Super fund investment returns were “solid” in the September 2018 quarter, but October may reverse this, according to Chant West.
The median growth fund – with 61-80% invested in growth assets – was up 2.1% in the first quarter of the financial year. But the same fund is down 2.3% already in the first half of October, due to stock market “jitters”.
In the July-September quarter Australian shares were up 1.5% and international shares were up 5.4% hedged for currency and 7.4% unhedged. Australian REITs were up 2%, while international ones were up 0.3%.
“While the September quarter was solid, early October has brought corrections in domestic and global share markets,” said Chant West senior investment research manager Mano Mohankumar.
“These falls don’t come as a surprise as investment markets have had such a strong run over the past nine years, so most asset sectors were fully valued or close to it.”
He said it was at times like this when the benefits of diversification are most evident.
“Growth fund performance isn’t driven by listed share and property markets alone,” Mohankumar said.
Growth funds have around 55% of their investments in shares and property, with a “substantial” 45% allocated to other sectors, such as infrastructure, bonds and cash.
“This helps cushion the blow when there are sharp market falls like those we’ve seen this month. So while Australian shares and hedged international shares are down 5.4% and 4.2%, respectively, in October so far, we estimate that the median growth fund is only down 2.3%.”
“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.”
Older members are also more likely to be invested in conservative options (21-40% growth assets), which Chant West estimates are down 0.9% so far in October.
“We encourage members to check that the investment option they’re in is suitable for them and, if so, to remain patient, think long-term and not get distracted by short-term volatility. Trying to time the market by moving into a more conservative option can be detrimental because not only do you crystallise your losses, but you also risk missing out on the subsequent rebound when markets recover,” said Mohankumar.