As the UK’s decision to leave the European Union reverberates through financial markets, super funds are still poised to finish in positive territory for the 2015/16 financial year. With just hours remaining, early estimates suggest that the median growth fund will post a small positive return of about 2.5%, while some of the better-performed funds may deliver up to 6%. Growth funds have 61 to 80% of their investments in growth assets, and are the ones in which the majority of Australians are invested.
Key highlights include:
• We’re expecting this year’s top funds to report returns as high as 6%, while the bottom end of the range is likely to be just in the red at about -0.5%.
• Generally speaking, the better performing funds will be those that had higher allocations to unlisted assets and Australian listed property and a lower exposure to shares. Those with substantial exposure to foreign currency would also have benefited, as would those that had a higher proportion of their defensive assets in bonds rather than cash.
• Over the seven financial years since the ending of the GFC, the median growth fund has delivered a cumulative return of about 78%, or an average of 8.6% per annum. That’s over 6% above the rate of inflation over the period, so it’s comfortably ahead of the typical longer-term return objective for these funds which is to beat inflation by between 3% and 4% annually.
• The lower return / higher volatility environment we’re currently experiencing is likely to continue for some time – and ‘Brexit’ has only added to the list of concerns that investors have to factor in. If anything, the outlook for markets is even more uncertain now than it was this time last year. Super funds will find it hard to deliver on their long-term return objectives, and members will need to remain patient in the face of what may be disappointing returns.
