Superannuation accounts were in a holding pattern over July with flat Australian shares and a rising Aussie dollar leaving investment markets doing nothing.
But unlike real wages, which have been flat or negative in recent years, super fund members are seeing real gains in their accounts over time.
Research house Chant West reported zero returns for the average balanced and growth funds in July, with growth returning 0.7 per cent over three months and balanced 0.5 per cent.
While both industry and retail funds were flat over July, industry funds averaged a 0.7 per cent return for three months while retail funds were flat. Over all periods from three months to 15 years industry funds have outperformed.
This industry fund outperformance has ranged between 0.9 per cent and 1.6 per cent per annum.
“The flat return in July comes as no surprise. While the economic outlook is looking much better than it did this time last year, investment markets have had a surprisingly good run and were set for a pause,” said director Warren Chant.
Making the big returns funds have delivered in recent years will be difficult to replicate in the future. “We said a year ago that many asset sectors were close to being fully valued, and after a further run-up in prices it’s even harder now to identify undervalued assets that will deliver solid real returns. That’s going to be a serious challenge for super funds.”
“They won’t be helped by the pressure they’re under to reduce investment fees, which we hope won’t inhibit their appetite for seeking out new sources of active returns.
“Members need to remember that the typical long-term return objective for growth funds is to beat inflation by 3 to 4 per cent per annum. That’s a return of 5.5 per cent to 6.5 per cent in absolute terms, so it would be unrealistic to expect another double digit return like last year – or even to match the 9 per cent per annum that growth funds have returned over the past eight years.,” Mr Chant said.
However, while wage growth is in flatline mode at the rate of inflation, or 1.9 per cent, super funds have returned well above inflation in recent years, which will help members build balances.
Over the past five years conservative investment strategies have outperformed the benchmark of returns of two per cent above inflation, Chant West has found.