Super funds ready set for good start to 2019/20

Super funds have seen a good start to another financial year as the median growth fund returned 2% for the September quarter, according to Chant West.

It said this was due to local and overseas share markets which saw a positive quarter and were the main drivers of growth fund performance.

Despite of some volatility in August, Australian shares advanced 2.6% and hedged international shares were up 1.5% although the depreciation of the Australian dollar pushed the international shares return higher to 4.7%.

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However, despite of the healthy overall result in the September quarter, the volatility which appeared in August would not go away, according to Chant West’s senior investment research manager, Mano Mohankumar.

“We expect challenging times ahead as the global economy continues to be dogged by uncertainty. Share markets have proved resilient so far, but we anticipate more turbulence ahead in the current jittery climate,” he said.

“At the same time, most Australians should take comfort that their superannuation is mostly invested in well-diversified portfolios with their investments spread across a wide range of asset sectors.

“The typical growth fund also has more resilience built-in than it did a decade ago, so it is better prepared in the event that investment markets falter.”

According to Chant West’s analysis, most people still had their super in growth category, with a meaningful number in so-called lifecycle products.

“Most retail funds have adopted a lifecycle design for their MySuper defaults, where members are allocated to an age-based option that is progressively de-risked as that cohort gets older,” Mohankumar stressed.

Chant West’s analysis also showed that younger members of retail lifecycle products, including people born in the 1970s, 1980s and 1990s, outperformed the MySuper Growth median over most periods while the older age cohorts (those born in the 1960s or earlier) were relatively less exposed to share market risk.

As far as long-term performance was concerned, the study expected it would remain above the target, however the firm stressed that MySuper products were operating for just over 5.5 years.

The chart below compares the performance since July 1992 – the start of compulsory superannuation – of the traditional growth category median with the typical return objective for that category (CPI plus 3.5% per annum after investment fees and tax over rolling five-year periods).

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