Most superannuation funds lost ground in April after a slide on the Australian sharemarket pushed returns for the month into negative terrain.
Leading research house Chant West is yet to finalise its monthly report card on the performance of Australian super funds, but told The New Daily on Monday that the median return for balanced funds was around -0.3 per cent.
Chant West’s investment research manager Mano Mohankumar said the main driver was the decline in the local sharemarket, which delivered an average net return of -1.6 per cent for the month.
Most balanced funds hold about a third of their assets in locally listed shares, making them sensitive to ASX movements.
“The local sharemarket lost ground in April, but most funds benefited from diversification,” Mr Mohankumar said.
“Because most funds also hold defensive assets that produced positive returns the effect was to soften the average blow to 0.3 per cent.”
According to Chant West, most super funds are still in line to post double-digit returns in 2014/15, with the average return for the 10 months to the end of April tracking at about 10.8 per cent.
Some of the country’s largest funds are continuing to produce above-average returns for the 10-month period.
These include AustralianSuper ( +11.8 per cent) and Energy Super (+12.1 per cent).
May looks like another difficult month
The sharemarket has continued to decline in the opening weeks of May, with widely held blue chip stocks such as the four major banks and Telstra posting significant losses.
This is likely to put further pressure on short-term investment performance and could push annual median returns for super funds to under 10 per cent.
The volatile Australian currency is also helping to erode performance.
An interesting feature of the April returns was the effect of movements in the Australian dollar on the performance of overseas assets held by super funds.
Balanced funds typically have around 30 per cent of their assets in international shares, which is mostly unhedged against currency movements.
Chant West found that the average net return on unhedged international shares was -0.8 per cent in April.
However, those super funds that hedged against exchange rate risks actually generated positive returns on international shares of about 1.1 per cent.
According to Mr Mohankumar, variation in the hedging policies of super funds partly accounted for the outperformance of some funds in April.
“Most super funds do not hedge a greater portion of their international shares,” he said.
Diversification a strength
The April losses are likely to be greater for super members who have elected to invest their retirement savings in high-growth investment options such as “Australian shares” or “International Shares”.
Unlike balanced funds, these investment options have little exposure to defensive assets such as cash and government bonds.
Jeff Bresnehan, the founder of research house SuperRatings said the April losses for balanced funds could have been much deeper.
“Despite the loss for balanced funds, it was still a good result compared with the falls across most major asset classes in April,” he said.
“The wide range of assets in a balanced portfolio are doing exactly the job they are designed to do, spreading the risk and protecting members’ savings during challenging investment conditions.”
There were some slight variations in the performance data published by Chant West and SuperRatings, with the latter finding that the average negative return to super members in April was -0.4 per cent.
SuperRatings’ methodology also found that the average year-to-date returns for balanced funds was 10.6 per cent.
This was slightly less than Chant West’s finding of 10.8 per cent.