Super funds at risk of first calendar year investment loss since 2011

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Superannuation funds are at risk of their first calendar year of investment losses since 2011.

SuperRatings said November was the third consecutive month of investment losses for superannuation funds. They found the median balanced option (accumulation) was down 0.6% for November, and down 1.2% for the financial year to the end of November – putting super fund members at risk of their first annual calendar year loss in seven years.

“This follows a decline in October of -3.1 percent and brings the calendar year to date return for 2018 to just 1.8 percent, with ongoing market weakness in December likely to eat away at what is left of super’s gains through 2018,” said SuperRatings.

“The last time super members experienced an annual loss was 2011, when the median Balanced option returned -1.9 percent, while the median Australian equities option suffered declines of nearly ten percent (-9.6%) and international equities dropped -6.7 percent over the calendar year.”

Though they also noted that super fund members were still “well ahead” over a 10 year period, with $100,000 invested in the median balanced option in November 2008 now estimated to be worth $217,721.

Chant West found the ‘median growth fund’ was also down 0.6% in November, and up 1.8% for the 2018 calendar year to November 30. The firm said super funds were heading for a “flat calendar year result”, though noted it could also be negative.

Chant West senior investment research manager Mano Mohankumar said: “Despite the share market falls over the past two and a half months, with two weeks of the year remaining growth funds still have a chance of finishing in the black. However, it’s no sure thing and we may yet see the first negative year since 2011. Whatever happens, this year’s return will be nowhere near the 10% average of the previous six years.”

“This flat result doesn’t come as a surprise given the stellar run super funds have experienced since early 2009. Asset managers have been saying for some time that most sectors are now priced at the top of their valuations, or close to it. Members also need to remember that growth funds are generally designed to beat inflation by 3.5% a year, which translates to about 6% per annum over the long term.”

“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, you also risk missing out on all or part of the subsequent rebound when markets recover.”

According to Chant West, Australian shares fell 2.2% in November. International shares were up 1.2% hedged for currency, but down 1.8% unhedged due to appreciation in the Australian dollar. Australian REITs were down 0.3% and international ones up 3.6%.

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