Super returns off to a rough start to 2022

Super funds have had a rough start to 2022 with the median growth fund falling 2.2% in January following a lofty 13.5% bumper year in 2021, according to Chant West.

The research house’s senior investment research manager, Mano Mohankumar, said volatility had returned to investment markets in January as inflation fears, and to a lesser extent, geopolitical risks, ramped up.

Mohankumar pointed to Australian shares’ 6.5% fall over the month while international shares slid 4.9% in hedged terms as reasons for the decline. Meanwhile the Australian dollar retreated from US$0.73 to US$0.71 reduce the loss to 2.2% in unhedged terms.

As government bond yields rose, Mohankumar said, bond markets fell, with Australian and international bonds retreating 1% and 1.6%, respectively.

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“While these safe haven assets were in the red, they still fell far less than share markets,” he said.

The table below compared the median performance for each of the traditional diversified risk categories in Chant West’s multi-manager survey, ranging from all growth to conservative. Over all periods shown, all risk categories have met their typical long-term return objectives, which range from CPI + 2% for conservative funds to CPI + 4.25% for all growth.

Lifecycle products

Mohankumar said that while the growth category was still where most people had their super invested, a meaningful number were now 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’s progressively de-risked as that cohort gets older,” he said.

The table below accounted for the median performance for each of the retail age cohorts, together with their current median allocation to growth assets.

Long-term performance

The chart below showed that, for the majority of the time, the median growth fund exceeded its return objective over rolling 10-year periods, which was a commonly-used timeframe consistent with the long-term focus of super.