Monthly data from SuperRatings suggests funds look on track to deliver strong absolute returns by the end of the financial year, though inflation continues to pose an ongoing challenge.
In April, the median balanced option generated a return of 1.2 per cent for the month, driven by continued momentum in Australian and global equities.
Heading into the end of the financial year, the Balanced option was expected to deliver an estimated 8.1 per cent return year to date.
However, the research house noted that inflation continued to sit above central bank targets. This was further supported by the Reserve Bank of Australia (RBA) defying expectations with the eleventh hike to the cash rate since the tightening cycle commenced 12 months ago.
In May, it increased the official cash rate by 25bps to 3.85 per cent.
“The strong financial year to date return will be welcome news for members after last year’s losses as well as some bumpy months at the start of this financial year. However, these returns and latest inflation figures demonstrate the challenge facing super funds, the economy and everyday Australians,” said Kirby Rappell, SuperRatings executive director.
“Inflation for the year to March sat at 7 per cent. Most funds over the longer term are targeting a return of inflation plus 3 per cent per annum for their members invested in the balanced option. Put simply, super funds are on track to return around 8 per cent thus far this financial year, despite this also being behind an objective of inflation plus 3 per cent.
“What it reinforces is that super remains a long-term game and that returns are holding up pretty well, despite the challenges that funds and their members are facing to adapt to a higher inflation environment”.
In April, the median growth option rose by an estimated 1.4 per cent while the median capital stable option rose by an estimated 0.7 per cent.
Pension returns also showed improvement, with the median balanced pension option rising an estimated 1.3 per cent.
Similarly, the median growth pension option was estimated to rise by 1.6 per cent, while the median capital stable pension option gained an estimated 0.7 per cent over the month.
According to Rappell, continued volatility was expected in returns “despite the strength with which volatility has been navigated to date”.
“Setting long term strategy remains the best approach to long term success. While fund performance may struggle to significantly outpace inflation in the current environment, over the long term they continue to perform well,” he added.
