Share market performance for the last six weeks of the year will determine if Australia’s super fund returns squeak into the black or fall short, in what would be the only negative calendar year since 2011.
But given the turbulent year that has seen Russia invade Ukraine, soaring prices and higher interest rates, most superannuation fund members would probably regard a small positive return or even a small negative return as a good result.
Figures from SuperRatings show the typical balanced option – where most workers have their retirement savings – is down 5.1 per cent since the start of this calendar year to October 31.
SuperRatings executive director Kirby Rappell says the big bounce in super fund returns in October shows the importance of sticking to a long-term strategyCredit: Arsineh Houspian
That period includes a bounce in returns of 3 per cent in October as sharemarkets rallied, almost making up for losses of 3.1 per cent in September, renewing hope that returns could finish the year with a tiny positive return.
The typical balanced option has about 55 per cent of its money invested in Australian and global shares – the biggest influence on returns.
“While super funds’ investment portfolios are well-diversified, listed shares remain the main contributors to [balanced option] performance and that is what drove the strong returns in October,” says Mano Mohankumar, senior investment research manager at Chant West.
“Over [October] Australian shares surged 6 per cent, while international developed markets were even stronger, advancing 7.2 per cent and 7.8 per cent in hedged [for currency] and unhedged terms, respectively.
“Emerging markets shares were a detractor, however, losing 2.6 per cent. Bond markets were mixed, with Australian bonds up 0.9 per cent but international bonds down 0.4 per cent.”
The calendar year returns could just squeak into the black if the rebound in most developed country sharemarkets continues through the rest of November and December.
However, that’s a big “if”, with investors largely driven by whether they think central banks are close to easing off a long run of inflation-curbing rate rises.
Higher interest rates and rising prices are generally bad for valuations of shares, though some businesses are better able to pass on higher costs to their customers.
If the 2022 return does fall into the red, it will be the first negative calendar year since 2011 when the typical balanced option returned minus 1.9 per cent. During the 2021 calendar year, the typical balanced option return was 13.4 per cent and 3.3 per cent in 2020.
Kirby Rappell, the executive director of SuperRatings, says the rebound in returns during October “really reinforces the importance of setting, and sticking to a long-term strategy, as members who may have panicked and switched when returns were down [in September] may have missed out on this recovery”.
Chant West’s Mohankumar says despite the challenging geopolitical and economic backdrop, returns are now more than 10 per cent higher than at the end of January 2020, just before the pandemic struck.
“This should be comforting for fund members; more importantly, funds are continuing to meet their long-term return and risk objectives,” he says.
SuperRatings figures show the typical balanced option produced an annual average compound return of 7.8 per cent over the 10 years to October 31 this year, and 5.6 per cent over the five years to October 31.
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- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Investors should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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