Super funds remain on track for a double digit year

After a strong first half, super fund performance was more subdued in the third quarter of the financial year. The three month return to the end of March was positive, nevertheless, with the median growth fund (61 to 80% allocation to growth assets) gaining 1%. This pushed the return for the nine months of the financial year to date to a very healthy 10.5%, raising expectations of a double digit return come the end of June.

Listed shares are the main drivers of growth fund performance, and they had a mixed quarter. Australian shares advanced 2%, while international shares gained 1% on a hedged basis. However, most funds have the majority of their international share exposure unhedged to currency movements and, with the Australian dollar rising from US$0.89 to US$0.93 over the quarter, these unhedged investments fell 2.4%. Listed property had a positive quarter, with Australian and global REITs returning 3% and 7.2%, respectively.

Chant West director, Warren Chant says: “The typical long-term return objective for a growth fund is to deliver inflation plus 3.5% per annum which, with long-term inflation running at just under 3%, translates to about 6.5%. The financial year to date return of 10.5% is comfortably ahead of that return objective. With just one quarter remaining in the financial year, there is a good chance that funds will deliver a fifth consecutive positive return. Any gain from here to the end of June would ensure that the annual result finishes in the double digits.

“Over the past four financial years we’ve seen consecutive positive returns of 10.4% in 2009/10, 9.2% in 2010/11, 0.5% in 2011/12 and 15.6% in 2012/13. Another year in the double digits, or close to it, would further diminish the memory of the GFC, while not fading it out completely. Since the GFC low point at the end of February 2009, growth funds have now advanced 66%. So not only have they recovered all their GFC losses, but they now stand 22% above their pre-GFC high reached at the end of October 2007.

“Over the quarter, manufacturing and employment data coming out of the US was largely positive and there were further signs of recovery in the Euro zone. The Chair of the US Federal Reserve, Janet Yellen, said during the quarter that the US economy has strengthened enough to allow continued cuts to monetary stimulus, and the Fed duly pared back its stimulus programme for the third consecutive month. While the news out of the US has been encouraging, political tensions in the Ukraine and slowing growth in China were negative factors that weighed on markets during the quarter.”

For more information, including tables and charts, click here.