Relief for super funds in April

While the median growth fund (61% to 80% growth assets) bounced back 3.1% in April, returns during the first 10 months of the financial year to date are still at a loss of 3.3%, according to Chant West.

The research house said shares in April rebounded as investors grew more optimistic as COVID-19 curves started flattening around the world and there were expectations of lockdowns easing and economies starting to reopen.

Chant West’s senior investment research manager, Mano Mohankumar, said while April provided some relief it was still too early to tell what the full impact of COVID-19 would be on companies, industries and the global economy.

“We are heading towards a global recession, but we don’t know what the shape of that recession and the eventual recovery will be. However, we do know that markets bounce back faster than economies,” he said.

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“Regardless of the pace of any recovery, we should expect heightened volatility to continue as investors react sharply to news – good or bad.”

Looking over the longer term, the data found over the 10 years to 30 April, 2020, high growth funds returned 7.5%, growth funds returned 6.9%, balanced funds returned 5.9%, and conservative funds returned 5.1%

Mohankumar noted that superannuation funds had already seen some members “hurt themselves” by locking in losses in March by switching to a more conservative option, and perhaps with the intention of switching back later as markets rallied.

“This is the very thing we caution against. Trying to time markets is a risky proposition at any time. If you take panic action after share markets have already fallen you only convert paper losses into real ones,” he said.

“Not only that, you also risk missing out when markets rebound as they will at some point. Being out of the market during share market volatility, even for a few key days, can make a significant difference to your returns.”

Chant West data showed Australian shares returned 9% in April, and international shares were up 10.6% in hedged terms but the appreciation of the Australian dollar over the month reduced that gain in unhedged terms to 3.6%. On average, funds had about 70% of their international shares exposure unhedged.