Superannuation funds overcame the financial chaos at the start of the pandemic to post an annual loss, across their “median growth” funds, of just 0.5 per cent last financial year.

That means the average superannuation balance for men fell in value by $843 to $167,657 and the average balance for women fell by $607 to $120,693.

Chant West researcher Mano Mohankumar described it as “terrific” result driven by the sector’s strong diversification.

“Remember, 40 per cent of the options in the balanced sector had a positive return, which just demonstrates the value of diversification in investments,” Mr Mohankumar said.

The table below demonstrates his point.

The top-performing fund in the growth category, Suncorp’s Multi-Manager growth option, notched up an impressive 3.8 per cent for the year.

And all funds in the top 10 were well into positive territory.

“While the end result was marginally negative, that still represents an excellent outcome given the economic damage wrought by the COVID-19 pandemic in Australia and globally,” Mr Mohankumar said.

“And it’s important to remember that funds had enjoyed an unprecedented run for almost 11 years through to early 2020.”

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Strong over time

“Even taking this year’s result into consideration, growth funds have returned an impressive 8.3 per cent per annum since the GFC low point in early 2009,” Mr Mohankumar said.

“That’s well ahead of their typical return objective, which equates to about 5.6 per cent per annum.

“Over the whole 28-year history of compulsory super, the average growth or balanced fund has returned 8 per cent a year, which is 2.1 percentage points over the target for that period.”

The past financial year was “topsy turvy and can be split into three parts,” Mr Mohankumar said.

“Over the first seven months to January, growth funds gained an impressive 6.4 per cent,” he said.

The heavy 12 per cent crash in February and March was followed by another surprise event.

“A surprisingly sharp sharemarket rally over the June quarter saw them bounce back 6.5 per cent to finish the year virtually flat,” Mr Mohankumar said.

The diversification of superannuation was the big reason that funds performed relatively well.

Balanced funds typically have 25 per cent of their assets in Australian shares, 29 per cent in international shares, and 46 per cent in other assets.

Last financial year, Australian shares lost 7.6 per cent and unlisted property fell by a heavy 20.7 per cent.

But international shares and local and offshore bonds all rose by about 4 to 5 per cent, with private equity falling 3 per cent and infrastructure rising about 1 per cent.

Put together, all that maintained what was essentially a flat return for the balanced or growth option, in which most Australians have their super.

Safer bets have also done well

Not only have returns been high overall, research from SuperRatings shows that, even for funds aiming for low volatility levels, returns have been extremely high over time.

SuperRatings research shows that, over the past seven years, the top-performing balanced fund on a risk-return basis, QSuper, returned a very healthy 8 per cent a year.

SuperRatings executive director Kirby Rappell said such funds tended to be aimed at older members who could not afford to suffer volatility close to retirement.

“They also suit people with higher balances where losses are harder to make up quickly,” Mr Rappell said.

“If you’re a younger person in a balanced fund, volatility is not such an issue, as you have time to recover from falls.”

Funds had done well to rescue returns from the March collapse, Mr Rappell said.

“Managing risks while delivering a positive return in this environment has been a real challenge, and this is likely to continue through the rest of 2020,” he said.

Although super has fallen far less during COVID-19 than it did during the GFC, when it was down 26 per cent, members were frightened by larger numbers in absolute falls, Mr Rappell said.

“Given the success of super over the past 10 years in accumulating wealth, members will feel the bumps more when markets go down,” he said.

“Prior to COVID-19, we saw the industry average account balance increase to over $100,000, compared to around $30,000 during the GFC.

“This means that, on an absolute basis, members will see their balance move around a lot more than they have previously.

“Funds have done an excellent job of both managing risk and educating their members on these issues, but more can be done in this space.”

The New Daily is owned by Industry Super Holdings