Super funds have bucked annual trends and the softening economic outlook by delivering solid returns.
According to leading superannuation research house SuperRatings, funds have delivered solid returns in April and have been boosted by market momentum through early May. Super funds are on track to beat expectations for the June quarter – historically the weakest period of the year.
The typical balanced option return was 1.7 per cent in April, driven largely by gains in Australian and international share markets, bringing the financial year-to-date return to 5.3 per cent. Although these numbers are down on last year’s almost double digit average annual returns, they’re still quite positive, considering the gloomy outlook predicted after large market falls in the December quarter.
Members in a growth option have enjoyed an estimated median return of 2.1 per cent in April. The typical Australian shares option rose 2.3 per cent, while the median international shares option grew by an estimated 3.8 per cent.
Even though returns have been solid in the face of an assumed economic downturn, experts are concerned about whether super funds can maintain their momentum in the final quarter of the 2019 financial year.
“Downside risks to the Australian economy, including weak inflation, falling home prices and tighter credit conditions are taking their toll on consumer confidence, while the return of geopolitical risks in the form of US-China trade negotiations will also contribute to near-term uncertainty,” SuperRatings said in a statement.
“… the June quarter has historically been the weakest for superannuation and tends to be a time when investors take profits and rotate out of equities. While markets have been risk-on for the past four months, there are signs pointing to volatility ahead, along with fears that markets have come too far too quickly.”
While there are reasons to be cautious, there is no guarantee that history will repeat itself.
“The Australian economy has entered the federal election in a relatively vulnerable position, but it’s not all bad news,” said SuperRatings executive director Kirby Rappell.
“We have seen strong performance from super funds since the start of 2019, and there’s no reason why this momentum can’t be sustained through to the second half of the year. But there are certainly risks to the near-term outlook, and members should not expect a bumper year for super returns.
“Super is a long-term game, and those in the accumulation phase should not be too concerned about market volatility or periods of lower performance.”
April’s positive performance has helped to boost total balances over the 10-year period ending 30 April 2019, with $100,000 invested in the median balanced option in April 2009 now estimated to have reached an accumulated $220,332.
The median growth option is estimated to be worth $236,587 over the same period, while $100,000 invested in domestic and international shares 10 years ago is now worth $244,679 and $274,732 respectively.
In contrast, $100,000 invested in the median cash option 10 years ago would only be worth $129,835.
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