Super fund returns beginning to bounce back

The news will be welcomed by superannuation fund managers. Many have been struggling since households turned away from volatile markets to put more savings into bonds and bank deposits.

SuperRatings released figures yesterday which showed median balanced funds recorded a 1.1 per cent return in July - the best return since March - which helped to lift super funds' median return for the year to 3 per cent.

Most Australians hold their super in balanced funds. Balanced funds hold between 60 and 76 per cent of their assets in "growth" style investments.

The chairman of Super Ratings, Jeff Bresnahan, said the result was driven by the local sharemarket, with positive contributions from property, fixed interest and cash.

"The first six months of last financial year were just awful. Five of the first six months of last financial year were negative.

"But since December there's been a marked turnaround. We've seen super funds bounce back by about 5 per cent since the end of last calendar year. And given that underlying inflation is less than 2 per cent, and that funds are really trying to get CPI plus 3 or 3.5 per cent, it looks like we're heading back towards that mark."

Super managers face pressure from banks chasing deposits, following changes to global rules that have forced banks to rely more on retail savings to fund their lending. Local banks are offering high rates of interest for savings in a bid to outdo each other.

Mr Bresnahan said: "There's a cautious air of optimism that things may have turned around. The fact that we got out of last year without any losses was actually a feat in itself, given the strain on international share markets."

The rival research house Chant West confirmed the data yesterday, releasing figures showing the median super growth fund had grown by 1.1 per cent in July, thanks to the gain on the local stockmarket. It found master trusts, which invest heavily in listed shares and listed property, outperformed industry funds in July, returning 1.5 per cent.

"While the economic backdrop remains very uncertain and the euro debt crisis is still far from resolved, there did seem to be a more optimistic tone in world markets in July and that has carried through to August," said the director of Chant West, Warren Chant.