The market turmoil triggered by Britain’s decision to exit the European Union is poised to crimp the returns of most superannuation members for the year to the end of June.
But not all super members will suffer.
Some are in line to reap bigger-than-expected returns this year, thanks to British voters.
That’s because Britain’s vote to exit from the EU last Friday sparked a rally in government-issued bonds in the United States, Britain and Australia.
Investors reacted to the British plebiscite by dumping shares and then pouring their cash into bonds.
Bonds are in demand
Because the prices of government-issued bonds soared in the last week, super funds are set to mark up their valuations of these assets when the financial year ends at the close of business on Thursday.
The bottom line is that super members who put a large chunk of their retirement savings in a so-called “fixed interest” investment option are probably in for a pleasant surprise when their funds report their June half returns.
Fixed interest investment options offered by super funds are sometimes called “bond funds” or “enhanced cash funds”.
Unit prices published by some super funds indicate that fixed interest is set to outperform all other asset classes except property for the year to the end of June.
UniSuper’s Australian bond fund is currently returning more than 6 per cent and Energy Super fixed interest option is on course to deliver a 5.77 per cent.
Brexit crimps super returns for most members
Despite the bond rally, Brexit is likely to have eroded the position of most super members in the last week of the financial year.
Most Australian workers are subscribed to balanced funds, which are more heavily weighted to shares than bonds.
Local and overseas shares rebounded on Tuesday but are unlikely to recover most of their losses before the end of the financial year.
Most super funds were on track to achieve returns of as much as five per cent on their balanced funds before the Brexit vote sent a chill through sharemarkets.
With only a day left to the end of the financial year, most of the country’s largest super funds seem poised to deliver average returns of between 1 to 3 per cent.
This means that investment performance will be modest and significantly below the average annual returns of 8 per cent recorded in the three years to June 2015.
UniSuper, one of the best-performing super funds in recent years, was positioned on June 28 to generate a return of around 4 per cent to members of its balanced investment.
EnergySuper and the country’s largest fund, AustralianSuper, were on track to return around 3 per cent to their balanced fund members.
International shares to be hardest hit
The bout of frenzied selling in global equity markets following the Brexit vote has pushed many of the “international shares” options offered by super funds into negative territory.
We know this because some super funds update their year-to-date returns each day and this real-time reporting suggests that international shares have under-performed all other asset classes in the last 12 months.
AustralianSuper reported on June 28 that its international shares fund had lost 2.01 per cent.
EnergySuper’s international shares fund fared a tad worse, having posted a loss of 3.18 per cent for the same period.
UniSuper’s international shares fund has lost 1.3 per cent so far this year.