Super funds recovered from August’s falls and posted modest gains in September despite the recent volatility and geopolitical risks, according to superannuation research house SuperRatings.
The median for balanced and growth options returned 0.5% and 0.7% in September, respectively.
The firm said that apart from the September quarter, which would be closely monitored, super funds saw a successful year, with the median balanced option returning 11.5% over the calendar year.
At the same time, pension returns had promising growth in September, with the balanced option returning an estimated 0.6% over the month, compared to 0.7% from the median growth pension option.
However, the low rate environment meant it proved difficult for super funds to deliver income to those in the retirement phase.
SuperRatings executive director, Kirby Rappell, said: “With interest rates so low, the hunt for yield is intensifying and is likely to become more of a challenge for super funds going forward
“Pension returns are holding up well, but the split between capital gains and income is critical for retirees, because they rely on income streams to fund activities in retirement
“We expect this theme to continue to play out as rates remain low and possibly move lower over the next year or two.”
According to SuperRatings, the key theme in 2019 remained the fall in yields due to the global economic uncertainty which saw investors moving to bonds and other safe assets.
In Australia, the yield on 10-year government bonds ended September at 1%, down from 2.3% at the start of 2019, which meant yields had been on the decline since the Global Financial Crisis, with the 10-year yield falling from a high of 6.5% just prior to the market meltdown.
According to Rappell, long-term super returns were healthy, even after including the Global Financial Crisis (GFC) period.
“However, there’s no doubt that super funds are finding it harder to identify opportunities in the current environment. With valuations stretched, funds are paying more for growth, while lower interest rates mean they need to look beyond traditional assets to generate income,” he concluded.