Diversification drags superannuation funds into positive terrain

Diversification pulled Australian superannuation funds through the worst of a bad year, according to the research gurus.

SuperRatings founder Jeff Bresnahan said it would be the 17th time in two decades that super funds posted positive returns. The average return for the same period was 6.6 per cent per annum, while the consumer price index annual movement for the same time was 2.6 per cent, he said.

Chant West's early estimates suggest the median growth fund will post a return of 1 per cent for the year ending 30 June, on the back of healthy returns of 10.4 per cent in 2010 and 9.2 per cent in 2011.

Although members will face a range of returns which Chant West estimates to be between -1.5 per cent and +6 per cent within its growth category, diversification shielded most from what could have been a much worse outcome, according to director Warren Chant.

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SuperRatings agreed. Bresnahan said balanced funds protected members from the worst of a bad financial year.

"In a clear message on the benefits of diversification, balanced options avoided much of the fall-out, offsetting much of the share market losses through a stronger Australian dollar and solid results from both fixed interest and cash," he said.

He said the median balanced fund should return about +0.5 per cent, compared to the financial year-to-date return for Australian shares at -8.2 per cent.

Funds in the balanced and conservative categories with higher allocations to bonds at the expense of shares performed better, according to Chant West. It found the strongest performers were in the defensive sectors of bonds because falling interest rates worldwide led to capital gains.

Australian bonds posted a 12.4 per cent return while international bonds were up 11.6 per cent.

But three positive years has failed to reverse the losses incurred during the Global Financial Crisis (GFC), according to West.

"After falling 27 per cent during the GFC, growth funds have now returned 33 per cent since the end of February 2009…as the financial year ends we still need another 3 per cent to get there," he said.