Share market losses dilute returns for super funds

Super funds on track to return less than two per cent this year after stocks carnage.

Shares slide hurts super returns

The news just keeps getting worse for superannuation savings with yesterday’s stock market slide taking an axe to company share prices and compounding October’s three per cent decline.

The Australian Financial Review reported that yesterday morning’s share market losses had stripped 23 months of gains. By the end of trading, however, the market had partly recovered from losing one per cent of its value to half a per cent fall.

The Australian Securities Exchange takes its main lead from US stocks. The ASX-200 index carnage follows days of bleeding on Wall Street, spurred by poorer-than-expected company profits, a falling oil price and a potentially deepening trade war between the US and China.

The downward trend in Australian and international shares has been playing out for a number of months, chipping away at the returns collected by super funds.

But even before the routs this month, superannuation research house Chant West warned that October’s share market falls meant super funds were “heading towards a more modest calendar year result than in recent years”.

The median growth fund, which has between 61 and 80 per cent invested in growth assets,  slipped three per cent in October, pulling back the return for the first 10 months of 2018 to just 2.4 per cent, Chant West said.

“Midway through November, that figure has reduced further to an estimated 1.8 per cent.

“In October, Australian shares fell 6.2 per cent. International shares retreated 6.8 per cent in hedged terms, but the depreciation of the Australian dollar (down from $US0.72 to $US0.71) limited the loss in unhedged terms to -5.4 per cent.”

Chant West senior investment research manager Mano Mohankumar said this year’s super returns were certain to be well below the 10 per cent average of the previous six years.

“But members need to remember that an average of 10 per cent is not normal,” Mr Mohankumar said. “Growth funds are typically constructed to beat inflation by 3.5 per cent, which translates to about six per cent a year over the long term.

“A more modest return this year doesn’t come as a surprise. Asset managers have been saying for some time that, given the exceptional run investment markets have had since the end of the GFC, most asset sectors are now priced at the top of their valuations, or close to it,” he said.

SuperRatings executive director Kirby Rappell warned that the rest of the year would likely continue to see jittery share markets.

“The market rally gave way to a rolling bear market in October, and despite an attempted recovery, this month remains under significant pressure,” he said.

“Investors are concerned that earnings momentum is slowing and that valuations, especially in some growth sectors, are too high. Add to this significant uncertainty globally, whether it’s renewed trade tensions between China and the US or the continuing Brexit saga in the UK, and it looks like volatility will be a more permanent feature of markets heading into 2019.”

Meanwhile, Mr Mohankumar said that the October slide was a good example of the benefits of diversifying investments within a super account.

“On average, growth funds have about 55 per cent invested in stock markets, which leaves a substantial 45 per cent allocated across a wide range of other sectors, including unlisted infrastructure and property as well as traditional defensive sectors like bonds and cash.

“This helps cushion the blow when there are sharp market falls. So, while Australian shares and hedged international shares were down 6.2 per cent and 6.8 per cent respectively, the median growth fund was down less than half that at three per cent.

“Older members approaching retirement naturally have a lower tolerance for seeing their balances go down than younger members. However, they also tend to be more conservatively invested.

“Conservative funds (with between 21 and 40 per cent invested in growth assets) were only down one per cent in October.

“We encourage members to treat their superannuation as a long-term investment. 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.

“Trying to time the market by moving into a more conservative option after sharp share market falls can be detrimental because not only do you crystallise your losses, but you also risk missing out on all or part of the subsequent rebound when markets recover,” Mr Mohankumar said.

Are you considering switching into a more conservatively managed super fund? If you are about to retire, are you worried that your super nest egg has not grown much in value this year?

