The September quarter delivered good news for superannuation members with the median growth fund up 2 per cent, research house Chant West reports.
This means those funds have mostly recovered the 12 per cent loss in February–March when COVID hit, even though there was a “slight retreat” in September that produced the first negative monthly result since March.
The Future Fund, meanwhile, reported a 1.1 per cent return for its $162.8 billion portfolio over the same period.
Chant West senior investment research manager Mano Mohankumar said the positive return over the September quarter was driven mainly by international shares and that the outlook for October was also positive.
“After a shaky September, share markets have regained momentum in October and we estimate that the median growth fund is up 2.5 per cent for the month to date and up an impressive 11.5 per cent since the end of March,” he said.
“Growth funds have now erased most of the 12 per cent loss experienced back in February and March. That’s despite the uncertain global economic and political backdrop.
“The global economy is in recession, but we don’t know what pattern the downturn and eventual recovery will take.”
Mr Mohankumar said that while most people had their super invested in the growth category, a meaningful number were now in ‘life-cycle’ products.
He said most retail funds had adopted a life-cycle design for their MySuper defaults, where members were allocated to an age-based option that was progressively ‘de-risked’ as that cohort aged.
Since the introduction of compulsory super in 1992, the median growth fund had returned 8 per cent per annum, while the annual CPI increase over the same period was 2.3 per cent, he said. This gave a real return of 5.7 per cent per annum.
Looking at the past 20 years, which included three major share market downturns – the ‘tech wreck’ in 2001–2003, the global financial crisis in 2007–2009 and now COVID-19 – the median growth fund had returned 6.3 per cent per annum.
Mr Mohankumar said that although super funds were adopting a ‘steady as she goes’ approach to investing during the pandemic, the Future Fund had changed course dramatically, switching to cash in response to uncertainty.
A year ago, at the end of September 2019, the Future Fund had 11.4 per cent of its portfolio, or $18.96 billion, in cash. By 30 September this year, the cash allocation had nearly doubled to 19.1 per cent, or $31.18 billion.
Future Fund CEO Raphael Arndt said moving a chunk of its funds into cash provided protection and greater flexibility.
“Our dynamic investment approach protected the fund’s assets and helped navigate the unprecedented dislocation brought about by COVID-19,” he said.
“For some time, we have been focused on increasing portfolio flexibility, ensuring the Future Fund is well positioned to take advantage of opportunities that arise in the current market.”
As a result, super funds are now delivering higher returns than the Future Fund over one-year and five-year periods.
For retirees and pre-retirees considering where best to place their super, independent financial adviser Suzanne Haddan said assessing the options was complicated because the assets in balanced or growth funds could vary widely.
“The [main] tip I’d give is to ignore the label your fund puts on your investment option. So many of the balanced options, in my mind, are really growth options,” she told the ABC.
AJ Financial Planning founder Alex Jamieson said moving super into cash meant missing out on gains through the increased value of growth-based assets.
“A large amount of academic research has identified a key link between the usage of these monetary tools and increasing the value of growth-based assets being shares and property over the medium term,” he told Savings.com.au.
“This is contrasted to cash and fixed interest-based investments at a considerable disadvantage during this period of time.
“The only way to capitalise on this monetary policy trend is to hold some exposure to growth-based assets rather than cash.”
But what if you’re about to retire and have less time for your balance to recover?
Mr Jamieson said that since 194, international investment markets that had fallen by 20–40 per cent had, on average, recovered within 15 months, once dividends are taken into account.
“Anybody contemplating retirement may simply look to delay this start date until then.”
Did you switch your investment option before COVID hit or shortly after it hit? Have you switched again in the past one or two months?
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