Superannuation returns surge as shares and bonds both bounce
Surging superannuation returns in July clawed back most of their losses from last financial year, and August is looking good too.
Super funds bounced back strongly in July with soaring financial returns that recovered most of the 3.3 per cent annual loss they suffered in 2021-22.
The median growth option in super delivered a 3.1 per cent return in July, according to superannuation research group Chant West, and funds are also stronger so far in August.
Chant West senior investment research manager Mano Mohankumar said the July result was “driven by strong share markets and bond markets at the same time” and investors being buoyed by hopes that the pace of interest rate rises would slow down.
“It is the highest monthly return since November 2020, when shares surged on the back of the positive news about Covid vaccine developments and the US Election result to a lesser extent,” he said.
Mr Mohankumar said growth funds typically targeted a 6 per cent return over the long term – or 3.5 per cent above long-term annual inflation expectations of 2.5 per cent – so “3 per cent is a single month is an exceptional result”.
“But it’s always important to put things in context,” he said.
“It’s a one-month result and super is a long-term investment. The economic backdrop is still challenging.”
Mr Mohankumar said Australian shares surged 6 per cent in July.
“International shares were up 7.1 per cent in hedged terms but the appreciation of the Australian dollar brought the return in unhedged terms down slightly to 5.4 per cent,” he said.
“And after a torrid year, traditional bond markets also bounced back … resulting in Australian and international bonds rallying 3.4 per cent and 2.5 per cent respectively.
Chant West said the return from an all-growth super fund in July was 4.5 per cent, while a conservative fund delivered 1.8 per cent.
“The strong July result means that, despite the challenges over the past two-and-a-half years, the median growth fund is 11 per cent ahead of the pre-Covid high that was reached at the end of January 2020,” Mr Mohankumar said.
“This should be a great comfort for fund members.
“With Australian and international share markets up so far in August, we estimate that the median growth fund is up a further 1.5 per cent this month.”
Fellow financial research house SuperRatings also reported a 3.1 per cent July gain for a median balanced superannuation option.
Pension returns were even higher, up 3.3 per cent for a median balanced pension and up 2.1 per cent for a median capital stable pension option, it said.
SuperRatings executive director Kirby Rappell said it was “pleasing to see a strong recovery” in July, and it demonstrated the resilience of super funds.
“We continue to highlight the importance of setting your long-term investment strategy, and the performance over the last month shows the perils of trying to time the market, with members who may have switched to more conservative investment options missing out on the bounce back,” he said.
“While we are likely to see bumps ahead, the long-term trend for super funds has remained strong and steady.”
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