Median growth super funds off to a positive start

The median growth fund (61% to 80% in growth assets) started the new financial year up 1% in July thanks to international shares, according to Chant West.

International shares were up 4% in unhedged terms during the month, mainly driven by the US market with strong earnings from major technology companies such as Amazon, Apple and Facebook.

However, the appreciation of the Australian dollar limited the gain to 1.1% in unhedged terms. Australian shares were up returning 0.6% for the month and domestic bonds delivered 0.4%.

However, the UK and Eurozone share markets retreated due to fears around the economic impact of a second wave of COVID-19 cases.

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Global bonds started the financial year strongly with a return of 1%.

Chant West senior investment research manager, Mano Mohankumar, said: “Super funds got off to a good start to FY2021, but there are some major hurdles ahead. For a start, we still have no idea how long and deep the current global recession will be.

“Share markets have risen, but that is partly due to unprecedented support from central banks worldwide which have been pouring liquidity into the system. Having said that, we have started to see signs of the share market rally wavering in some regions, and we expect volatility to continue.”

The research house also found that those in the younger cohorts in lifecycle retail funds had not performed as well as the median MySuper Growth option over five years and 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, while they are generally well-diversified, these funds don’t have the same level of diversification as many of the not-for-profit funds it 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.”

Chant West noted that unlisted assets proved to add value over the long-terms due to its diversification qualities along with the illiquidity premium in their returns relative to listed markets.

“We should note that short-term performance comparisons are somewhat complicated by the fact that some funds have devalued their unlisted assets more aggressively than others over the course of the COVID-19 crisis,” it said.