Superannuation funds have well and truly put the pandemic slump of last March behind them, with the average growth or balanced fund turning in a positive 2.7 per cent return in the six weeks to mid February, according to Chant West.
Although funds grew only 0.2 per cent in January, in the first half of February they increased 2.5 per cent.
“The returns on the average growth fund have been remarkable with the first month and a half building on the 3.6 per cent positive return recorded in calendar 2020,” Chant West senior researcher Mano Mohankumar told The New Daily.
“That 3.6 per cent return in 2020 was an excellent outcome under the most testing of circumstances. It was achieved despite a fall of 12 per cent during the initial stages of the pandemic in March and April.”
That brings the return since the end of March last year to more than 18 per cent.
“That’s remarkable, considering the health and economic damage wrought by COVID-19,” Mr Mohankumar said.
That means that a fund with $150,000 invested in April would have increased $27,000 to $177,000 by mid-February.
SuperRatings found similar results to Chant West for overall fund returns.
The average balanced pension fund, held by people in retirement, recorded a rise of 0.3 per cent in January and 9.1 per cent for the financial year to date, according to SuperRatings.
For Chant West, the average for the financial year to date in its growth category, which includes funds in both pension and accumulation phase, was 9.4 per cent.
The COVID shadow
But while super fund performance has turned around dramatically, “the pandemic still looms large across the global economic landscape, with over 100 million confirmed COVID-19 cases worldwide at the start of February,” said SuperRatings executive director Kirby Rappell.
“The gradual rollout of vaccines is offering hope that we can achieve a new normal despite early logistical roadblocks and shortages in some regions,” Mr Rappell said.
And the economic situation is far brighter closer to home. Australia has avoided the nationwide second-wave lockdowns that are taking a toll in Europe and America.
Here, “the recovery continues and has been most evident in the labour market, which continues to outperform expectations,” Mr Rappell said.
The unemployment rate fell from 6.6 per cent to 6.4 per cent in January, with 30,000 jobs added over the month.
And while lockdowns will likely continue to be used as a policy tool, they will hopefully be shorter and more targeted, Mr Rappell said.
RBA on guard
Elsewhere, record-low interest rates are also boosting the local economy.
“That, together with a better-than-expected start to the half-year reporting season, an uplift in employment numbers and positive commentary from the Reserve Bank, has underpinned a general improvement in corporate and consumer confidence,” Mr Mohankumar said.
Most of the strong performance in superannuation was driven by shares in January.
Over the month, Australian shares were up 1.2 per cent, international shares 0.8 per cent and property 0.9 per cent.
But fixed-interest assets (such as bonds) returned only 0.15 per cent and cash only 0.02 per cent, Mr Rappell said.
The bond squeeze
The minuscule returns on cash and bonds are making life difficult for retail super funds, which tend to have “long-term strategic asset allocations relying more on fixed interest than not-for-profit funds,” Mr Rappell said.
Not-for-profit funds have a higher exposure to alternative assets like private equity and infrastructure, which don’t rely on bond interest to deliver returns.
Mr Rappell said they also rely more on “different credit solutions” – essentially making loans to companies themselves, which deliver higher returns than bonds.
Nonetheless, low rates mean lower incomes for retirees.
Mr Rappell said “living off super is getting harder and harder with pensions delivering lower income as bond rates decline”.
The New Daily is owned by Industry Super Holdings