Super funds have delivered another month of high superannuation returns as strong corporate earnings in the US and rising vaccination rates in Europe drive a bull run in international sharemarkets.
Research group Chant West on Wednesday reported that the median growth fund, which allocates between 61 per cent and 80 per cent of funds to growth assets, grew by 1.1 per cent in July on the back of gains in share and bond markets.
Chant West lead researcher Mano Mohankumar said the 1.1 per cent gain followed the “remarkable 18 per cent return we saw in 2020-21”.
It means the median super fund balance across all age groups and genders of $55,000 would have risen by $605 in value last month.
Meanwhile, funds with the median balance of $150,800 held by those between 55 and 64 would have grown by $1658 over the month.
And neither of those calculations include contributions that may have been made by their employers over that time.
The recovery from the April 2020 nadir is extraordinary. At the beginning of the pandemic, the value of growth funds dropped by about 12 per cent.
But a rapid rebound in equity and debt markets has delivered a double-digit turnaround since then.
“From the low point, the median growth fund has climbed 27 per cent. And from the pre-COVID high experienced last February, the median growth option is up 12 per cent,” Mr Mohankumar said.
Over the month of July, Australian shares rose by 1.1 per cent while international shares were up 1.7 per cent in hedged terms.
In unhedged terms, the rise was 4 per cent due to the depreciation of the Australian dollar, which slid from 75 to 73 US cents over the month.
Results varied across different geographical regions, though.
Emerging markets were softer, with the index for that market down 4.7 per cent in unhedged terms over the month.
That was mainly as a result of falls in the Chinese market following government crackdowns on the technology and private education sectors, which cost companies in those spaces billions of dollars, according to Mr Mohankumar.
Elsewhere, there were strong gains in bonds as long-term interest rates fell.
Returns were 1.8 per cent on domestic bonds and 1.3 per cent on international bonds – driven by weakening long-term bond yields in the US and Australian markets.
“Earlier in the year, long-term bond rates kicked up due to fears about inflation. Australian 10-year bond yields got as high as 1.7 per cent,” said independent economist Stephen Koukoulas.
“[However], with the Delta variant [of COVID-19] spreading, economies showed signs of weakening and yields in Australia have fallen back to 1.1 per cent, which is a significant fall”.
The gains in fixed-interest markets are unlikely to be repeated as global interest rates are low.
Fixed interest typically accounts for 14 per cent of not-for-profit fund portfolios and as much as 20 per cent of portfolios in the for-profit sector, so movements in bond prices experienced last month are significant in overall fund performance.
The strong performance in bonds over July meant that conservative options with heavy exposure to fixed interest performed almost as well as the riskier growth options.
Conservative allocations rose 0.8 per cent compared to the growth sector’s 1.1 per cent.
No sign of inflation in Australia
But while there is still inflationary pressure in US consumer prices, wage growth figures released by the ABS on Wednesday will work against inflation, Mr Koukoulas said.
Wages grew by a modest 1.7 per cent over the 12 months to June 30, while public and private sector wages grew 0.4 per cent and 0.5 per cent respectively over the June quarter.
Meanwhile, strong corporate earnings overseas and particularly in the US continue to drive international sharemarkets higher.
“A strong company earnings reporting season [in the US] overshadowed concerns about rising COVID case numbers, the sustainability of economic momentum and the recent developments in China,” Mr Mohankumar said.
An acceleration in the vaccine rollouts in Germany, Italy and Spain had also fuelled hope among investors that further lockdowns might be avoided.
Mr Mohankumar said the lifting of most restrictions in the UK provided added optimism as they had been accompanied by a slowing of COVID case rates.
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