Despite Brexit superannuation funds are still likely to have positive investment returns for the 2015/16 financial year, according to Chant West.
The independent superannuation research and consultancy firm said that early estimates suggest the median growth fund will have a positive return of around 2.5%.
“While all eyes will be on the financial year result it’s always important to look at performance in a longer-term context, and there’s no denying that super fund members have enjoyed a terrific run in recent years,” said Chant West director, Warren Chant.
“The last negative financial year most people experienced was back in 2008/09 when the GFC ravaged performance. Since then, there have been six consecutive positive years, and this one looks almost certain to be the seventh. While this year’s return won’t come close to the previous three (15.6% in 2012/13, 12.8% in 2013/14 and 9.8% in 2014/15), it’s still going to be a creditable result in the circumstances. Funds have said openly that it’s hard to find reliable sources of return in this extended period of low economic growth. That difficulty has only been compounded by the current political uncertainty, with elections imminent here and in the US and, of course, the shock of the Brexit vote and the uncertainty it creates in Europe.”
“We would just point to the fact that, over the seven financial years since the ending of the GFC, the median growth fund has delivered a cumulative return of about 78%, or an average of 8.6% per annum. That’s over 6% above the rate of inflation over the period, so it’s comfortably ahead of the typical longer-term return objective for these funds which is to beat inflation by between 3% and 4% annually.
“This year has been another great example of the benefits of diversification. Australian shares have essentially finished flat and global share markets have lost ground, but despite that the median growth fund still looks like producing a small positive result. That’s because funds are so well diversified across a wide range of growth and defensive asset sectors, including alternative and unlisted assets that aren’t prone to high volatility, they can successfully smooth out returns when listed markets are struggling.”
Mr Chant said that unlisted assets and Australian listed property were the main contributors to positive performance.
“Unlisted assets aren’t valued continually, so it will be a little while before we can see exactly how well they have performed. But we expect returns for unlisted infrastructure, unlisted property and private equity to be in the double digits once June quarter revaluations are factored in.”
“Of course, some funds will have performed better than others. We’re expecting this year’s top funds to report returns as high as 6%, while the bottom end of the range is likely to be just in the red at about -0.5%. Generally speaking, the better performing funds will be those that had higher allocations to unlisted assets and Australian listed property and a lower exposure to shares. Those with substantial exposure to foreign currency would also have benefited, as would those that had a higher proportion of their defensive assets in bonds rather than cash.”
As is often said: past performance is not an indicator of future performance.