally resilient portfolio construction.

“Listed sharemarkets, which are the main drivers of growth fund performance, had a terrific month in August,” Mr Mohankumar said.

“Australian shares returned 3 per cent, while international shares surged 5.8 per cent in hedged terms.

“However, the appreciation of the Australian dollar (up from US72c to US74c) reduced that gain to 2.9 per cent in unhedged terms.”

In the US, sharemarkets hit a new all-time high despite US-China trade tensions worsening.

“Markets were driven instead by optimism about the development of a COVID-19 vaccine, the Federal Reserve’s ongoing commitment to providing support measures and the release of economic data that showed some modest signs of recovery,” Mr Mohankumar said.

“Super fund members should take comfort in that fact that their funds generally run well-diversified portfolios that have proved to be resilient in the face of external shocks.”

Balanced and conservative oriented funds also performed well and recorded positive growth over August.

Balanced funds recorded positive growth of 1.2 per cent for the month on average, while conservative funds recorded growth of 0.7 per cent.

It brings their return over the financial year to date to 2 per cent and 1.3 per cent, respectively.

Fund members who have defaulted in a MySuper “life cycle” product, which progressively de-risks a member’s investment balance as they age closer to retirement, also saw positive growth between 0.8 per cent and 2.1 per cent, depending on the decade of their birth.

Overall, growth funds remain well above their long-term target of annual real growth of 3.5 per cent, growing on average by 5.8 per cent a year since the introduction of compulsory super in 1992.

Looking ahead to September, Mr Mohankumar said there were signs of the market rally wavering, but the downward trends of COVID-19 cases in Victoria and continued government support of the economy would provide confidence.

“Over the first half of September we’ve seen signs of that rally wavering along with increased volatility, which doesn’t come as a surprise given the level of economic and political uncertainty,” he said.

“Back at home, all eyes have been on Victoria’s second wave of infections and the state government’s lockdown measures which, while controversial, have resulted in case numbers heading in the right direction.

“The federal government continues to provide massive financial support, with the JobKeeper and JobSeeker programs extended to help the economy get back on a path to recovery.”