Growth super funds in the red so far this financial year, conservative funds still positive

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The median growth super fund investment option is in the red for the financial year to date, according to Chant West, while the conservative option is estimated to still be in the black.

Super funds have had a “mixed start” to investment returns in 2019/20, said research firm Chant West, with funds up in July but down so far in August.

Coming off a tenth consecutive year of positive investment returns, the ‘median growth fund’ – with 61-80% in growth assets – was up 1.4% for July 2019.

But the median fund has seen those gains reversed so far in August, and is now in the red for the financial year.

In July, Australian shares were up 3% and international shares were up 2.3% unhedged for currency and 1.2% when hedged – due to depreciation in the Australian dollar. Australian listed property was up 2.6% and global property was up 1% for the month.

“Super funds had a good start to the new financial year before trade tensions flared up again earlier this month and sparked anxiety among investors,” said Chant West senior investment research manager Mano Mohankumar.

“Markets have become more volatile and are down over August to date, with the latest sharp sell-off sparked by fears of a possible recession in the US.”

Mohankumar said that it was at such times that the benefits of diversification is most evident, pointing out that growth funds have around 55% invested in listed shares and property. The remaining, “substantial”, 45% is allocated across defensive assets like cash and bonds, along with unlisted property and infrastructure.

“This helps cushion the blow when there are market falls like those we’ve seen this month. So while Australian shares and hedged international shares are down 5.5% and 4.7% respectively in August so far, we estimate that the median growth fund is only down 2.2%.”

“How fund members react to the negative headlines is important. Older people approaching retirement are naturally more likely to be concerned about seeing their balances go down than people in their 20s or 30s. However, they also tend to be more conservatively invested.”

Chant West estimates that conservative super funds – with 21-40% in growth assets – are only down 0.4% so far in August. After gaining 0.8% in July this would leave these funds still positive for the financial year so far.

“Members should never forget that superannuation is a long-term game and that funds have a great track record of delivering on their long-term risk and return objectives. So as long as you’re in a suitable investment option you should remain patient and not get distracted by the short-term noise. Reacting to bad news and moving into a more conservative option because share markets have fallen can be detrimental. Not only do you crystallise your losses, but you also risk missing out on all or part of the subsequent rebound when markets recover.”

As is often said, past performance is not an indicator of future performance.

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