After a disappointing start to the year, super funds have posted a second consecutive positive month and are edging closer to a positive financial year result. Following a rise of 1.8% in March, the median growth fund (61 to 80% allocation to growth assets) gained another 1.4% in April. That takes the return over the ten months of the financial year to date to 1.7%.
Australian shares were the main positive contributors, rising 3.3% over the month. Hedged international shares were up 0.8%, but because of the slight depreciation of the Australian dollar (down from US$0.77 to US$0.76) the return in unhedged terms was higher at 2.4%. Listed property was mixed, with Australian REITs up 2.8% but global REITs down 0.7%.
Chant West director, Warren Chant says: "We estimate that the median growth fund is up a little over 1% so far in May, so with only six weeks remaining we're now sitting at about 3% for the financial year to date. That means it's slightly better than an even money bet that we'll see a seventh consecutive positive year.
"It's pretty certain we're not going to see a result as strong as the previous three years (15.6% in 2012/13, 12.8% in 2013/14 and 9.8% in 2014/15), but members shouldn't be too disappointed with anything in positive territory, considering the patchy global economic environment, the volatility we've seen in share markets worldwide and the fact that super funds have had a particularly good run in recent years.
"Data out of the US in April was slightly worse than expected, and with doubts remaining about the strength of the US economic recovery there's growing uncertainty about the timing of any further hikes in the interest rate. In contrast, economic growth indicators in the Eurozone were better than expected. It's a different story in the UK, where investors are uneasy about whether Britain will leave the European Union and, if it does, what the consequences will be.
"Closer to home, there is ongoing concern over the pace of growth of the Chinese economy. Meanwhile, back in Australia, a low inflation figure helped prompt the RBA to lower the cash rate earlier this month to an all-time low of 1.75%, with a further cut this year being a real possibility."
Table 1 shows the median performance for each category in Chant West's multi-manager survey, ranging from All Growth to Conservative. Over three, five and seven years, all risk categories have met their typical long-term return objectives, which range from CPI + 2% for Conservative funds to CPI + 5% for All Growth. However, the GFC continues to weigh down longer-term returns. Over ten years the higher risk categories failed to achieve their objectives, but over 15 years the Growth, Balanced and Conservative funds did, while All Growth and High Growth fell slightly short having been hardest hit during the GFC.
Source: Chant West
Notes: Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions
Chart 1 compares the performance since July 1992 – the start of compulsory superannuation – of the Growth category median with the typical return objective for that category (CPI plus 3.5% per annum after investment fees and tax over rolling five year periods). The healthy returns in recent years, combined with the GFC period having worked its way out of the calculation, have seen the five year return continue to track well above that CPI plus 3.5% target.
Source: Chant West
Note: The CPI figure for April 2016 is an estimate.
Chart 2 compares the performance of the lower risk Conservative category (21 to 40% growth assets) median with its typical objective of CPI plus 2% per annum over rolling three year periods. It shows that Conservative funds have also exceeded their objective in recent years.
Source: Chant West
Note: The CPI figure for April 2016 is an estimate.
Industry funds and retail funds performed broadly in line with each other in April, returning 1.5% and 1.4% respectively. However, industry funds continue to hold the advantage over the longer term, having returned 6.9% per annum against 5.6% for retail funds over the 15 years to April 2016, as shown in Table 2.
Source: Chant West
Note: Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions.
Disclaimer: ©Zenith CW Pty Ltd ABN 20 639 121 403 (Chant West), Authorised Representative of Zenith Investment Partners Pty Ltd ABN 27 103 132 672, AFSL 226872 under AFS Representative Number 1280401, 2023. This website is only intended for use by Australian residents and is subject to use in accordance with Chant West’s Terms of Use and should be read with Chant West’s Financial Services Guide. Products, reports, ratings (Information) are based on data which may be sourced from a third party and may not contain all the information required to evaluate the nominated product providers, you are responsible for obtaining further information as required. To the extent that any Information provided is advice, it is General Advice (s766B Corporations Act). Individuals should seek their own independent financial advice and consider the appropriateness of any financial product in light of their own circumstances and needs before making any investment decision. Chant West has not taken into account the objectives, financial situation or needs of any specific person who may access or use the Information provided including target markets of financial products, where applicable. It is not a specific recommendation to purchase, sell or hold any product(s) and is subject to change at any time without prior notice. Individuals should consider the appropriateness of any advice in light of their own objectives, financial situations or needs and should obtain a copy of and consider any relevant PDS or offer document before making any decision. Information is provided in good faith and is believed to be accurate, however, no representation, warranty or undertaking is provided in relation to the accuracy or completeness of the Information. Information provided is subject to copyright and may not be reproduced, modified or distributed without the consent of the copyright owner. Except for any liability which cannot be excluded, Chant West does not accept any liability whether direct or indirect, arising from use of the Information. Past performance is not an indication of future performance. Chant West ratings and research are prepared by Chant West and are not connected in any way to research and ratings prepared by any of our related entities.