Volatile month on stock markets leaves super funds down in August

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Superannuation fund investment returns were down somewhat in August 2019, but remain positive so far in 2019/20.

According to firm Chant West, the ‘median growth fund’ – with 61%-80% invested in growth assets – was down 0.5% for the month of August.

Though, after the 1.4% return in July, this leaves such funds up 0.9% for the financial year so far.

‘Conservative’ super fund investments were the only category that was positive for the month of August, up 0.2%, and up 1.0% so far for 2019/20. Though this investment option also has the lowest return over the last 3 years and longer time frames – over 15 years it returned 5.7% per annum compared to 7.3% for growth funds.

Share markets were down during the “volatile month” of August, with Australian shares down 2.3% and international shares down 1.9% in currency hedged terms, but up 0.3% unhedged.

Chant West senior investment research manager Mano Mohankumar said the median growth fund was able to limit losses to 0.5%, with a “handful” of funds managing to deliver small positive returns.

“This is because the typical growth fund has, on average, about 48% of its investment allocation in assets other than shares. These include unlisted property and infrastructure as well as traditional defensive sectors like bonds and cash. Bonds in particular provided strong returns in August due to falling long term bond yields, which helped offset the negative returns from shares. They’re also perceived to be safe-haven assets in times of uncertainty, so investor demands for bonds drove up their value.”

“The market volatility in August was due mainly to trade tensions between the US and China flaring up again, while fears were also raised about the possibility of a recession in the US. In Europe, uncertainty surrounding Brexit remains a key concern for investment markets. Added to this, there was disappointing data out of Germany which is normally the most resilient of the European economies.”

“Back in Australia, the Reserve Bank kept the official cash rate on hold at 1% earlier this month. It also stated that an extended period of low interest rates will be required to further reduce unemployment and achieve a more sustainable path towards its inflation target.”

As is often said, past performance is not an indicator of future performance.

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