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Researcher Capital Preferences says super funds fail to appreciate the tension many retirees experience between their needs in their golden years and the size of their nest eggs.
Superannuation returns hit by volatility
A bounce in share markets in March supported superannuation fund performance in the first quarter of 2022. However, with inflation concerns mounting, global share markets remain volatile, including the hard US share market, which is likely to dent superannuation returns for the current financial year.
Superannuation research house SuperRatings found the median balanced option rose by 1.1 per cent in March, while the median growth option rose 1.6 per cent. The capital stable option, which has less exposure to equities in favour of bonds and cash, was flat at 0.0 per cent. Over the financial year to 31 March 2022, SuperRatings determined a return of 2.3 per cent for the median balanced option. Balanced fund options are those with a growth asset allocation between 60 per cent and 76 per cent and growth options sit above that.
Kirby Rappell, executive director of SuperRatings, said that it has been a rocky year for super fund members, but overall, some gains in investments funds are expected this financial year. “While many Australians feel the impact of natural disasters and increasing inflationary pressures, super continues to support improved long-term financial security for many,” he said.
“We are currently on track to end the 2022 financial year in positive territory, depending on how investment markets perform over the June quarter, though performance will be far more muted than that observed in financial year 2021,” he said. “International shares have had a sustained negative impact on super fund returns over the first calendar quarter of 2022, whereas Australian shares contributed positively to fund returns in February and March despite a negative return in January 2022,” he said.
“While it is pleasing to see performance recover over the month of March, superannuation should be viewed with a long-term lens as there will be ups and downs over shorter term periods,” he said.
The rebound in share market performance over the March period reinforced the need to stick to a long-term investment plan. If a superannuation member had switched when share markets fell in February, they would have locked in losses instead of benefiting from the recovery in March, Mr Rappell said.
Varied asset performances
While Mr Rappell sees only modest returns for balanced superannuation options this financial year, performances vary widely between superannuation funds. The Australian Retirement Trust’s Super Savings Balanced option, for example, has returned 10.01% over one year to 31 March 2022. QSuper and Sunsuper merged earlier this year to become Australian Retirement Trust, the second largest super fund in the country.
HESTA’s Balanced Growth option has also outperformed, delivering investors 9.45 per cent over the year to 31 March 2022. Rest’s Core Strategy, which sits within SuperRatings’ Balanced universe, returned 8.12% in comparison while its balanced Index option has performed better at 8.39 per cent.
According to Andrew Lill, Rest’s chief investment officer, “frequent and significant market moves can be expected” ahead given with the uncertain economic times, with war in the Ukraine, lockdowns in China and inflation rising rapidly.
“Inflation concerns were already present prior to the war, with the Covid-19 pandemic creating supply chain issues but inflation risk has been compounded by the post-invasion led rise in energy, commodities and food prices,” he said.
“It’s important to remember that during any time of market upheaval, there are always winners and losers, highlighted in the graph below, which shows a wide range of returns as investors shifted to traditional safe haven assets like gold,” said Lill.
“This graph strongly reinforces one of our key beliefs – that diversification adds value,” said Lill. “Rest’s portfolios are invested across a wide range of different assets. This has the dual purpose of minimising risk during choppy markets and diversifying return sources, both of which contribute to the overall performance. Rest’s exposure to energy and commodities within our share portfolio and our exposure to listed infrastructure and private assets such as property and infrastructure helped the portfolio’s resilience over the quarter,” he said.
The Australian share market has easily outperformed the S&P 500 and the NASDAQ this calendar year, being buoyed by higher commodity prices while the US share market has been hit harder by rising bond yields.
The benchmark ASX/S&P 200 is down by 2.5 per cent over the year to April 27, compared to falls of around 10 per cent for the S&P 500 and 20 per cent for the Nasdaq Composite Index. The Australian share market has been boosted by big gains in the energy and resource giants Woodside Petroleum, BHP and Rio Tinto, whose prices have risen with commodities, particularly iron ore, coal and gas.
