Super fund returns remain healthy, despite setback in February

Superannuation fund investment returns remain health for the 2017/18 financial year, despite “sharp losses” in early February, says research firm Chant West.

The median growth fund – with 61-80% invested in growth assets – recovered later in February to end the month down 0.2%. This still leaves the return for the 2017/18 year so far at a “healthy” 6.5%.

Australian shares were up 0.3% in February. Currency-hedged international shares were down 3.6% for the month, but in unhedged terms they were only down 0.4% due to a lower Australian dollar. Chant West says that growth funds hold around 70% of their international shares unhedged, “so they benefited greatly from currency movements in February”. Australian REITs were down 3.2% and global ones fell 6.1%.

“In February we saw volatility return to listed share markets,” said Chant West senior investment research manager, Mano Mohankumar.

“These markets are important drivers of super fund performance, but they’re by no means the only drivers. Members sometimes panic when they hear about share markets falling sharply, but they need to remember that the typical growth fund only has about 55% of its assets in listed shares and property. These funds invest in a wide range of other assets as well, including alternative and unlisted assets, so when share markets stumble this diversification enables them to cushion the blow – as happened in February.”

“Higher than expected wage inflation in the US is what caused concerns that the Federal Reserve might increase the pace of interest rate hikes, and as a result sent investment markets into turmoil in early February. However, resilient macroeconomic data helped calm investors’ nerves, and markets erased some of the losses as the month progressed.”

“Closer to home, the Chinese share market also lost ground but again the bigger economic picture remains relatively stable. In Australia, with inflation remaining below the RBA’s benchmark of 2%, the central bank kept interest rates on hold at 1.5% for the 17th consecutive time.”

Industry super funds outperformed retail funds in February, down only 0.1% compared to 0.3%. Over the financial year-to-date industry funds are up 6.9% compared to 6.3% for retail funds – net of investment fees and tax but before admin fees and adviser commissions.

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