SUPERANNUATION funds posted their worst monthly return in two years last month after the European debt crisis pummelled sharemarkets.
The median balanced-growth fund fell 2.3 per cent in May, following a 0.4 per cent increase in April, according to the super fund tracking group Chant West. Last month's fall - the most since May 2010 - followed four months of incremental increases.
"Global sharemarkets slid in May on fears that Greece might need to default on its debt and exit the eurozone," said a Chant West director, Warren Chant. "Investors were also edgy on reports of a slowdown in growth in China and the US."
Australia's super funds are typically highly exposed to equities. Chant West defines growth funds, the most common allocation in Australia, as those with 61 per cent to 80 per cent of their investments held in growth assets.
The ASX200 benchmark index fell 7.3 per cent in the month, closing as low as 4029 points, although it stabilised in June on hopes Greece and other governments in Europe will be able to muddle through.
In May, so-called all-growth funds fell 4.2 per cent, while high-growth funds fell 3.3 per cent, Chant West said. Balanced funds, defined as having 41 to 60 per cent of holdings in growth assets, fell 1.2 per cent in May, while conservative funds fell 0.4 per cent.
Master trusts fell 2.6 per cent in May, outpacing industry funds, which lost only 2.2 per cent with a lower exposure to listed shares and listed property. The result was consistent with the longer-term performance across the two types of funds. Industry funds posted a return of 5.7 per cent in the decade to May, compared to 4.4 per cent for retail funds, on Chant West data.
Separately, SuperRatings said that the median balanced fund, which it defines as having 60 to 76 per cent of its allocation in growth assets, fell 2.2 per cent in May.
The top three performing funds in the month were CSC Public Sector Superannuation Scheme Accumulation Plan - Trustee Choice, down 0.53 per cent LGsuper Accum - Conservative Balanced, down 0.71 per cent and MTAA Super - Balanced, down 0.93 per cent, SuperRatings said.
Despite the fall, the median balanced fund may close out the financial year on the positive side of the ledger, SuperRatings said. The median balanced fund grew at 0.3 per cent in the financial year to May. At that pace, the median financial year to date return is on track to eke out a 0.5 per cent return.
Since the financial crisis first emerged in 2008, households have been adjusting to the effect of volatility on their financial holdings. The Reserve Bank, in its June quarter bulletin, noted "a significant increase in the share of people nominating deposits and paying down debt as the 'wisest place' for saving and a decline in the share nominating equities and real estate".
The report showed superannuation continues to account "for the bulk of households' financial assets" at just below 60 per cent. "Within superannuation, there has also been a shift towards deposits and away from equities."
Frequently Asked Questions about this Article…
Why did superannuation funds record their worst monthly return in two years in May?
Chant West says global sharemarkets slid in May as the European debt crisis — especially fears Greece might default or leave the eurozone — rattled investors. Reports of slower growth in China and the US also made markets nervous, hitting superannuation returns that month.
How much did the median balanced super fund fall in May?
According to Chant West the median balanced-growth fund fell 2.3% in May. SuperRatings reported a similar result, saying its median balanced fund (which it defines slightly differently) fell 2.2% in May.
Which types of super funds were hit hardest in May?
Equity-heavy funds were worst affected: Chant West reported all-growth funds fell 4.2% and high-growth funds fell 3.3%. Balanced funds (with a lower growth allocation) fell 1.2%, while conservative funds fell 0.4%.
How did the ASX200 perform in May and what does that mean for super funds?
The ASX200 benchmark fell 7.3% in May, dropping as low as about 4,029 points. Because many Australian super funds have high exposure to listed shares, a big fall in the ASX200 adds downward pressure on fund returns.
What’s the difference between growth, balanced and conservative super funds?
Definitions vary slightly: Chant West calls 'growth' funds those with 61–80% in growth assets, and 'balanced' funds 41–60% in growth assets. SuperRatings’ median balanced definition is 60–76% in growth assets. Conservative funds have much lower exposure to growth assets and suffered smaller market-driven falls in May.
Did any funds stand out as better performers in May?
Yes. SuperRatings named the top three performers for the month as CSC Public Sector Superannuation Scheme Accumulation Plan – Trustee Choice (down 0.53%), LGsuper Accum – Conservative Balanced (down 0.71%) and MTAA Super – Balanced (down 0.93%).
How did different fund types compare over the longer term despite the May sell-off?
Chant West data show industry funds have outperformed retail funds over the longer term: industry funds returned 5.7% in the decade to May versus 4.4% for retail funds. In May specifically, master trusts fell 2.6% while industry funds lost 2.2%, reflecting industry funds’ generally lower exposure to listed shares and property.
Could the median balanced fund still end the financial year with a positive return after May’s losses?
SuperRatings noted the median balanced fund grew 0.3% in the financial year to May. At that pace it was on track to eke out roughly a 0.5% return for the financial year, so finishing the year slightly positive was possible despite the May fall.
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