Following a strong January, volatility has crept back into sharemarkets on the back of weaker US economic data and policy uncertainty, according to Chant West.
Super funds experienced a modest pullback in February, with the median growth fund – those holding 61–80 per cent in growth assets – falling 0.9 per cent.
Commenting on the results, senior investment research manager, Mano Mohankumar, said that both Australian and international shares were down in February.
“Over the month, Australian shares were down 3.8 per cent. Developed market international shares were down 0.9 per cent and 0.4 per cent in hedged and unhedged terms respectively, led by the falls in the US market,” Mohankumar said.
According to him, last month, emerging markets fared better, returning 0.8 per cent, while bonds continued to act as a diversifier with Australian and international bonds delivering 0.9 and 1.2 per cent, respectively.
But with sharemarket volatility continuing into March, coupled with an uncertain economic and geopolitical backdrop, Mohankumar said that it’s important to remember that super is a long-term investment, which will inevitably see periods of choppiness.
This reminder might be particularly important as the weeks progress, with data from Chant West, shared with Super Review sister brand InvestorDaily last week, saying that the median growth option (61–80 per cent growth assets) was down by some 3.3 per cent between late January and 13 March.
“We caution members who may be thinking about switching from a growth fund to cash or a more conservative option with the intention to switch back later. More often than not, it results in poorer long-term outcomes than if they ride out the ups and downs. And we know that over the long term, there are far more ups,” Mohankumar said.
“Super funds’ portfolios have time and time again successfully weathered periods of market volatility. Most Australians have their super invested in well diversified portfolios with their exposure spread across a wide range of growth-orientated and defensive asset classes. That diversification helps limit the damage during periods of share market weakness as we saw in February and March to date.”
In addition, with 55 per cent still allocated to listed sharemarkets, the research manager said that growth funds are able to capture a meaningful proportion of the upside when those markets perform strongly.
Namely, the past two calendar years saw the median growth fund return 9.9 per cent and 13.4 per cent in CY23 and CY24, respectively.
“It’s important to see things in context,” Mohankumar said.
Long-term performance remains above target
Mohankumar said that with the introduction of compulsory super in July 1992, the median growth fund has returned 8 per cent per annum.
“The annual CPI increase over the same period is 2.6 per cent, giving a real return of 5.4 per cent per annum – well above the typical 3.5 per cent target,” Mohankumar said.
“Even looking at the past 20 years, which includes three major share market downturns – the GFC in 2007-2009, COVID-19 in 2020, and the high inflation and rising interest rates in 2022 – super funds have returned 7.1 per cent per annum, which is still comfortably ahead of the typical objective.”
Notably, for most of the time, the median growth fund has exceeded its return objective over rolling 10-year periods, which, according to Chant West, is a commonly used time frame consistent with the long-term focus of super.
