The financial returns of superannuation funds have turned negative for the 2018/19 financial year due to falls in asset prices in October.
Chant West has the Financial Year to Date return for the ‘median growth fund’, with 61-80% invested in growth assets, at -0.9%. This is down from +2.1% a month earlier, a 3% fall in October.
During the month Australian shares fell 6.2%. International shares were down 6.8% hedged for currency, or down 5.4% unhedged due to falls in the Australian dollar. Australian REITs were down 3.1%, while international ones were down 3.2%.
Chant West senior investment research manager Mano Mohankumar says that October was “great example of the benefits of diversification”. As growth funds on average have around 55% of their investments in either shares or property the loses were cushioned by the 45% holding in other assets.
“Older members approaching retirement naturally have a lower tolerance for seeing their balances go down than younger members. However, they also tend to be more conservatively invested,” he said.
Funds invested in conservative options, 21-40% growth assets, were down 1% in October.
Mohankumar said that returns for the 2018 calendar year were “certain” to be well below the 10% average over the previous six years, but still had a “good chance” of the returns being positive – which would be the seventh consecutive such year.
“But members need to remember that an average of 10% is not normal. Growth funds are typically constructed to beat inflation by 3.5%, which translates to about 6% per annum over the long term.”
“A more modest return this year doesn’t come as a surprise. Asset managers have been saying for some time that, given the exceptional run investment markets have had since the end of the GFC, most asset sectors are now priced at the top of their valuations, or close to it.”
“We encourage members to treat their superannuation as a long-term investment. They should check that the investment option they’re in is suitable for them and, if so, remain patient and not get distracted by short-term noise.”
“Trying to time the market by moving into a more conservative option after sharp share market falls can be detrimental because not only do you crystallise your losses, but you also risk missing out on all or part of the subsequent rebound when markets recover.”