Super Funds On A Roll After 11th Consecutive Positive Month

Super funds' strong start to the 2021/22 financial year continued in August with the median growth fund (61 to 80% in growth assets) up 1.7% for the month. This was the 11th consecutive positive month and took the cumulative return for the first two months of the financial year to 2.8%.

Chant West Senior Investment Research Manager, Mano Mohankumar, says funds have continued to benefit from the ongoing share market rally. "The main drivers of growth fund performance are listed shares and they were up again in August. Australian shares rose 2.6% over the month while international shares advanced 2.7% in hedged terms and 3.1% unhedged.

"The remarkable rally over the past 17 months has propelled growth fund performance to an impressive 29% since the COVID-induced low point at end-March 2020. Not only have we recovered all the losses incurred in the early COVID period, but we’re now sitting about 14% above the pre-COVID crisis high that was reached at the end of January 2020. And that has all occurred while the pandemic continues to cause massive disruptions to lives and economies.

"In August, share markets globally were encouraged by a well-received speech from US Federal Reserve Chairman, Jerome Powell, which provided reassurance that the Fed's policy efforts were likely to continue to support share markets. That overshadowed concerns in the US about the damage caused by Hurricane Ida and the increasing spread of the COVID-19 Delta variant. In the eurozone, share markets advanced on the back of a solid earnings reporting season and the ongoing economic recovery. Although there were increasing cases of the Delta variant, most of the main eurozone nations now have about 70% of their populations fully vaccinated and have reduced or removed most restrictions. In the UK, the share market was up but lagged most other developed countries. During the month, the UK lifted the last of its remaining restrictions and while daily COVID case rates increased, hospitalisation rates remained stable. The Chinese share market was flat due to concerns around increased regulation.

"Back at home, more than half the population remains in some form of lockdown, with NSW and Victoria struggling to contain the spread of the Delta variant. However, vaccine rollouts across the country gained significant momentum over the past month. NSW estimates that it will reach the 70% double dose target in mid-October with Premier Gladys Berejiklian last week unveiling its roadmap out of lockdown for the fully vaccinated. Victorian Premier, Daniel Andrews, announced a modest easing of restrictions yesterday."

Table 1 compares the median performance for each of the traditional diversified risk categories in Chant West's Multi-Manager Survey, ranging from All Growth to Conservative. Over all periods shown, all risk categories have met their typical long-term return objectives, which range from CPI + 2% for Conservative funds to CPI + 4.25% for All Growth.

Lifecycle products behaving as expected

Mohankumar says that while the Growth category is still where most people have their super invested, a meaningful number are now in so-called 'lifecycle' products. "Most retail funds have adopted a lifecycle design for their MySuper defaults where members are allocated to an age-based option that’s progressively de-risked as that cohort gets older," he said.

"It's difficult to make direct comparisons of the performance of these age-based options with the traditional options that are based on a single risk category, and for that reason we report them separately. Table 2 shows the median performance for each of the retail age cohorts, together with their current median allocation to growth assets. For comparison purposes it also includes a row for traditional MySuper Growth options – nearly all of which are not-for-profit funds. Care should be taken when comparing the performance of the retail lifecycle cohorts with the median MySuper Growth option, however, as they’re managed differently so their level of risk varies over time."



As a result of the strong recovery since the end of March last year, the options that have higher allocations to growth assets have done best over all periods shown. Younger members of retail lifecycle products – those born in the 1970s, 1980s and 1990s – have outperformed the MySuper Growth median over all periods. However, they’ve done so by taking on significantly more share market risk. On average, these younger cohorts have at least 20% more invested in listed shares and listed real assets than the typical MySuper Growth option.

The older cohorts (those born in the 1960s or earlier) are relatively less exposed to growth assets so you would expect them to underperform the MySuper Growth median over longer periods. Capital preservation is more important at those ages, so while they miss out on the full benefit in rising markets, older members in retail lifecycle options are better protected in the event of a market downturn.  

Long-term performance remains above target

MySuper products have only been operating for just over seven years, so when considering performance it’s important to remember that super is a much longer-term proposition. Since the introduction of compulsory super in 1992, the median growth fund has returned 8.3% pa. The annual CPI increase over the same period is 2.4%, giving a real return of 5.9% pa – well above the typical 3.5% target. Even looking at the past 20 years, which now includes three share major market downturns – the ‘tech wreck’ in 2001–2003, the GFC in 2007–2009 and COVID-19 in 2020 – the median growth fund has returned 7.2% pa, which is still well ahead of the typical return objective.

The chart below shows that, for the majority of the time, the median growth fund has exceeded its return objective over rolling 10-year periods, which is a commonly used timeframe consistent with the long-term focus of super. The exceptions are two periods between mid-2008 and late-2017, when it fell behind. This is because of the devastating impact of the 16-month GFC period (end-October 2007 to end-February 2009) during which growth funds lost about 26% on average.

International share market returns in this media release are sourced from MSCI. This data is the property of MSCI. No use or distribution without written consent. Data provided “as is” without any warranties. MSCI assumes no liability for or in connection with the data. Product is not sponsored, endorsed, sold or promoted by MSCI. Please see complete MSCI disclaimer.