Superannuation funds are set to finish off the year on double-digit returns even if performance retreats during the remaining six weeks of the year, according to Chant West.
The research house’s latest report found that super funds benefitted from positive global share markets in October as median growth funds were up 0.4% for the month, moving returns of the first 10 months of the year to 12.8%.
During October, international shares were up 1.9% in hedged terms and a rise in the value of the Australian dollar (up from US$0.67 to US$0.69) reduced that to 0.4% in unhedged terms. Australian shares, meanwhile, retreated 0.4%. Listed property was in the black, however, with Australian real estate investment trusts (REITs) up 1.4% while global REITs gained 1.8%.
Chant West senior investment research manager, Mano Mohankumar, said: “The performance so far is significantly better than what we could have expected at the start of the year. It’s certainly a major turnaround from the December 2018 quarter when growth funds lost 4.6% and investor sentiment was decidedly negative”.
“The returns that funds have delivered since the end of the global financial crisis (GFC) really aren’t sustainable over the long term, and we expect more challenging times ahead. Given the tremendous run investment markets have had for over a decade, most asset sectors are fully valued or close to it. The global economic backdrop is still dogged by uncertainty,” he said.
Mohankumar pointed to US/China trade tensions, the slowing pace of global economic growth, and the unresolved Brexit issue that had impacted the investment environment.
“Whatever the outlook, Australians should take comfort that their superannuation is generally invested in well-diversified portfolios with investments spread across a wide range of asset sectors. The typical growth fund has more resilience built in than it did a decade ago, so it is better positioned to weather a period of investment market weakness if that eventuates,” he said.
The report noted that younger members in retail lifecycle products – those born in the 1970s, 1980s and 1990s – had outperformed the MySuper Growth median over most periods but had done so by taking on more share market risk.