Superannuation returns are set to be flat or perhaps slightly higher for the June financial year despite the market panic accompanying the coronavirus pandemic, according to the latest figures from Chant West.
The average growth or balanced fund grew 2.2 per cent in May and is also up so far in June as stock markets continued a robust recovery from the low point on March 23.
The fact that returns could be flat for the year, or even slightly up, reflects a dramatic turnaround. Between the market high point of February 22 and its nadir on March 23 the benchmark growth fund lost 11.7 per cent in value.
“We estimate that the financial year return is sitting at zero mid-way through the month so, remarkably, a positive year remains a real possibility,” said Chant West researcher Mano Mohankumar.
It’s a miracle
“Any result close to zero is a terrific performance given the chaos Covid-19 has unleashed in the economy,” he said.
“One key reason that funds appear headed for a better than expected result is that they manage well-diversified portfolios invested across a wide range of growth and defensive asset sectors – including, for many, a meaningful allocation to unlisted and alternative assets,” Mr Mohankumar said.
That diversifiied structure includes exposure to stable assets like cash bonds, infrastructure and private equity that have cushioned the blow of stock markets falling 37 per cent to their March lows.
The diversified model which leaves 57 per cent of assets in equities for the median growth fund enabled fund values to climb back with the market recovery.
“Funds have been able to capture most of the upside as markets turn positive,” Mr Mohankumar said.
Diversity is strength
Diversification in funds has improved in recent years, making them less volatile.
When the global financial crisis hit in 2008, super funds fell a massive 26 per cent while the the stock market dropped 44 per cent. This year, however, the super fund fall at the nadir was only 31 per cent of the size of the stock market fall and has since recovered significantly.
The chart above demonstrates the strong performance of superannuation since the compulsory award system was introduced in 1992. Since then there have been only three years of negative returns, with this year heading to be flat or even slightly higher despite the worst economic collapse since the Great Depression of the 1930s.
The long term performance of superannuation is highlighted by the chart above showing returns over any 10 year period to be positive. For 10 of the last 18 years the 10-year return has remained above the target for super funds of 3.5 per cent above the consumer price index.
“Since the end of the GFC funds have had an unprecedented run, returning an impressive 8.4 per cent a year since the market low point in early 2009,” Mr Mohankumar said.
“That is well ahead of the typical return objective shown in the chart which would have predicted a return of 5.5 per cent a year over that period.”
According to the latest figures from the Association of Superannuation Funds of Australia, the average male superannuation balance stood at $168,500 in July 2018. For women it was $121,300.
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