Superannuation funds escape negative territory in 2018

Article published in Australian Financial Review by Joanna Mather, 17 January 2019.

Superannuation funds have recorded their lowest returns since 2011 but nonetheless managed to end the calendar year in the black – just.

The median growth fund returned 0.8 per cent, with Qsuper taking the top spot for the year at 2.8 per cent. 

Growth funds have 61 per cent to 80 per cent allocations to growth assets. Most workers have their super in these types of funds. 

Chant West senior investment manager Mano Mohankumar said although the 0.8 per cent return was the lowest since 2011, it nonetheless extended the run positive years for super fund earnings to seven. 

The better performing funds in 2018 were those that had relatively higher allocations to unlisted assets - infrastructure, property and private equity - and to bonds at the expense of shares. 

"The power of diversification was clearly evident in 2018," he said.

"When you consider that the Australian share market fell 3.1 per cent and international shares 7.5 per cent, the median growth fund was still able to eke out a positive return."

"That's because, while these funds do invest substantially in shares they also invest in a wide range of other asset sectors including unlisted assets and traditional defensive assets such as bonds and cash, all of which produced positive returns for the year."

Experts agree assessments of super fund performance should be based on long-term results. Hostplus has been the best performing growth fund over the 15 years to December 2018 at 7.9 per cent, followed by AustralianSuper, Cbus and Catholic Super

Thanks to the fluctuations on share markets, funds with greater exposure to defensive assets such as bonds and cash fared better than median growth funds.

Chant West figures show balanced options, with 41 per cent to 60 per cent allocations to growth assets, returned 1 per cent, while conservative options, with 21 per cent to 40 per cent growth assets, recorded 1.6 per cent.

People invested in retail superannuation funds, which are those owned by banks and other financial services companies such as AMP, are often invested in what is known as a "lifecycle product".

The options dial down growth asset allocations as people age, the working principal being that younger savers can take more risk.

The median performance for the 1950s and 1940s age cohorts was 0.2 per cent and 0.6 per cent respectively, according to Chant West.

The younger cohorts - those born in the 1960s, 1970s, 1980s and 1990s - all tipped into negative territory for the year to December 2018.