After a positive start to the financial year, super fund results fell in August, with median growth going backwards by 0.5 of a percentage point.
Superannuation consultancy Chant West has found the sharemarket was the main contributor to falling superannuation values, with Australian shares retreating 2.3 per cent and international shares falling by 1.9 per cent.
Chant West’s senior investment research manager, Mano Mohankumar, said despite this loss, investors have benefited from diversification, which has had the effect of lowering potential losses.
“Despite the volatility and the falls in major sharemarkets in August, the median growth fund was able to limit the loss to 0.5 [of a percentage point] over the month, with a handful of funds actually delivering small positive returns,” Mr Mohankumar explained.
He credited bonds and unlisted assets as preventing the market from delivering a worse result.
“The market volatility in August was due mainly to trade tensions between the US and China flaring up again, while fears were also raised about the possibility of a recession in the US,” Mr Mohankumar commented.
Life-cycle products behaving as expected
While life cycle is the most common MySuper default in the retail sector, most not-for-profit funds are still using traditional growth options for that default role.
The results showed investors born in the 1940s and 1950s that have life-cycle products had less exposure to median growth assets, meaning that instead of losing 0.9 of a percentage point on the growth allocation part of their fund, they actually gained 0.2 of a percentage point.
“While our growth category is still where most people have their super, a meaningful number are now in so-called ‘life-cycle’ products,” Mr Mohankumar explained.
He said such strategies have been adopted as a way to remove risk, with older Australians protecting their accumulation of assets, and retail funds are changing their risk profile depending on members’ age.
“Most retail funds have adopted a life-cycle design for their MySuper defaults, where members are allocated to an age-based option that is progressively de-risked as that cohort gets older,” he continued.
Long-term performance remains above target
With typical return objectives on superannuation of CPI plus 3.5 per cent per annum after investment fees and taxes over rolling five-year periods, Australian super still remains healthy, according to Chant West’s analysis.
It said returns have remained strong since the end of the GFC in early 2009 and have seen longer-term performance tracking well above the CPI plus 3.5 per cent target over the past six years.
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