Superannuation returns shrink in February as war worries intensify
The stellar superannuation gains of 2021 are a distant memory as funds struggle to stay positive after dropping sharply in February.
Super fund returns sunk about 1 per cent in February and are now at risk of suffering their second negative financial year since 2020.
New data from research group SuperRatings shows the median balanced superannuation option dropped 0.8 per cent for the month as Russia’s invasion of Ukraine increased geopolitical tensions and global supply chain pressures. Balanced funds are still in positive territory for 2021-22 – up 1.4 per cent.
Growth super options – where 77-to-90 per cent of members’ money is in growth assets such as shares and property – fell 1.1 per cent in February, SuperRatings says.
Super funds last had a negative financial year in 2020, one of only four since 1992, but if the war-induced weakness persists this would be two out of three bad years.
SuperRatings executive director Kirby Rappell said there was a lot of global uncertainty and this was “amplifying ups and downs across investment markets”.
“While it’s too early to tell what the outcome will be, the rate at which we have seen this year’s financial returns slip away has started to cause concern for people,” he said.
“Since the bottom of the GFC (in 2009) we have lived in a world where the rising tide has lifted all boats, and it increasingly feels we are moving out of that world.
“The latest supply shock following the war between Russia and the Ukraine places further pressure on the cost of living and inflation levels and adds to the likelihood interest rate rises are approaching.”
SuperRatings said the increased uncertainty and market volatility could lead to more people reassessing their risk, and perhaps considering more active management.
It warned of the impact of withdrawing money during market weakness and reminded people that balanced funds had averaged returns of 8-9 per cent a year over the past decade.
“We continue to reinforce our previous messages regarding the importance of taking a long-term view when it comes to your superannuation,” Mr Rappell said.
“While the latest global events are extremely concerning, most members are decades away from retirement. This means they have time to recover from any volatility incurred in the short-term.”
Novo Wealth director and adviser Paul Garner said super fund returns were “really wobbly now”.
“We are still experiencing a positive year but it’s not going to be anywhere near last year,” he said.
“There’s too much going on – the threat of inflation and the interest rate outcome of that, the war and the flow-on effects that will create for energy prices.”
In 2020-21 the top 20 balanced super funds delivered annual investment returns above 18 per cent.
Mr Garner said his top tip for long-term super fund members was to “hold your nerve”.
“As long as your strategy is still valid, in the long term this is a short blip,” he said.
“Fear and greed are very powerful emotions, and if you don’t have someone guiding you, you could do the wrong thing and get out at the lowest time. Stick to your long-term strategy.”
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