Market volatility continued to weigh on fund returns last month, with persistent uncertainty making it difficult to pinpoint how returns will fare in April.
The median super fund – those holding 61–80 per cent in growth assets – fell 1.9 per cent last month as sharemarkets continued to slide on the back of ongoing concerns around Donald Trump’s tariffs, coupled with growing recessionary fears in the US.
This is according to Chant West, which revealed that this has brought the median return back to 5.5 per cent over the first nine months of the financial year.
But volatility has not slowed down in April, led by President Trump’s “Liberation Day” tariff announcements sending waves through markets, followed by a short market rally when the US administration announced that it would pause the more aggressive “reciprocal” levies.
As such, Chant West said that the net effect in April so far sees the median growth fund down about 2 per cent but conceded that this estimate could quickly become stale given markets’ current susceptibility to short-term movements.
According to senior investment research manager Mano Mohankumar, environments like these – those driven by such heightened uncertainty – serve as a reminder that super is a long-term investment, which is bound to see periods of market weakness.
“While we appreciate that members all have different tolerance levels for seeing their account balance going backwards, the majority can afford to remain patient, even many older members,” Mohankumar said on Wednesday.
“A lot of Australians don’t take out all of their super as a lump sum at retirement, so a substantial amount is likely to remain in the super system in the pension phase, often for many years. Their investment horizon is longer than they may think it is.”
The investment research manager said that, when markets fall sharply, some may think about rotating into lower-risk options like cash.
“But far more often than not, that strategy results in a worse long-term outcome than if you stay the course. Not only do you convert paper losses into real ones, but you also risk missing part, or all of the subsequent market rebound,” he said.
He said that, while Australian and international shares, respectively, retreated 3.3 per cent and 4.7 per cent (hedged) in March, the comparatively smaller loss on the side of fund returns highlighted the benefits of diversification.
“The median growth fund’s loss was limited to 1.9 per cent, benefiting from diversification across a wide range of growth and defensive asset classes including alternative and unlisted assets,” Mohankumar said.
“At the same time, growth funds still have about 55 per cent invested in listed shares on average, and are able to capture a meaningful proportion of the upside when those markets perform strongly as we saw in CY23 and CY24, when the median growth fund returned 9.9 per cent and 13.4 per cent, respectively.”
Long-term performance paints optimistic picture
Chant West data showed that, since the introduction of compulsory super in 1992, the medium growth fund has returned 8 per cent per annum, giving a return of 5.4 per cent per annum against the annual CPI increase, over the same period, of 2.6 per cent.
This, Mohankumar said, remains above the typical 3.5 per cent target.
“Even looking at the past 20 years, which includes three major sharemarket downturns – the GFC in 2007–2009, COVID-19 in 2020, and the high inflation and rising interest rates in 2022 – super funds have returned 7 per cent per annum, which is still comfortably ahead of the typical objective,” Mohankumar said.
Chant West said that the median growth fund has, for the most part, exceeded its return objective over rolling 10-year periods, which is a commonly used time frame consistent with the long-term focus of super.
According to the research house, the only exceptions are two periods between mid-2008 and late-2017, the former being in line with the GFC where growth funds lost some 26 per cent on average.
