Super returns fall into the red for FY22

By Jon Bragg

May 20 2022
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Unless a recovery takes place in the coming weeks, super funds will experience their fifth negative financial year since the introduction of compulsory super.

Chant West has estimated that the median growth super fund is down 0.5 per cent so far this financial year, on the back of a 1.2 per cent fall in April.

The firm found that the median growth fund had returned 1.2 per cent up until the end of April, but poor share market performance this month has pushed returns into the negative for the full financial year.

If returns remain in the red at the end of the financial year, Chant West said it would only be the fifth negative return since compulsory super was first introduced in 1992.

“Whatever the result this year it will come on the back of the 18 per cent return in FY21, which was the second best in the history of compulsory super,” commented Chant West senior investment research manager Mano Mohankumar.

“And even in FY20, which included the COVID-induced share market meltdown, the loss was limited to just 0.6 per cent. So super funds have been able to navigate successfully through the worst of the pandemic, and members should take comfort in that.”

Chant West reported that the median high growth had suffered a 1.4 per cent fall in April, while the median balanced fund was down 0.9 per cent.

Mr Mohankumar attributed April’s declines primarily to the 7 per cent loss recorded by international shares in hedged terms as markets felt the effects of the war in Ukraine, lockdowns in China, supply chain disruptions and anticipated interest rate hikes to combat inflation.

“The depreciation of the Australian dollar provided some cushioning, reducing the unhedged loss to 3.2 per cent,” he added.

“Australian shares fared much better, falling just 0.8 per cent. Bonds continued to suffer as yields rose again, with Australian and international bonds losing 1.5 per cent and 2.9 per cent, respectively, over the month.”

Accounting for the losses in May, the firm said that the median growth fund was still up over 10 per cent in comparison to the pre-COVID high of January 2020.

“Looking back over the past decade, we’ve seen an unusually strong run of returns averaging 8.4 per cent per annum,” Mr Mohankumar said.

“That’s been great, but members shouldn’t expect performance to continue at that sort of level. It’s not sustainable and it’s not what these funds are designed to achieve. The typical long-term return objective for growth funds is to beat inflation by 3.5 per cent per annum. That translates to about 6 per cent per annum in absolute terms.”

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