Diversification helps super funds weather market blows in August

20 September 2023
| By Rhea Nath |
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Given the volatility of investment markets, it was a challenging August for growth funds, which saw negative returns over the month. 

According to Chant West research, the growth (61– 80 per cent in growth assets) and high growth (81 and 95 per cent in growth assets) options saw returns of -0.1 per cent in August.

All growth (96–100 per cent in growth assets) recorded -0.4 per cent returns.

In comparison, the balanced and conservative options saw moderate rises of 0.1 per cent and 0.2 per cent, respectively. 

Mano Mohankumar, senior investment research manager at Chant West, explained that diversification helped cushion the impact of negative returns from listed sharemarkets in August. 

“Australian shares were down 0.8 per cent for the month. Developed market international shares fell 1.8 per cent in hedged terms,” Mohankumar said.

In unhedged terms, due to the depreciation of the Australian dollar over the month, the return was a positive 1.6 per cent.

He noted super funds, on average, have about 70 per cent of their international shares exposure unhedged. 

“Bond markets were mixed, with Australian bonds up 0.7 per cent and international bonds down 0.3 per cent,” Mohankumar said. 

Sharemarkets were down in the US in August, mainly due to waning confidence that the July rate increase would be the end of the Federal Reserve’s rate hiking cycle. 

In Europe, inflation remained high, delivering “disappointing” economic data. 

The UK appears poised for another rate hike, Mohankumar observed, in the 15th time since 2020.

“In the UK, concerns about the faltering Chinese economy weighed on markets. The Bank of England raised rates in August by 0.25 per cent and appears poised to increase rates again this week,” he said.

Emerging markets also underperformed developed markets in the last month, losing 2.4 per cent.

In Australia, despite a third consecutive hold on interest rates by the Reserve Bank, inflation remains higher than the central bank’s target of 2–3 per cent that leaves open the possibility of further rate rises, Mohankumar noted. 

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