Super funds “roller-coaster” start to 2018, up in Jan, down so far in Feb

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Superannuation fund investment returns have had a “roller-coaster” start to 2018, says research firm Chant West.

Super fund returns had a strong 2017 and had a good start to 2018, said the firm, with the ‘median growth fund’ – 61-80% in growth assets – up 0.8% in January. This took returns over the first seven months of 2017/18 to 6.7%.

However this has changed in February, with the median growth fund down about 1.1% so far this month.

Returns on shares in January were “mixed”, with Australian shares down 0.4% and international shares up 3.9% in hedged terms (1.8% unhedged).

Listed property was down, with Australian REITs falling 3.2% and international ones down 1.3%.

“While January was a solid month for super funds, we’ve seen falls in domestic and global share markets in February so far,” said Chant West senior investment research manager, Mano Mohankumar.

“These falls don’t come as a shock as asset managers have been saying for some time that investment markets were fully valued or close to it.”

“It’s at times like this that the benefits of diversification come to the fore. Growth fund performance isn’t driven by listed share and property markets alone. On average, they invest about 55% in those markets so that leaves 45% spread across a wide range of other areas, including unlisted assets such as unlisted infrastructure and property as well as traditional defensive sectors like bonds and cash. This helps cushion the blow when there are sharp market falls like we’ve seen in February.”

Mohankumar said that people nearing retirement are naturally more likely to be concerned about their super balances, however they are also typically invest more conservatively. Chant West estimates conservative funds – 21-40% growth assets – are down 0.5% so far in February.

“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.”

Industry funds outperformed retail funds over January, 0.9% to 0.7%, and are ahead across all time-frames reported by Chant West.

Chant West reports performance net of investment fees and tax, but before administration fees and adviser commissions.

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