Inflation pinch drives slightly negative super returns

With SuperRatings estimating a 0.2 per cent loss on the median balanced option in May, inflation and tightening monetary policy have continued to affect fund returns.  

The median growth option fell by an estimated 0.3 per cent in the month while the median capital stable option was estimated to decline by 0.2 per cent.

However, the research house still expected super funds to manage a return above inflation for the last 12 months, estimating financial year to date returns on a balanced option to be 7.9 per cent as at the end of May. 

Kirby Rappell, executive director of SuperRatings, said: “While May saw a small fall, funds are currently on track to deliver a return in excess of inflation, so funds have kept the value of members’ money from diminishing in a high inflation environment, which has been no simple task.”

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In terms of pension returns, the median balanced option was an estimated 0.3 per cent decline. 

The median capital stable pension option fell by an estimated 0.2 per cent over the month and the median growth pension option was also predicted to fall by some 0.3 per cent.

Rappell added that inflation and monetary policy in response to inflation were the most influential factors for super performance this financial year and was expected to persist into FY24. 

“Super fund returns have had a bumpy year with markets facing several shocks over the last 11 months; however, funds continue to navigate the challenges well with most accounts seeing growth over the course of the full year,” Rappell said.

Looking at the numbers in dollar terms, members with $100,000 invested in the balanced option at the start of July 2022 would have an estimated $107,833 in their account at the end of May, not accounting for administration fees or any insurance premiums they may pay. 

For members investing in the more defensive capital stable option, they would have some $104,677 with smaller ups and downs throughout the year, while members that limited their investments to cash would have a lower overall balance of $102,358 while seeing small gains each month. 

“This demonstrates that fund’s investment strategies are behaving as expected by trading off between account growth and a smooth return, even in such uncertain times,” SuperRatings added.