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    COMMENTS

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    MICK
    22nd Nov 2018
    9:02am
    You are a part of doom crown Olga. Have a look at how well super funds have done over the past decade. Huge growth. So now if values were to halve it would be doom? Illogical and nothing (ever) keeps going up in a straight line. Corrections always occur after a period of growth.
    Old Geezer
    22nd Nov 2018
    11:21am
    More than 12 months of returns have been wiped from them so those published figures are now rubbish.
    Anonymous
    22nd Nov 2018
    11:26am
    But timing is a major issue, Mick. For example, if unfair government policy changes or personal or family crisis forces people to withdraw heavily while values are down, there is often no opportunity for recovery. This is why simply claiming savers can spend their saving is so wrong and unfair, and potentially will result in higher costs for government pensions. Logically, if the government insisted on changing the assets test, it should have taken age into account. Those recently retired need more savings to last them through potentially 2-3 decades of rising prices and increasing health and care needs, while someone in their late 90s is very well off with the same amount of savings.
    GeorgeM
    22nd Nov 2018
    12:49pm
    Yes, OGR, the assets test changes were seriously moronic as it requires 7.8% return (after tax) for assets over the limits to even break even with the reduction in pensions for part-pensioners! The above analysis just confirms how disgustingly stupid these changes were.

    On the other hand, maybe now is a good time for all part-pensioners to value their assets (shares & super in particular) and make a run for claiming pensions! And, take out any further earnings / future gains & go on spending sprees to maintain those asset levels. Disclaimer: I am nor a Financial Adviser! Figure it all out yourselves!
    Anonymous
    22nd Nov 2018
    1:48pm
    The rout is with industry funds .
    Those in retail wouldn’t have fared as bad

    Anyway next years returns should be good for both industry and retail
    Although their may be capital losses, dividend yields should cushion the blow a little
    Old Geezer
    22nd Nov 2018
    3:19pm
    The returns of retail or industry funds is of no concern to me t all.
    TREBOR
    22nd Nov 2018
    3:53pm
    Always good for a laugh, Lothario - how, when, where and why would the retail funds fare better in the same market?

    (snortles under armpit)...
    MacI
    22nd Nov 2018
    10:51am
    Good advice about taking a long term view. The recent slide in the share market index presents only a notional loss unless the shares are cashed in. Also, the ASX200 index doesn't include dividends, only the capital value of shares. The ASX200 has returned -5.38% for the 12 months to date but the return including dividends is -1.57%. Not good but not nearly as catastrophic as one might think looking share prices alone. With a balance of conservative assets in a portfolio there is still a good chance of a positive return this year that is close to or better than cash and over the long term a much better return compared to cash.
    Old Geezer
    22nd Nov 2018
    11:23am
    You need to look at the ASX200 accumulation index as it incudes dividends.
    Anonymous
    23rd Nov 2018
    8:48am
    Maci, the government and ALP are determined to increasingly force less well-to-do self-funded retirees and those on very small state pensions to cash their assets for cash to live on. They are totally uncaring about the fact that doing so realises losses - which of course ultimately results in more people needing larger state pensions. Brainless idiots running the show!
    Rod63
    22nd Nov 2018
    10:57am
    The headline is sensationalist rubbish. No losses are made if nothing is sold/cashed out. This is just a normal part of market behaviour and it is necessary to look long-term.
    Greg
    22nd Nov 2018
    11:19am
    Well actually the headline "Share market losses dilute returns for super funds" is absolutely true, doesn't mean the returns won't increase in the future but as at NOW the returns will generally be lower.
    Old Geezer
    22nd Nov 2018
    11:22am
    Every year the accounts of super and other funds are virtually sold so the gains or losses are real.
    Anonymous
    23rd Nov 2018
    8:50am
    Again, Rod63, the government and ALP are determined to increasingly force less well-to-do self-funded retirees and those on very small state pensions to cash their assets for cash to live on. They are totally uncaring about the fact that doing so realises losses - which of course ultimately results in more people needing larger state pensions. Brainless idiots running the show!

