Diversification leaves super fund returns flat, despite share market falls

Superannuation fund returns were flat in the March quarter, despite recent share market volatility.

The median growth super fund – 61-80% invested in growth assets – returned 0% for the March quarter, according to Chant West. This is despite Australian shares falling 3.8% over the quarter.

“The March quarter provided another great example of the benefits of diversification,” said Chant West senior investment research manager Mano Mohankumar.

“Most listed share and property markets fell, but growth funds typically only have about 55% of their members’ money invested in these sectors. By diversifying across other sectors such as unlisted infrastructure, unlisted property, bonds and cash, which all rose, they managed to smooth out the bumps and produce a flat return for the quarter.”

Over the quarter international shares were up 0.80% when unhedged for currency fluctuations, due to a lower Australian dollar, but down 2.2% when hedged.

Australian REITs were down 6.2% and global ones down 5.3%.

“Funds have had a great run in recent years, with the past six calendar years all producing positive returns averaging over 10%. This is not normal,” said Mr Mohankumar.

“The typical long-term return objective for growth funds is in the 5.5% to 6.5% range, so even if the June quarter also turns out to be flat the financial year return would still be in that range.”

For the 2017/18 financial year so far the median growth fund is up 5.5%.

“Volatility can be unsettling, especially if fund members start to take notice of scary media reports. The worst thing they can do in these times is to have a knee-jerk response and switch their super around. Moving into something more conservative may seem natural, but all you’re doing is crystallising losses and leaving yourself with the decision of when to switch back again for more growth. If you’re in the right investment option to start with, the best thing to do is to stay there.”

For the month of March the median growth fund was down 0.7%. Industry funds continued to outperform retail funds, down 0.6% for the month compared to the down 1.0% for retail super funds.

Want to be kept up-to-date with SMSF and Superannuation changes, why not subscribe to our Newsletter?

This article, as with all content on this site, is for informational purposes only, and is not legal, financial, tax or other advice. Please read our Terms and Conditions of Use.

Leave a Reply

Your email address will not be published. Required fields are marked *