Super fund returns stabilise in April

From

As markets saw less volatility in April, super funds saw some of March’s losses reversed, although the memories of the March falls remain fresh. Members enjoyed a positive result in April, recovering some of the value that was lost in March, but account balances remain down since the start of 2020.

According to estimates from leading research house SuperRatings, the median balanced option rose 2.7% in April as share markets recovered from their March bottom and the national conversation moved towards a staged reopening of the economy.

While the large swings in the market and the wave of negative economic news has made it difficult to block out the shorter-term noise, consumer sentiment indicators show households recognise that the negative economic effects, while significant, should be temporary.

“It’s clear the economy has been hit incredibly hard, and it has been pleasing to see the effort and resources super funds have directed at supporting members during these times,” said SuperRatings Executive Director Kirby Rappell.

“Markets appeared to show an eerie sense of calm, thanks in part to the fiscal and monetary response from the government and RBA, but also due to the success of social distancing and other measures in containing the virus. Happily, the conversation has turned to how we can safely reopen key sectors of the economy, but it would be fair to say apprehensiveness remains.”

Mr Rappell said SuperRatings was closely monitoring how funds are positioned to manage any further fallout.

“April saw some of March’s losses reversed, and it has been pleasing to see how most funds’ portfolios have responded to this challenging period. However, we’re having more conversations with funds to determine their level of preparedness should the situation deteriorate.”

According to SuperRatings’ estimates, the median balanced option rose 2.7% in April. Given the extent of the falls in February and March, the return since the start of 2020 is -8.1% while the rolling one-year return is -2.5%.

The median growth option, which generally has a higher exposure to shares and other risk assets, is down an estimated 9.7% since the start of 2020 and 3.2% over the past year. The median capital stable option is down an estimated 3.5% since the start of 2020 and is flat over the past year.

 

 

 

Pension returns have fared slightly worse. The median balanced pension option is down an estimated 8.5% since the start of 2020, while the median growth option fell 10.3% and the median capital stable option was down 3.7%.

 

 

Super members are trying to look beyond the horizon

Members might not be feeling like winners at the moment, but the history of super tells us the biggest mistake we can often make is to cash out and miss the recovery.

When we look back as far as the GFC, the recent fall in super fund balances appears stark, rivalling the GFC for the depth and speed of the decline. However, what is also apparent is the strength of the recovery following the GFC and the period of largely uninterrupted growth that members enjoyed over the subsequent decade.

 

 

While there have been plenty of bumps along the way, the value that superannuation has delivered over this period is significant. An initial balance of $100,000 invested in the median balanced option at the outbreak of the GFC in August 2008 would now be worth an estimated $184,035 (as at the end of April 2020).

In contrast, a member invested in the median cash option would have grown their savings to $135,006. While cash returns are steady and safer during a crisis, over the long term they cannot deliver the growth that most members require in retirement to meet their objectives.

Since the introduction of the Superannuation Guarantee in 1992, the average annual return for members in the median balanced option has been 6.9%. This period includes the 12.7% fall members experienced in 2008-09, which remains the largest annual fall. The current financial year-to-date return is estimated to be -4.3%, which is some way from the GFC.

 

 

At this stage, it’s likely that the financial year result for 2019-20 may be negative, but based on current estimates will likely be milder than either 2007-08 or 2008-09, assuming the situation does not rapidly deteriorate through May and June. Taking a broader view, funds have performed well against long-term objective targets. While the short-term noise may pick-up again, looking beyond the horizon towards the long-term is likely where the value for members lies.

You must be logged in to post or view comments.