Bad week for Aussie shares hurts super funds

Poor returns from a jittery Australian share market and mixed results on the international front have wiped more than 2 per cent off the value of superannuation funds in a week, threatening to undermine the best start to a financial year in more than a decade.

The Australian share market dropped 4 per cent in dramatic style in the week that ended October 7, combining with a 2 per cent drop on international markets to bring down returns for the average super fund by 2.1 per cent, according to new figures released by Intech Investment Consultants.

And the loss is unlikely to be recovered in the next few weeks, pulling the month of October into negative territory — a far cry from the overwhelmingly positive results for superannuation funds since the start of the financial year.

“Two per cent in a month is pretty big, up or down. So, to go down 2 per cent, I would be thinking October would be a negative month, although stranger things have happened,” Intech senior consultant Andrew Korbel said.

The results are a stark wake-up call for super funds, which would have been celebrating the best start to a year since 1993 before this month’s slide.

The average super fund returned 5.6 per cent for the September quarter according to Intech, the best result for 12 years, and substantially higher than the 2 per cent and 3 per cent registered for the same quarters in 2003 and 2004, when funds went on to finish the year with impressive double-digit returns.

The Australian share market again led the way, pulling in 10 per cent for the quarter as it continued to ride the resources wave before nerves struck this month.

Despite the apparent suddenness of this month’s drop in the Australian market, many super funds were not caught unaware, Korbel said.

Over the past 12 months, super funds have dropped their allocation to Australian shares from 38 per cent to 36 per cent in the belief that the record run of the Australian market was unsustainable and would come to an end.

“People have been thinking about the Australian market taking a break for a while, but whether this is it, or whether it will go sideways for a while, who knows,” Korbel said.