Markets have been spooked by rising inflation concerns, looming rate hikes and supply shortages which has resulted in a rocky start to the year for superannuation funds, according to SuperRatings.
The research house estimated a 2.1% decline in the median balanced option in January following the market sell-off, despite some of the initial losses being recovered towards the end of the month.
SuperRatings executive director, Kirby Rappell, said falling interest rates had supported rising asset prices and “extremely strong” superannuation returns over the past five, 10 and 20 years with inflation falling into the Reserve Bank of Australia’s (RBA) target band for much of this time.
“However, we are seeing an uptick here which has flow on effects for investment markets and the super balances of Australians,” he said.
“Always remember, only about 50% of investments are in shares so your super should be less volatile if you are in a balanced option or a more conservative option. This means that members sitting in these options are not as affected by the ups and downs in stock markets we have seen recently.”
SuperRatings said super funds still had some way to go before recovering from the latest market drop with the median growth option down an estimated 2.9%. But the capital stable option, which included more defensive assets like bonds and cash, had fared relatively better, falling 0.9%.
Pension returns had also fallen in January, with the median balanced pension option down an estimated 2.3%, compared to a fall of 3.2% for the median growth option and 1.1% for the capital stable option.
The research house said the RBA’s decision to end quantitative easing did not mean a rate rise was imminent but that increased volatility would need to be embraced.
Rappell said: “This is a big shift given we have become so used to the trend of falling rates over an extended period. We have had a strong decade of super returns and we have been through a variety of market environments since 1992.”
“A couple of things to consider, super funds delivered a return of 13.4% in 2021 and over the long-term super returns have exceeded the typical objective of Consumer Price Index (CPI) +3%. It’s about checking you are in the right long-term option and sticking to it. If you had switched to cash at the start of last year you would have seen a return of 0.1% instead of 13.4% for a balanced option”.
