Superannuation funds on rise after flat spell, says Chant West

Australian superannuation funds notched up a 3.1 per cent gain over the September quarter.

Funds were still having a tough time finding undervalued assets that would deliver real returns.

Australian superannuation funds have started the new financial year on the front foot, with the most commonly held type of super fund notching up a 3.1 per cent gain over the September quarter.

Superannuation consultancy Chant West said much of the positive performance occurred over July, with two months of “fairly flat” returns following.

“That’s mainly because investors are preoccupied about US interest rates and when the next rate hike will be,” Chant West director Warren Chant said.

“This nervous mood is likely to continue while there’s so much uncertainty about global interest rates, the outcome of the US election and the downstream consequences of Brexit,” he said.

Superannuation funds, which receive the lion’s share of their investment returns from listed sharemarkets, had an unexpectedly strong quarter. The local market gained 5.2 per cent while international shares rose 4.8 per cent. A rising Australian dollar, which rallied from US74c to US77c over the period, meant that unhedged returns were lower.

Mr Chant said markets were preoccupied with the timing of US Federal Reserve chairwoman Janet Yellen’s next interest rate hike, which would be the second in around a decade for the central bank.

The bank’s December committee meeting is firming as a likely candidate for the next hike.

“While this timing issue is dominating market sentiment, far more important will be the pace at which rates are increased over the next few years,” Mr Chant said.

“Closer to home, there remains concern over the pace of growth of the Chinese economy where further monetary easing is expected.”

Although equities markets were firing, Mr Chant said funds were having a tough time finding undervalued assets that would deliver real returns at the same time they faced pressure to reduce investment fees.

“They’re going to find it tough to meet their long-term objectives, and members need to remain patient in the face of returns that are likely to be lower than what they’re used to,” he said.

Union and employer-backed industry funds outperformed retail funds over the September quarter, returning 3.2 per cent against 2.9 per cent.