Super funds immunised against ‘knee-jerk’ volatility reactions

By Cameron Micallef

February 11 2020
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As the outbreak of the coronavirus continues to create volatility in world markets, superannuation funds are remaining focused on long-term objectives and avoiding “knee-jerk reactions”, an industry expert said.

According to SuperRatings executive director Kirby Rappell, superannuation funds are increasingly riding out volatility as lower interest rate yields makes it a necessity.

“They’re watching developments closely, but so far market volatility has been in line with similar risk events experienced in recent years. Fund investment strategies are generally well placed to manage these types of movements,” Mr Rappell said.

When compared with previous healthcare epidemics such as the Ebola outbreak in 2018 or the SARS epidemic back in 2003, Australian super funds have proved relatively resilient to short-term market movements. Quarterly returns during each episode have ranged between -2.1 per cent and +4.3 per cent, with markets largely unfazed over longer periods.

Con Michalakis, chief investment officer at Statewide Super, said that while the coronavirus will have an impact on markets, the fund is focused on the longer-term outcome for members.

“This is a classic case of a black swan, and like all black swans the markets struggle with uncertainty,” Mr Michalakis said.

“What we can be sure about is that the economy in China and Australia will be slower due to the restrictions in place in the first quarter of 2020. However, from a long-term perspective, diversification and strategy based on member age and risk tolerance is more important.”

Suzanne Branton, chief investment officer at CareSuper, said the superannuation industry has downside protection to support against market turmoil.

Ms Branton explained: “When new influences on the investment outlook emerge, it’s important to analyse and monitor these closely.

“There could be a short-term impact that provides investment opportunities or avenues to adjust positioning. However, there are reasons to expect a more short-term rather than extended, large-scale market impact.”

Strong returns in January, where it is estimated the median balanced fund option returned 1.9 per cent, will provide a buffer for the industry.

Over 12 months to the end of January, the median balanced option returned an estimated 13.8 per cent, while the median growth option return was estimated at an impressive 16.2 per cent. Returns over the past seven years are estimated at 8.8 per cent and 9.8 per cent, respectively.

“We expect to see volatility appear more frequently over the course of 2020, but overall, our outlook for super funds is positive,” Mr Rappell said.

“Long-term returns will continue to hold up despite the challenging return environment we find ourselves in at present. Members should look forward to a solid 2020 but expect some bumpiness along the way.”

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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Retirement