Super funds regain momentum

Super funds have managed to regain momentum in the December quarter, after seeing a turbulent September, and are set for double-digit returns for the 2019 calendar year, according to SuperRatings.

Despite weakness from Australian shares and softer economic global outlook, super fund returns held up well in October, with the median balanced option returning a modest 0.3% while the median growth option and the median capital stable option returned 14.4% and 7.1%.

At the same time, the year-to-date return for 2019 for the median balanced option stood at 12.5%.

Over the past five years, the median balanced option returned an estimated 7.6% per annum, compared to 8.3% per annum from growth and 4.7% per annum from capital stable.

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By comparison, pensions also performed well over the course of 2019, with the balanced pension option returning an estimated 13.8% to the end of October, compared to 16.45% for growth and 8.3% for capital stable.

SuperRatings’ executive director, Kirby Rappell, said that super funds had managed to deliver for their members despite of a challenging market environment.

“This has been a real test of their discipline and ability to manage risks on the downside. Growing wealth in this environment while protecting members’ capital is a tall order, but they have managed it well,” she said.

Also, one of the key trends across the superannuation industry was the ability to shift allocation key to managing risk. The firm said that over the past five years, super funds continued to shift away from Australian shares and fixed income and moved a higher proportion of fund into international shares and alternatives.

Rappell said that these assets were less liquid but they can play an important role for funds looking to generate income while managing risks for their members during a growing uncertainty.

“However, funds should be clear about their alternatives strategy and the risks they could potentially add to members’ portfolios,” Rappell stressed.

“This shift in asset allocation is in part being driven by the low interest rate environment, which has prompted super funds to reach for yield by allocating to alternatives and other less liquid assets,”

“This isn’t necessarily a bad thing, and it may in fact result in a more robust asset allocation, but it’s something members should be aware of.”