Superannuation returns are strong again in the new year despite oft-repeated warnings that members should prepare for a return to “normality”.

Chant West reported that the average growth fund where most people invest rose 1.9 per cent in January, following a stellar full-year return of 14.7 per cent over 2019.

Strong Australian shares were the major driver, with global markets loosing their cool over the coronavirus outbreak, Chant West researcher Mano Mohankumar said.

Source: Chant West

So far in February global share markets have recovered.

“Global investors seem to have regained their confidence in February, with both Australian and global sharemarkets recording gains so far,” Mr Mohankumar said.

The other high performer

Source: JB Were

The other driver of strong superannuation performances has been bonds.

Despite record-low interest rates, bond prices have risen in recent months.

This has pushed up super returns, particularly for conservative allocations.

“The bond market has recovered strongly in January,” said Laurie Conheady, a bond market specialist with wealth manager JB Were.

“There was a big sell off in December [when interest rates rose, forcing bond prices down], but the market has rebounded strongly.”

An example of the strong earnings coming from bonds is demonstrated in the above chart provided by JB Were.

In January, the Bloomberg AusBond Composite Index returned 2.33 per cent, with only 1 per cent coming from bond interest.

The rest came from the rise in bond values as rates fell.

That index is made up of 66 per cent Commonwealth and Australian semi-government bonds, 25 per cent of overseas government bonds and about 10 per cent corporate bonds, Mr Conheady said.

The rally in bond prices has been so strong that the composite index returned 9.06 per cent over the year to the end of January, while the Australian Treasury index recorded a stunning 10.07 per cent.

Those figures are so strong they have pushed the conservative option in superannuation over 8 per cent, allowing it to stay within cooee of the stellar performances recorded by more aggressive options that rely more on sharemarkets.

The dramatic collapse in interest rates in recent years has pushed investors to pay crazy prices for anything that looks like a return.

Mr Conheady said 10-year Australian government bonds are currently so sought after that investors are paying $116.71 for a $100 bond that matures in 2030.

“That is a coupon rate of 2.5 per cent. But because the value of the bond will only be $100 in 10 years time, it means that net of that investors are earning only 0.85 per cent on their investment,” Mr Conheady said.

“It’s a sign that the market expects rates to stay ‘lower for longer’.

“It’s unprecedented. No one is expecting any change in inflationary expectations.”

Chant West finds new home

Chant West’s superannuation research business has been bought by another research group, Zenith, for $12 million in a move Zenith CEO David Wright described as “an excellent acquisition for us that would see us expand into areas that complement our business”.

Zenith currently researches listed and unlisted investment funds.

The Chant West purchase enables it to expand into superannuation.

Chant West’s 26 staff are expected to be retained.

The New Daily is owned by Industry Super Holdings