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Superannuation returns fall in April, but the prediction for financial year is good

Have a good think about how your super is working this year.

Have a good think about how your super is working this year. Photo: Getty

Volatility on world markets has hit superannuation returns in April, with median balanced/growth options declining 1.7 per cent for the month, Chant West reports.

The decline, which was reported by another research group, SuperRatings as 1.6 per cent, was the first decline since October 2023 so has ended a five-month positive run for super members.

Chant West lead researcher Mano Mohankumar was not concerned with the monthly downturn, saying that on current projections that the return for the financial year for funds holding growth assets between 61 and 80 per cent is on target to be 8 per cent.

Two strong years

This, of course, comes on the back of the surprisingly strong FY23 return of 9.2 per cent,’’ Mohankumar said.

Global markets hit the skids in April with worries about inflation and global stability sending shockwaves through the system.

“Over April Australian shares fell 2.9 per cent, international shares slipped 3.2 per cent and 3.3 per cent in hedged and unhedged terms, respectively,’’ Mohankumar said.

The bond markets were also soft, with the Australian bond index down 2 per cent and international bonds down 1.7 per cent.

The bond weakness was driven by inflationary concerns.

“Sticky inflation caught up with investment markets in April as the reality of interest rates being higher for longer was being digested, and this flowed through to super returns,” SuperRatings executive director Kirby Rappell said.

Considering uncertainty in the interest rate world, bonds have performed better than they might.

Bond prices rise when interest rates fall, but envisaged interest rate declines have not eventuated.

‘‘If you think back to the start of this year, experts were forecasting six rate cuts by the US Federal Reserve but the situation changed and there may be no cuts at all,’’ Mohankumar said.

SuperRatings, which uses slightly different asset measurements for super fund allocations to Chant West, looked specifically at funds in accumulation and pension modes as well as an overall figure.

 

For the accumulation mode the monthly decline was 1.6 per cent, while in pension mode it was 1.9 per cent.

But for the financial year SuperRatings reports that the pension mode measure is ahead with a  7.7 per cent gain and accumulation is up 7.1 per cent.

Chant West is reporting 6.9 per cent for the same period.

Good growth this year

If the median growth fund does make the expected 8 per cent return, then a fund in that allocation of $150,000 will increase by $12,000 to $162,000.

Members could be happy with super’s recent performance, Mohankumar said.

“The return experience over FY23 and FY24 so far collectively represents a healthy reward for members who have remained patient and maintained a long-term focus,” he said.

After a disappointing year in 2022 with the emergence of inflation after years of extremely low interest rates, ‘‘I don’t think anyone could have foreseen a return of nearly 18 per cent over the subsequent two years,’’ Mohankumar said.

The lesson for members was to play the long game with super and not be spooked by short-term noise.

With the financial year end approaching it would be an opportune moment to examine your super fund and see how it is performing.

If you’re in a traditional balanced/growth fund – where most people have their money – you have probably experienced returns of 8 per cent over 15 years and 6.2 per cent over five years.

That puts you ahead of the return objective held by super funds, which have been set at the CPI rate plus 3.5 per cent.

But a deep dive into the workings of your fund can be instructive to give greater understanding of its performance.

As the above chart based on Canstar figures shows, fund performance can vary wildly.

A good place to start in assessing this is to look at the average annual fee charged by your fund, which goes into your bottom line return because it is an expense you must pay.

The fees for the eight funds shown in the table vary from $348 to $593, but the higher fees have not necessarily affected performance dramatically in most cases.

That is because the funds chosen are operating in different ways.

Some are balanced funds, which require little costs in management, while some are lifestyle products that move members through different options as they age.

Lifestyle products put younger members in more aggressive options that have returned as high as 16.1 per cent over a year.

This, in the case of Virgin Money’s Lifecycle product, has come back to 8.5 per cent over five years.

Aware’s lifecycle product has returned 13.6 per cent and 8.7 per cent, respectively.

This does not mean you should immediately jump ship into a lifestyle product because their returns will lower as you age with more conservative allocations taking hold.

That means overall it will come back towards the balanced/growth fund pack over time.

But when your end-of-year super returns statement arrives, have a good look to familiarise yourself with short-term and longer-term earnings and what you are paying in fees.

It’s a good idea to make a comparison with other funds and then think about whether you are happy where you are.

Remember to consider factors like insurance offerings in your funds and what you are comfortable with regarding risk before making a switch.

Many funds now offer free advice for inter-fund switching, so talking to an adviser could help you get the best deal.

The New Daily is owned by Industry Super Holdings

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