Superannuation fund members dodged a bullet in 2018 with the average growth fund rising 0.8 per cent, research house Chant West has found.
In comparison, the average capital city residential property value slumped 4.8 per cent, Australian shares fell 3.1 per cent and international shares were down 7.5 per cent.
The positive return, although small, was a good turnaround as in the first two weeks of December superannuation was heading for its first loss since 2011.
It means that a fund with a balance of $150,000 in the basic growth option, where most Australians invest, would have gained $1200 over the year to come in at $151,200.
The positive return was delivered because “diversification is doing its job,” said James McFall of Yield Financial Planning.
“Super fund investments are spread across five asset classes and every year one has their time in the sun.”
“This year infrastructure and unlisted property did well, countering the losses in equity markets, which were weak,” he said.
The top-performing fund for the year was QSuper with a return of 2.8 per cent, while long-term performer HESTA came in second with 2.5 per cent.
The lowest-performing funds came in at around -2.5 per cent, said Chant West researcher Mano Mohankumar.
Industry funds made up all places in the top 10 while the best-performing retail fund, MLC, equalled the average of 0.8 per cent.
“The better performing funds in 2018 were those that had relatively higher allocations to unlisted assets – infrastructure, property and private equity – and to bonds at the expense of shares,” Mr Mohankumar said.
The effects of diversification are demonstrated by the performance of different fund types. Those most highly exposed to growth assets did worst, with the most conservative option outperforming others with an average return of 1.6 per cent.
Conversely when equity markets boomed, conservative options with their high exposure to cash and bonds were left behind.
With the property boom well and truly over it is a good time to look at the relative merits of property and superannuation over time.
Looking back over 12 years, a period capturing the disastrous global financial crisis slump, super has done better than housing. Super returns averaged 5.53 per cent while the average housing return over eight capital cities was just 2.6 per cent.
However if you look at the Melbourne and Sydney markets separately, they each outdid super, returning 7.1 per cent and 5.85 per cent over 12 years respectively.
Mr McFall cautioned that those figures are calculated before costs for property investors, including income tax, land tax, insurance, letting fees and council rates, which would pare back the net returns from property.
Super returns since 2009 have outstripped expectations, Mr McFall said.
“Since the GFC there has been a lot of liquidity pumped into economies [by government action] and it’s continuing.”
Despite that “Super remains one of my top go-to investments because it is a low tax environment.
Once you hit 60 and your fund is in pension mode it becomes a legal tax haven, with earnings and withdrawals being tax free,” Mr McFall said.
In recent years funds have focused on life cycle investing, with retail funds and some industry funds cycling members into more conservative investments as they approach retirement. The decades in the following chart equate to when the members joined the workforce.
The lifecycle funds are yet to show their value in comparison with the MySuper growth option, where most industry fund members are concentrated.
Returns for lifecycle products between one and five years have been less that those for MySuper growth options in all cases.
“You would have been better off in the MySuper growth option,” Mr Mohankumar said.
No figures are yet available for self-managed super funds over 2018.
“While each SMSF is different you can make a broad brush statement that they tend to have higher exposures to Australian shares and residential property [than pooled funds],” Mr McFall said.
That would mean that a significant number of SMSFs are likely to have underperformed. However Mr McFall said funds with advisers are likely to have done better than those without.
While 2018 was a disappointing year, Mr Mohankumar urged fund members to think long term and not panic.
“Firstly, they should check that the investment option they’re in is suitable for them and, if so, remain patient and not get distracted by short-term noise,” he said.
“If you try to time the market by moving into a more conservative option after sharp share market falls, not only do you crystallise your losses but you also risk missing out on all or part of the subsequent rebound when markets recover.”
The New Daily is owned by Industry Super Holdings