Super funds down in October but positive calendar year result on the horizon
Mano Mohankumar and Ian Fryer
Super funds endured a challenging October, with the median growth fund (61 to 80% in growth assets) falling 1.5% over the month. However, as share markets have rallied strongly in November so far, leading super fund research group, Chant West, estimates that with just six weeks of the calendar year remaining, the median growth fund return is estimated to be 6.5% – a great result under testing circumstances.
Chant West Senior Investment Research Manager, Mano Mohankumar, says that in October, both share and bond markets fell amid ongoing concern that interest rates in the US may remain higher for longer.
“The tragic events in the Middle East also weighed on markets in October. Over the month, Australian shares fell 3.8% while developed market international shares fell 2.6% in hedged terms. However, the depreciation of the Australian dollar against all major currencies reduced the loss in unhedged terms to just -1% and super funds, on average, have about 70% of their international shares exposure unhedged. Emerging markets shares were down 2% for the month. Australian bonds fell 1.8% while international bonds fell 0.8%, as bond yields rose again during October.
“Given the ongoing market volatility, super fund members need to remember that super is a long-term investment so there’ll be ups and downs along the way. Members should take comfort in the fact that super funds’ portfolios have weathered previous periods of market volatility and they continue to meet their long-term risk and return objectives. We caution those members who are thinking about switching to a more conservative option or cash with a view to switching back to a growth option later. Attempting to time the market more often than not results in inferior long-term investment outcomes than if you stay the course. We’d encourage those members who are considering switching investment options to speak to a financial adviser.”
The table below compares the median performance to the end of October 2023 for each of the traditional diversified risk categories in Chant West’s Multi-Manager Survey, ranging from All Growth to Conservative. All risk categories have generally met their typical long-term return objectives, which generally range from CPI + 1.5% for Conservative funds to CPI + 4.25% for All Growth.
Long-term performance remains above target
MySuper products have only been operating for just under 10 years, so when considering performance it’s important to remember that super is a much longer-term proposition. Since the introduction of compulsory super in July 1992, the median growth fund has returned 7.6% p.a. The annual CPI increase over the same period is 2.7%, giving a real return of 4.9% p.a. – well above the typical 3.5% target. Even looking at the past 20 years, which includes three major share market downturns – the GFC in 2007-2009, COVID-19 in 2020, and the high inflation and rising interest rates in 2022 – super funds have returned 7% p.a., which is still comfortably ahead of the typical objective.
The chart below shows that, for most of the time, the median growth fund has exceeded its return objective over rolling 10-year periods, which is a commonly used timeframe consistent with the long-term focus of super. The exceptions are two periods between mid-2008 and late-2017, when it fell behind. This is because of the devastating impact of the 16-month GFC period (end-October 2007 to end-February 2009) during which growth funds lost about 26% on average.
By Mano Mohankumar, Senior Investment Research Manager and Ian Fryer, General Manager
