POWERED BY MOMENTUM MEDIA
Which style of fund is better during rising inflation?
Conservative superannuation funds are likely to have had a similar or worse loss last financial year compared to balanced growth super funds, according to AMP Capital’s chief economist, Shane Oliver.
Reflecting on the previous financial year, Oliver said rising interest rates, bond yields and inflation had hit equities, property and bonds hard (shown in the chart below), driving an estimated -3% to -5% loss on balanced superannuation funds, after fees and taxes.
“It’s worth putting this in context though as in the 2020-21 financial year balanced growth super funds returned around 18.5% and over the last five years they returned 5.8% pa which is solid given that inflation averaged 2.6% pa,” he said.
However, despite conservative funds having more exposure to the safer fixed income asset class, Oliver expected conservative funds to have had a similar or worse loss in the financial year due to hits to bond returns.
“Normally bonds are a safer less volatile asset class than shares, and so conservative funds tend to have a higher exposure to them than shares,” he said.
“However, every so often bonds have a rough ride at the same time as shares - usually when inflation is a big problem and central banks are raising interest rates which pushes up bond yields rapidly resulting in negative returns from both fixed income (as bonds suffer a capital loss when yields rise) and shares.
“The result is that both conservative and balanced growth funds can have poor returns in such environments as we have seen over the last year.”
He said the last time we saw something similar with poor returns from conservative and balanced funds was in the bond crash of 1994.
During this time, inflation fears saw central banks including the Reserve Bank of Australia raise interest rates aggressively from emergency levels after the early 1990s recession.
“This time around inflation has been much higher and bond rates have increased from even lower levels and so it’s been even more severe for bonds.”
Recommended for you
The lower outlook for inflation has set the stage for another two rate cuts over the first half of 2026, according to Westpac.
With private asset valuations emerging as a key concern for both regulators and the broader market, Apollo Global Management has called on the corporate regulator to issue clear principles on valuation practices, including guidance on the disclosures it expects from market participants.
Institutional asset owners are largely rethinking their exposure to the US, with private markets increasingly being viewed as a strategic investment allocation, new research has shown.
Australia’s corporate regulator has been told it must quickly modernise its oversight of private markets, after being caught off guard by the complexity, size, and opacity of the asset class now dominating institutional portfolios.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
92.15 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
53.24 3 y p.a(%)
3
Global X GlobalX FANG+ ETF
43.15 3 y p.a(%)
4
DomaCom Shoreline North Coogee
36.26 3 y p.a(%)
5
GAM LSA Private Shares AU I
35.87 3 y p.a(%)
