May bounce not enough for funds to end FY19 strongly

While a post-election bounce in Australian shares and property helped superannuation returns a little in May, the re-emergence of geopolitical uncertainty and a tendency to risk aversion globally left the typical balanced option with negative returns for the month, suggesting that FY19’s end will be as low as earlier predicted.

According to SuperRatings, the option returned -0.7 per cent for May, as a financial year that has been forgettable at best for super fund performance drew to an end.

The research house warned that while markets had recovered since last month’s weakness, members still shouldn’t expect a strong end to FY19. The year-to-date return for the median balanced option was still well below that 10-year average of 8.5 per cent, currently sitting at just 5.1 per cent.

Chant West also backed this up, with senior investment research manager, Mano Mohankumar, warning that members shouldn’t get “carried away” with the strong performance of the second half of FY19 as opposed to the first, as “the economic background is still dogged by uncertainties”.

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He pointed to the re-emergence of trade tensions between the US and China, the UK’s transition to an as-yet unselected new prime minister, and the lingering pace of global economic growth as sources of caution.

May was particularly bad for members in growth and international shares options, with the median offerings for both falling 1.2 and 4.0 per cent respectively. Australian shares options fared better with a performance of 1.4 per cent, reflecting the market’s positive response to Prime Minister Scott Morrison’s shock election win.

“Labor’s negative gearing proposals were thought to favour developers by limiting tax concessions to new stock, but so far the improvement in sentiment has outweighed any negative impact, which may give some super funds a temporary boost to their property portfolios,” SuperRatings executive director, Kirby Rappell, said of the domestic stock market’s rally.

Mohankumar said to remember that FY19’s returns, while disappointing compared to those of the last decade, had still been strong.

“This year’s return won’t reach the levels we’ve seen in some recent years but it’s important to keep things in perspective,” he said.

“Growth funds have had a tremendous run averaging about nine per cent pa over the past nine years, but that’s really not sustainable and should be seen as the exception rather than the rule. Their typical long-term objective is to beat inflation by 3.5 per cent, which would currently translate to a return of five to 5.5 per cent, so a return of about 6.5 per cent should be considered a good result.”