Super result a drooper as gains eroded

Investors in super funds are set to receive little or no returns this year as weak equity markets eat away at gains.

By InvestSMART · 1 Dec 2011

By InvestSMART ·
1 Dec 2011

Comments

Investors in super funds are set to receive little or no returns this year as weak equity markets eat away at gains.

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 research company SuperRatings, and unless there is a sharp and unexpected turnaround in equity markets, most members will receive no returns in 2011.

It has been a wild ride for superannuation investors over the past four years, with the average balanced fund tumbling in value by 19.7 per cent in 2008, jumping 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 in line with what funds' long-term objective is, about inflation plus 3 per cent.''

Superannuation in Australia is a $1.3 trillion industry and a politically sensitive one, with the federal government proposing to increase the super contribution from 9 to 12 per cent of a worker's wage.

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 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.

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

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What returns can I expect from my super fund this year?

According to SuperRatings research cited in the article, the average balanced super fund is down 0.7% this year and, unless there is a sharp and unexpected turnaround in equity markets, most members were expected to receive little or no returns in 2011.

Why are superannuation returns weak right now?

The article explains that weak equity markets have been eating away at gains in other asset classes, so when shares fall it can offset returns from cash, fixed income and property, leaving many super funds with weak or no returns.

How have balanced super funds performed over recent years?

Historic figures in the article show a volatile period: an average balanced fund fell 19.7% in 2008, rose 12.9% in 2009 and gained 4.6% in 2010; over the last 10 years SuperRatings said super funds still showed average returns of about 6% per year.

What is a balanced super fund and what does it include?

The article defines a balanced super fund as a diversified portfolio made up of cash, fixed income, local and international shares (equities), and property.

How does having a high share (equity) allocation affect my super fund's performance?

The article notes that a heavy weighting towards shares can produce the worst returns when markets turn down; Chant West data showed funds with 61–80% equities were down about 2% so far this year.

Should I be worried about short-term volatility in my superannuation balance?

The article puts volatility in context: while there have been sharp swings (big fall in 2008 and recoveries in later years), SuperRatings’ chairman said 10‑year returns still average about 6% a year, roughly in line with many funds' long‑term objectives.

Could investor behaviour make super funds lose more value?

Yes — the article quotes Chant West’s Mano Mohankumar warning that if investors react sharply to bad news, Australian funds could be in danger of losing more value, so behaviour and market sentiment matter.

How might government proposals on super contributions affect my retirement savings?

The article states the federal government was proposing to increase the super contribution rate from 9% to 12% of a worker’s wage; the proposal is politically sensitive and any change to compulsory contribution rates could affect how much is paid into super over time.