Super funds weaken in September

Superannuation funds experienced the first negative month in a year with the median growth fund (61 to 80% in growth assets) losing 1% in September as share markets retreated, according to Chant West.

Despite this setback, growth funds still posted a solid 2% over the September quarter.

Chant West senior investment research manager, Mano Mohankumar, said that growth funds had over 50% allocated to listed shares on average, so shares remained the main driver of performance.

“Over the quarter, Australian shares were up 1.8%. International shares were up a modest 0.6% in hedged terms, but the depreciation of the Australian dollar (down from US$0.75 to $0.72) propelled the return in unhedged terms to 4%,” he said.

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“Global share markets retreated in September, mainly due to a spike in interest rates prompted by growing concern about emerging inflation. Despite this setback, growth funds have returned a stunning 28% over the 18 months since the COVID-induced low point at end-March 2020, and we’re now sitting about 13% above the pre-COVID crisis high that was reached at the end of January 2020.”

The US Federal Reserve’s announcement in September that it would begin tapering quantitative easing had led to a rising of bond yields and caused a negative sentiment in the market, according to Mohankumar.

He said despite this, strong company earnings results saw the US share market slightly up for the quarter.

“In the eurozone, share markets were flat over the quarter with a healthy earnings season and ongoing recovery from the pandemic being offset later in the quarter by concerns about inflation. In Germany, talks are underway about the formation of a new government after the Social Democrats, led by Olaf Scholz, won the general election edging out Angela Merkel’s Christian Democratic Union,” he said.

“In the UK, the share market gained ground over the quarter as the economy opened up with the last COVID restrictions lifted.

“The Chinese market was down, meanwhile, due mainly to the government’s regulatory crackdown on the technology and private education sectors and concerns about property market debt, highlighted by the Evergrande crisis.”

While in the Australian context, the Reserve Bank of Australia continued to hold the official cash rate at the record low of 0.1%.

“Additionally, in contrast to central banks overseas, [the RBA] announced it would extend its bond purchase program until at least February 2022,” Mohankumar said.

Mohankumar said positivity in the market was partly thanks to vaccine rollouts across the country gaining significant momentum over the past two months as NSW came out of lockdown.