    The victims of mean government policy have NO CHOICE but to cash out.
    Grateful
    22nd Nov 2018
    11:51am
    Added to the inevitable drop in house prices just further confirms why NO superannuation money should be allowed to be invested in ANY risk product and only in income producing cash funds that are government guaranteed .
    Superannuation should never be a gamble!!! Why should someone with the same super at the beginning of this year be worse off if they retired today compared to the other who retired 3 months ago? Current system if full of risk, even the timing of your retirement. What a farce.
    Old Geezer
    22nd Nov 2018
    11:57am
    Income producing products are the biggest risk of any financial products as they lose money nearly every year after inflation and tax.
    Rae
    22nd Nov 2018
    5:13pm
    All investment carries risk. With diversification, research, instruments to minimise losses and some a few years cash the prudent investor does far better than gambling in the debt markets or cash holding hoping the Government will ride to the rescue.

    Recent legislation makes cash accounts very risky and yes up to $250 000 is supposedly guaranteed. If the Government can print money and depending on how many years it takes them to pay out it'll be a miracle in my opinion. I moved cash out when I realised what the APRA bail in meant.

    Superannuation is itself risky as funds do collapse as well as Government sovereign risk due to legislative changes.

    It is very difficult for Government to mess too much with markets. They can alter tax policy and super rules but I doubt they can tell the DOW what to do or US bond markets either. Overseas shares and bonds are among the safest investments I'm holding just now.

    Currency falls cushioned the recent correction.

    Direct investment outside super has ATO risks and market risks but the wealthy ensure the Government doesn't mess to much where they have their money parked. And it's not all in Superannuation.

    It's always sensible to not have to sell in a crash. And I'm not sure if funds set stop-loss but I certainly do. And selling when prices get too high above fundamental price minimises a lot of risk. You already have taken the profit out of the market and can buy again when the fundamental prices look like a bargain.

    It is the risk that you are paid for when you invest. OG is correct cash loses value through inflation and tax. It hasn't been viable for years now.

    A market often makes the most money on just a few days a year and those that flee to cash tend to miss those top days.
    Anonymous
    23rd Nov 2018
    8:53am
    How many are fooled by the bail-out guarantee, thinking their money is safe in banks?

    I was fooled for a while, and shocked when I learned the truth - that the guarantee the government claims to offer is basically worthless in reality! Moved my cash to a ''higher risk/higher return'' investment that isn't guaranteed. Shock, horror! Except that it is safer than most of the deposits that carry a worthless and dishonest ''guarantee''!
    sunnyOz
    22nd Nov 2018
    1:44pm
    Little comfort if you have just retired and have to draw down the minimal amount from super. In the 6 months since I retired and before drawing down, my super has had a whopping 13% wiped from my conservatively invested industry fund. That was literally 3 years of working lost. I can't recover that.
    Old Geezer
    22nd Nov 2018
    3:18pm
    That why the smart people have 3 or 4 years draw down in cash.
    Anonymous
    23rd Nov 2018
    8:58am
    Rich people have 3 or 5 years draw down in cash, OG. Ordinary Australians struggling to get by CAN'T. But disgusting greedy folk like you support making it harder for them by depriving them of needed pension income, so they are FORCED to cash their assets when prices are down.

    22nd Nov 2018
    1:50pm
    Doesn’t worry those who don’t draw down capital in retirement
    Anonymous
    23rd Nov 2018
    8:57am
    That's right, Lothario. The super-privileged well-to-do who are always screaming that the poor get too much can just laugh when others are hurt by market conditions that don't affect the richer. And they are so rude and disgusting that they boast about being secure.
    Jacky
    22nd Nov 2018
    1:53pm
    Every time I make 20K I am going to draw out and splurge on myself and family.
    Anonymous
    22nd Nov 2018
    2:14pm
    Way to do it Jacky, cannot take it with you.
    Rae
    22nd Nov 2018
    5:22pm
    It's no fun if you can't take your profits and enjoy yourself and foster family unity and joy.
    floss
    22nd Nov 2018
    2:07pm
    I accept the fact share prices go up and down but I cannot accept the continuous attack by governments on super rules they should just stay away as all the do is wreck our retirement plans.
    Old Geezer
    22nd Nov 2018
    3:17pm
    Super is only just clinging to life now but Labor will give it it's final blow.
    Anonymous
    23rd Nov 2018
    8:55am
    Yes, Floss. Most of us can live with some degree of risk, but the biggest risk we face is from our own stinking vile government (whichever party is in power) stealing our savings thru unfair policy changes.
    TREBOR
    22nd Nov 2018
    3:51pm
    Roll the dice and take your chances - do the managers take a hit for the downturn or is it just business as usual?

