A rebound on local and international stock markets in the weeks leading up to Christmas may have spared millions of Australian super accounts from their first negative six-month returns since December 2012.
Since touching a two-year low on December 15, the benchmark S&P/ASX 200 index has rallied more than 5.5 per cent to above 5200 points.
The recovery of equity prices during the festive season means that most Australian superannuation funds are likely to generate positive investment returns for the December half – a prospect that looked unlikely earlier in the month.
The majority of Australian superannuation accounts are invested in so-called ‘MySuper balanced funds’, which typically spread investment risk across a range of assets.
Balanced super funds invest up to 65 per cent of their assets in local and overseas equities, which links investment performance to sharemarket fluctuations. Before global stockmarkets began recovering on December 16, most of Australia’s biggest super funds were on course to break even or post small losses for the six months from July 1.
At the end of November, the MySuper returns of several big funds were slightly negative and many other funds lost ground as sharemarkets slumped in the first weeks of December.
However, there is some evidence to suggest that the sharemarket has recovered enough ground to tip most super returns into positive territory.
A few super funds provide daily updates on movements in the value of members’ investments.
AustralianSuper and Energy Super were reporting negative year-to-date returns on December 14, but are now each positioned to slightly increase their members’ balances.
As of December 23, AustralianSuper’s balanced fund was showing a 1.5 per cent return since July 1, while Energy Super’s equivalent fund was reporting a return of 1.35 per cent. Barring a sharp slide in blue chip stocks during the three trading days left in 2015, it is now likely that members of these funds will book modest six-month returns.
Superannuation investors have enjoyed solid returns over the past three years as tapering interest rates stoked demand for listed equities. The last time that most local super funds posted negative half-year returns was in December 2012.
Members warned to temper expectations
Asset consultants who advise superannuation trustees on their investment strategies have signalled throughout 2015 that average returns are likely to be much lower than in previous years.
In an outlook report published on December 20, one of the world’s leading investment advisers, the Vanguard Group, warned that economic growth in Australia and the global economy would remain fragile.
“Global growth will remain frustratingly fragile in 2016,” Vanguard’s investment strategists said in the report.
“Global trade and manufacturing activity will likely struggle, and additional ‘growth scares’ should be expected.”
Vanguard’s forecasters suggest there is a 38 per cent chance that the Australian economy will enter a slowdown in 2016 and a 31 per cent likelihood that growth will exceed 3 per cent.
“In Australia, risks remain tilted to the downside, as the economy navigates a difficult transition from mining-led to broad-based growth,” the Vanguard forecasters stated.
“A cyclical economic recovery is likely to emerge over coming years as the drag from mining investment fades, however, in our view this is unlikely until 2017 at the earliest.”