Median growth super fund returns 1.7% in August

The median growth superannuation fund returned 1.7% in August off the back of strong listed share market returns, according to Chant West.

Chant West data found the return over the first two months of FY20/21 was at 2.7%.

The research house’s senior investment research manager, Mano Mohankumar, said: “The median growth fund lost 12% over February and March but since then has returned an impressive 9.5% on the back of the surprisingly sharp share market rally.

“Listed share markets, which are the main drivers of growth fund performance, had a terrific month in August. Australian shares returned 3%, while international shares surged 5.8% in hedged terms. However, the appreciation of the Australian dollar (up from US$0.72 to US$0.74) reduced that gain to 2.9% unhedged terms.”

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US markets hit an all-time high despite the US-China trade tensions worsening as there was optimism about the development of a COVID-19 vaccine, the Federal Reserve’s ongoing support measures, and the release of economic data that showed some modest signs of recovery.

“In the euro zone, economic data was mixed and there was ongoing nervousness around increasing COVID-19 infections. The UK reported an uplift in economic activity which was helped by ongoing policy support,” Mohankumar said.

“In Japan, we saw the unexpected resignation of Prime Minister Shinzo Abe due to health issues, while the earnings reporting season was better than expected.”

Chant West noted that despite positive returns from April through to August, the sharp setback in February and March had resulted in those options that had higher allocations to growth assets generally faring worse over the past year.

It said over longer periods those higher-risk options, which covered the younger cohorts born in the 1960s or later, had generally performed better. However, despite taking on more share market risk, these younger cohorts had not performed as well as the median MySuper Growth option, either over five years or since the introduction of MySuper.

“The reason these younger cohorts in retail lifecycle funds have underperformed the MySuper Growth option over those longer periods is that these funds, while generally well-diversified, still don’t have the same level of diversification as many of the not-for-profit funds,” Chant West said.

“This is mainly due to the not-for-profit funds’ higher allocations to unlisted assets (unlisted property, unlisted infrastructure and private equity) – about 21% on average. This compares with the retail lifecycle fund average of 5% for these younger cohorts, although there are a few that have 10-14% unlisted asset allocations.”