Super fund returns beginning to bounce back

SUPER funds have recorded their best returns in months after the local sharemarket bounced back from recent lows, despite continuing concerns over global growth. 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.

By InvestSMART · 22 Aug 2012

By InvestSMART ·
22 Aug 2012

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SUPER funds have recorded their best returns in months after the local sharemarket bounced back from recent lows, despite continuing concerns over global growth.

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.

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Frequently Asked Questions about this Article…

What were recent super fund returns and how did they perform in July?

Super funds recorded one of their best monthly results in July, with SuperRatings showing median balanced funds returned 1.1% in July (the best return since March). That lift helped push the median super fund return for the year to around 3%.

What is a balanced fund and how much growth exposure do balanced super funds hold?

A balanced fund is the typical default super option for most Australians and holds a mix of growth and defensive assets. According to the article, balanced funds hold between about 60% and 76% of their assets in ‘growth’ style investments (shares, property and similar assets).

Why did superannuation fund returns bounce back recently?

The bounce was driven mainly by a rebound in the local sharemarket, with positive contributions from property, fixed interest and cash. SuperRatings’ chairman Jeff Bresnahan said funds have bounced back roughly 5% since the end of last calendar year, supporting the recent upside.

How are high bank savings rates affecting super fund managers?

Changes to global banking rules have forced banks to rely more on retail deposits, prompting local banks to offer higher interest rates to attract savers. That competition for household savings has put pressure on super managers, as some households shift money from volatile markets into bank deposits and bonds.

Did any types of super funds outperform others in July?

Yes. Rival research house Chant West reported the median super growth fund grew by 1.1% in July, and found that master trusts (which invest heavily in listed shares and listed property) outperformed industry funds in July, returning around 1.5%.

Are super funds getting close to their long‑term return targets?

SuperRatings noted a cautious optimism: with underlying inflation under 2% and funds generally targeting CPI plus about 3–3.5%, the recent gains suggest funds may be heading back toward those longer‑term targets, though conditions remain uncertain.

Is global economic uncertainty still a risk for super fund performance?

Yes. The article highlights that the economic backdrop remains very uncertain and the euro debt crisis is still unresolved. However, it also notes a more optimistic tone in world markets during July that carried into August.

What recent household saving trends should everyday investors be aware of?

Households have been shifting some savings away from volatile markets into bonds and bank deposits, attracted by higher deposit rates. That trend has made life tougher for some super managers but also reflects how retail savings and bank offers are influencing where people keep short‑term cash.