InvestSMART

No happy returns for those who chose a balanced fund

INVESTORS in super funds are set to receive little or no returns this year as weak equity markets eat away at gains in other asset classes.
By · 1 Dec 2011
By ·
1 Dec 2011
comments Comments
Upsell Banner
INVESTORS in super funds are set to receive little or no returns this year as weak equity markets eat away at gains in other asset classes.

The average balanced super fund is down 0.7 per cent this year, according to the research company SuperRatings, and unless there's a sharp and unexpected turnaround in equity markets most members will receive no returns in 2011.

It's been a wild ride for superannuation investors over the past four years, with the average balanced fund falling in value by 19.7 per cent in 2008, rising 12.9 per cent in 2009, and rising 4.6 per cent last year.

"We've really only had two negative years," the chairman of Superratings, Jeff Bresnahan, said. "If you look at returns from the last 10 years, super funds are still showing returns of about 6 per cent a year, which is absolutely in line with what funds' long-term objective is, which is about inflation plus 3 per cent."

Super is a $1.3 trillion industry in Australia and increasingly a politically sensitive issue with the federal government proposing to increase the super contribution from 9 to 12 per cent of a worker's wage. Poor returns could enhance the sensitive nature of the push towards a 12 per cent contribution.

A balanced super fund is a portfolio of holdings in cash, fixed income, local and international shares (equities), and property. When markets turn down, a heavy weighting towards shares can give super funds the worst returns.

According to figures from the research company Chant West, the returns for funds with a share of equities of 61 to 80 per cent are down 2 per cent so far this year.

Mano Mohankumar, the investment research manager at Chant West, said as long as investors react sharply to bad news, Australian funds are in danger of losing more value.

"If Europe does indeed fall into recession, as looks increasingly likely, there are sure to be flow-on effects for our part of the world," he said. "Now is not the time for complacency because, while we are half a world away, we are certainly not immune from events in the euro zone."

Google News
Follow us on Google News
Go to Google News, then click "Follow" button to add us.
Share this article and show your support
Free Membership
Free Membership
InvestSMART
InvestSMART
Keep on reading more articles from InvestSMART. See more articles
Join the conversation
Join the conversation...
There are comments posted so far. Join the conversation, please login or Sign up.