Super down but not out

Super funds have proven resilient to the turmoil that hit markets in the wake of the COVID-19 outbreak, extending their recovery through May and early June, and are on track to finish the 201920 financial year down but far from out.

According to estimates from leading research house SuperRatings, the median balanced option rose 2.1 per cent in May, driven by a strong rise in share markets on the back of better-than-expected economic news and the beginning of a staged reopening of the economy.

Based on current estimates, the financial year-to-date return for the median balanced option at the end of May is -1.6 per cent.

If super funds do end 30 June in the red, it will be the fourth negative financial year for super since its inception in 1992, but also likely the mildest.

SuperRatings executive director Kirby Rappell said while the forecasts were looking much better, investors were not out of the woods yet.

“Super members have benefitted from recent gains, but markets are still under pressure and remain vulnerable to negative news, including a potential second wave of COVID-19 infections,” Mr Rappell explained.

“Funds were hit hard in February and March, and some saw that as an opportunity to raise questions about the value of super.

“Since then we’ve had two strong months and the critics have certainly been quieter, but we know there’s a long way to go before super balances return to a more stable footing.”

Since the start of 2020 to the end of May, the median balanced option fell an estimated 5.7 per cent, with the 12-month return holding in positive territory at 0.5 per cent.

In contrast, Australian shares, measured by the S&P/ASX 200 Index, fell 13.9 per cent over the calendar year to May and are down 10.0 per cent over 12 months.

The median growth option, which generally has a higher exposure to shares and other risk assets, is down an estimated 6.8 per cent in 2020 and is up 0.5 per cent over 12 months, while the capital stable option fell only 2.1 per cent since the start of 2020 and rose an estimated 1.2 per cent over 12 months.

Pension returns have held up slightly better, with the median balanced pension option down an estimated 6.1 per cent since the start of 2020, the median growth option down 7.4 per cent, and the median capital stable option down 2.3 per cent.

Mr Rappell explained that members should expect to see their super balance move around as markets deal with the significant uncertainty surrounding COVID-19, however members in well-diversified options will feel the bumps less.

“Things are changing quickly, but there are certainly some early positive signs with businesses reopening and beginning to scale back up,” said Mr Rappell.

“Full recovery may take some time, but funds are well equipped to manage the short-term risks and position themselves for future growth once we start returning to normal.

“Super members may understandably feel disillusioned after watching their balances go down through February and March,” said Mr Rappell. “But super is a long-term game, and members should be cognisant of the steady gains super has delivered over a long period of time and will continue to deliver into the future.”

Are you satisfied with how your super fund has held up during the pandemic? Do you think we will see a second wave of COVID-19 in Australia, which could send things into another downturn?

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Related articles:
https://www.yourlifechoices.com.au/finance/news/your-spending-not-our-business-senator
https://www.yourlifechoices.com.au/finance/banking-and-investment/afca-explained
https://www.yourlifechoices.com.au/finance/superannuation/super-funds-set-to-decline

Written by Ben

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