Super funds down 10.5% so far in March, seeing benefits of diversification

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Super fund investments have fallen less than some have feared, but are still down 10.5% for March so far.

Chant West estimates that the ‘median growth fund’ – with 61-80% invested in growth assets – is down 10.5% so far in March (figure released Tuesday 17 March).

“However, with markets whipsawing from session to session and even within a day’s trading session, this figure is fluctuating every day.”

This comes after falling 3.1% in February, driven by falls of 7.8% in domestic shares and 8.1% for international shares (partly due to hedging and a drop in the Australian dollar, with losses of 4.9% when unhedged). Listed property was also down, but Australian and global bonds were up.

“The rapid spread of the virus and fears over its impact on the global economy have ravaged share markets over the past three weeks. That has fed through to the performance of super funds, though perhaps not to the extent that some people might have feared,” said Chant West senior investment research manager Mano Mohankumar.

“Growth funds, which is where most Australians have their superannuation invested, hold diversified portfolios that are spread across a wide range of growth and defensive asset sectors. This diversification works to cushion the blow during periods of share market weakness. So while Australian and international shares are down at least 27% since the end of January, the median growth fund’s loss has been limited to about 13%. This is still a material reduction in account balances, but it comes on the back of the tremendous run funds have had since the end of the GFC.”

“The key message to members is not to take panic measures they might regret later. It’s too early to tell what the full economic impact of the virus will be, and trying to time markets now is a very risky proposition. The negative returns we’ve seen in recent weeks are ‘unrealised’ losses, so you don’t actually lock them in unless you take your money out or switch to a lower risk option. If you do that, then not only do you turn those paper losses into real ones but you also miss out on the market rebound which will come sooner or later.”

Industry super funds “well-placed” to deal with market shock

Industry Super Australia (ISA) says that industry funds are “well-placed” to deal with the declines in stock markets due to COVID-19, because of their “long-term outlook”.

“It is understandable that people are concerned about the impact Coronavirus is having on the economy and their super balance, but it is important to remember that super is a long-term game and the market recovers,” said ISA CEO Bernie Dean.

“A way to lose money in super after a downturn is to make changes that crystallise your losses.”

ISA says that due to the diversification of assets held by super funds the looses are are “likely to be far more muted than the headline-grabbing share market plunges seen on the evening news”.

“No one can predict the future, but as with previous downturns the market will rebound and because super is a long-term investment the short-term market dips are smoothed out overtime.”

ISA points to figures suggesting that investors who switched from a balanced super fund investment option to cash in the GFC were “$4,000 worse off after three months, $13,800 after a year, $34,800 worse off after five years and after seven years would have lost a whopping $46,000 of potential retirement savings”.

“If members think about their investment in the long-term what has happened this week will not make much difference to super balances in the 20 years or longer when they start to think about retiring.”

But, “those planning to access their super soon may not have time to ride out the market volatility and should seek advice on how to limit any losses”.

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