Weak Equities And A Stronger Dollar Smother Q3 Superannuation Returns To Just 1%

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Returns from superannuation slowed to just 1% for a median growth fund in the March quarter but remain on track for a double digit year, according to fund analysts Chant West.

The subdued third quarter of the financial year strong first half returns.

The three month return to the end of March with a median growth fund (61% to 80% allocation to growth assets) was 1%.

This pushed the return for the nine months of the financial year to date to a healthy 10.5%, raising expectations of a double digit return for the year to the end of June.

Australian shares advanced 2% during the March quarter 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 USD 0.89 to USD 0.93 over the quarter, these unhedged investments fell 2.4%.

Listed property had a positive quarter, with Australian and global units returning 3% and 7.2%.

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.

Warren Chant says:

“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.”

This chart compares performance since July 1992, the start of compulsory superannuation, of the Growth category median with the typical return objective for that category (CPI plus 3.5% per annum after investment fees and tax over rolling five year periods). The strong returns of the past two years, combined with the GFC period gradually working its way out of the calculation, have seen the five year return rise sharply. So much so, it is now tracking well above that CPI plus 3.5% target.

This chart compares the performance of the lower risk Conservative category (21% to 40% growth assets) median with its typical objective of CPI plus 2% per annum over rolling three year periods. It shows that Conservative funds have also exceeded their objective in recent times.

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