How is your super fund faring? Quarterly results may surprise

Funds are off to a positive start in the December quarter.

Super returns

Super funds are off to a positive start in the December quarter, regaining momentum following a rocky September and paving the way for double-digit returns for the 2019 calendar year.

While markets have come under pressure in recent months, super funds have once again proved they are up to the task of navigating the significant uncertainty in markets, geopolitics and the global economy.

Super fund returns held up well in October, despite weakness from Australian shares and signs of softer economic growth globally.

The major financials sector has come under pressure due to constrained lending, lower net interest margins and continued fallout from the financial services royal commission.

IT shares also suffered a dip as investors questioned the lofty valuations of Australia’s local tech darlings.

According to SuperRatings’ estimates, the median balanced option returned a modest 0.3 per cent in October, but the year-to-date return for 2019 is sitting at a very healthy 12.5 per cent.

The median growth option has fared even better, returning 14.4 per cent, while the median capital stable option has delivered a respectable 7.1 per cent to the end of October.

Over the past five years, the median balanced option has returned an estimated 7.6 per cent p.a., compared to 8.3 per cent p.a. from growth and 4.7 per cent p.a. from capital stable.

Pensions have similarly performed well over the course of 2019, with the balanced pension option returning an estimated 13.8 per cent to the end of October, compared to 16.4 per cent for growth and 8.3 per cent for capital stable.

SuperRatings director Kirby Rappell said the results showed the ability of funds to deliver despite a challenging environment.

“Whether it’s the US-China trade conflict, the weaker economic outlook, falling interest rates or the rolling Brexit saga, there’s been a lot for funds to take in,” Mr Rappell said.

“This has been a real test of their discipline and ability to manage risks on the downside. Growing wealth in this environment while protecting members’ capital is a tall order, but they have managed it well.”

One of the most important trends in the superannuation industry was the broadening of members’ investments across different asset classes, said Mr Rappell.

Over the past five years, super funds had shifted away from Australian shares and fixed income and moved a higher proportion of funds into international shares and alternatives.

The shift to alternatives was significant and had been the subject of debate within the industry. Alternatives include private market assets and hedge funds, which despite the negative connotations could provide an important source of diversification and downside protection when markets took a turn for the worse.

These assets tended to be less liquid, he said. They could play an important role for funds looking to generate income while managing risks for their members in a world characterised by low yields and growing uncertainty.

However, Mr Rappell said funds should be clear about their alternatives strategy and the potential risks to members’ portfolios.

“This shift in asset allocation is in part being driven by the low interest rate environment, which has prompted super funds to reach for yield by allocating to alternatives and other less liquid assets,” said Mr Rappell.

“This isn’t necessarily a bad thing, and it may, in fact, result in a more robust asset allocation. But it’s something members should be aware of.

“Alternatives can help protect capital under certain market conditions, but they can also be used to boost returns by taking on some additional risk. We generally think the shift to a broader asset allocation is positive, but funds should not be complacent in ensuring risk is appropriately managed.”

The 2019 Ethics Index was also released this week, showing that industry super funds were at the top of the tree when it came to Australia’s most ethical financial institutions.

More than half of Australians (52 per cent) view industry funds as ethical businesses, according to the Governance Institute of Australia’s 2019 Ethics Index.

Independent super funds and stock exchanges came in second and third place.

Add your voice to YourLifeChoices' submission to the government’s retirement income review by answering our survey on retirement issues. 

How has your super fund performed this year? Do you consider your super fund an ethical financial institution?

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    COMMENTS

    To make a comment, please register or login
    TREBOR
    14th Nov 2019
    11:11am
    Market glitch.... like shareholding, the organisation doesn't necessarily pay out a 'dividend' in accordance with its actual performance over a given time period..

    Nobody is going to retire fat on the proceeds of a single quarter.... entire system of retirement packaging needs a total overhaul so as to provide a basic 'pension' at end of working life, with the opportunity to add extra under clear conditions.
    ozrog
    14th Nov 2019
    11:21am
    True and interesting.
    TREBOR
    14th Nov 2019
    8:15pm
    'retirement packaging' includes the stolen 'Future Fund' that provides for impoverished pollies in retirement, the current Social Security funding, the never-removed 7% of income tax, levies from other tax strands as required (Menzies' words), and superannuation contributions.

