Superannuation funds were driven higher in March, boosted by gains from the Australian share market, and thanks to improving economic fundamentals, consistent signs of inflation as well as improved balance of risk, according to SuperRatings.
The median balanced option posted a return of 1.5 per cent while the return for Q1 2017 was 2.5 per cent, weighted down by a small negative return in January.
The company stressed that rotation into equities had been a consistent theme since October last year, with yields moving off historic lows and shares pushing even higher.
SuperRatings’ chairman, Jeff Bresnahan, said: “But we saw the market embracing duration again in late March, indicating that investors are questioning whether the reflation trade is sustainable”.
“In short, the market is not convinced that shares will keep rising in perpetuity,” he said.
According to SuperRatings, the US currency was put under pressure despite the Fed’s recent rate hike and the market saw global yields flat in March. At the same time in Australia manufacturing activity continued to expand, with trade surplus remaining strong.
“The main threats to fundamentals come from the interrelated issues of low wage growth and rising house prices, especially in the Melbourne and Sydney markets,” Bresnahan said.
“The RBA has noted that households do not appear to be under stress because of repayments, but we may be due for a correction in these markets.”
According to the company, investors had reasons to be upbeat, but they should not expect ‘clear skies’ for the rest of the year.