    Of course, the Trebor Scheme would only invest in government guaranteed infrastructure projects etc, and would not suffer such a market downturn while benefiting Australia into the future....
    Bazza
    22nd Nov 2018
    7:12pm
    Investors have the right to ask why fees are still being extracted from their portfolios / superannuation funds etc as the current correction continues its downwards spiral. The Royal Commission should be made aware of this as I feel not enough time was spent focusing on retirees superannuation as the main emphasis was on the banks - not everyone has a super account that is a bank related account.

    But the theme is the same amongst all in the financial industry as they continue to extract fees from our savings accounts as the market races to the bottom.

    How in God's name are they actually managing our money when the market tanks.....they are not but are still helping themselves to what is rightfully our money. To me this is stealing!!

    Retirees are unable to claim back fees and I ask why are fees not tax deductable?


    I hope that the outcomes of the Royal Commission will be wide and a far greater consideration and respect is given to those of us who have worked hard all our lives and been prudent with the finances in order to live in a secure retirement both independently without seeking a Govt Pension along with the free concession cards that seem to be most peoples wallet. I ask myself what did I do wrong in life as I receive bugger all in terms of concessions which I feel is unfair.

    The current downturn is getting nasty without any sign of recovery. Retirees and self funded retires are trapped as to move out of a super account will see exit fees applied and where does one got anyway??

    Interest rates are only supporting mortgage holders who cannot believe their luck as there is no sign of increase on sight and that applies to savings accounts as well.


    The next election will be a bloodbath should Labor win and Shorten's dividend tax steering many to Centrelink.
    How can one expect to vote for Morrison as he was the Treasurer who introduced the $1.6M cap on superannuation...….he should have grandfathered the system and he would certainly have a far greater retire support base than he has now.

    Where to from here...…..I don't know!!
    Anonymous
    23rd Nov 2018
    8:45am
    Agreed with you up to the sentence ''How can one expect to vote for Morrison...". The $1.6 m cap on super was a good move, and one long overdue to stop the very wealthy rorting the system. It's the reason why Labor's stupid dividend tax is NOT necessary or appropriate. The problem the ALP alludes to has already been substantially solved by the cap.

    On the other hand, Morrison attacked far less well-off retirees with a cruel change to the assets test that ought to have been grandfathered, or far more carefully thought out and differently structured so that it achieved what Morrison claimed it would achieve... rather than taking from honest and responsible savers - many of whom were struggling - to give to the most affluent pensioners (many of whom were far better off than those who lost but manipulated to appear less wealthy).
    MacI
    25th Nov 2018
    4:43pm
    It's easy to take a shot at super funds when there is a downward swing in the market. For me it is a service that incurs a cost that I am happy to pay provided it delivers what is claimed. Most often a portfolio of assets that delivers a decent return over time includes investments that have an element of risk such as shares and property. If the claim for a portfolio of investments is that it will deliver a certain return above a benchmark, e.g. inflation, over a minimum time horizon with a probability of some years with negative returns then I understand that there will be good years and bad years and will judge its value against these parameters.

    The trick is to either find a super fund (definitely not a bank) with a good track record that provides the service at a reasonable cost or to educate ones self in financial management and run an SMSF. For me I prefer the former as I have neither the depth of knowledge and the inclination to spend the time managing my investments nor do I have access to the networks, resources, and scale needed to get the return on investment I want (require).

    I would begrudge the outrageous fees charged by most retail superannuation funds that also tend to deliver inferior returns but for those of us with super the choice is ours. My industry fund has delivered an average return on my retirement investments of over 7% including the disastrous 2008 financial crisis when it returned -12.4%. If they keep that up then I am more than happy to pay their fees even in the lean times.