    All those put together under one roof (The Trebor Scheme) would provide a huge operating fund now, and would grow and grow, and a portion would be available to governments respective as LOANS at agreed interest rates... FCS - they borrow endlessly 'overseas' at heart-stopping rates of interest - why not borrow at home and benefit the nation in all ways?

    Of course - everyone has a limit set (indexed) on their tax-free component, sufficient to provide that income in retirement... after all - contributions are made up of 7% income tax (tax already paid) 12% super contribution (in lieu of income rises and could be taxed in advance) and additional levies on already taxed money**... after that it is savings and income derived is taxed... and all are treated the same.. no special treatment as self-provided by the pollies...

    **no arguments about the base 19% - 7% + 12% = 19% - be advised that in effect, that will be the percentage of income you are paying into super - now what were those international super rates?

    https://www.superannuation.asn.au/ArticleDocuments/359/ASFA_Australias_super_system_stacks_up_well_internationally.pdf.aspx?Embed=Y

    Flick down a bit - there's a chart... @ 19% (true) Oz is up there in 'state super' or similar such as The Trebor Scheme, with Malta, Greece, Croatia, Poland - all doing much worse economically than Oz... ... by jingo - we've got dirt to sell and they don't!! But I can buy a 2kg jar of Kalamatas for $18 - the jar is worth that... and great for storage ...
    TREBOR
    14th Nov 2019
    8:22pm
    The major difference with The Trebor Scheme is that it is not 'state super' - it remains 'private', but out of the hands entirely of governments and corporate vultures.
    Horace Cope
    14th Nov 2019
    11:22am
    Our super fund has performed well enough in that it has achieved a higher rate than the compulsory drawdown of 5%. I don't know nor do I care that my super fund is "ethical". I want my super fund to achieve a satisfactory return for us and to invest in those companies that are consistently making profits. I note that the 2019 Ethics Index claims that 90% of Australians want the government to take action on climate change. They have extrapolated the results after polling 1000 people. This is claimed to be the company that sets the benchmark for "ethical" investments yet we are not told exactly what are "ethical" investments. To me, an "ethical" business is one that carries out its work by obeying all of the laws of the land, pays its taxes and remunerates its employees in a safe working environment.
    Mariner
    14th Nov 2019
    4:01pm
    Not many responses - maybe quite a few readers are in my situation: no superannuation and therefore no worries about it.
    TREBOR
    14th Nov 2019
    8:02pm
    That's it......
    Dinkydee
    14th Nov 2019
    5:49pm
    My superannuation fund hasn’t performed well at all. It has lost money over the past 6 months not even making enough to cover the monthly fees. I don’t have a big balance but expected some growth. Have decided to withdraw it and park in a term deposit where at least it won’t lose money. I am 71 and can’t afford to wait years for positive returns.
    TREBOR
    15th Nov 2019
    12:06am
    Let's split this joint, boys - get to a good bar somewhere.. we're playing to a dead audience here... Absence Of The Killer Zombies...
    Life experience
    15th Nov 2019
    2:57am
    As long as I make a minimum of 10% a year I’m happy. But the more the better.
    Ethical doesn’t matter to me. Go t taxing everything again and again is unethical.
    Tax on taxed money. Grrrr. I really hope by end of financial year I’m showing good gains. I split my super out of all shares to other asset classes. I hope that was a good decision.
    Mariner
    15th Nov 2019
    8:23am
    Who would not be happy with a minimum of 10% a year? if that works out it certainly was a good decision, Mate.
    ex PS
    15th Nov 2019
    9:06am
    Most people have the choice to move to ethiclal investment strategies my simply ticking a box on line. If the majority of people do so the Fund will ne made more Ethical.
    We do not have to sit back and wait for others to act, we can decide to take action ourselfs.
    To me it is also ethical to invest in a way that decreases the pressure on the public purse and possibly by doing so make more funds available for those who need the Pension Entitlement.
    Ethical or Socially Responsible investments can return good profits, they are worth looking at, just like any other investment, it is a personal choice.
    People need to know how their Funds work.


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