A Good Financial Year For Super Fund Members Is Almost A Certainty

Double-digit returns for super funds remain on the cards this financial year, despite global sharemarkets likely to be negative over May.

It's likely to a stronger performance than many were expecting so far this financial year with positive returns for eight of 10 months for which there are returns so far.

Super funds are on track to deliver a bumper return.

Figures from superannuation researcher, Chant West, show a median return of 10.1 per cent for the 10 months of the financial year to April 30.

The return is for "growth" investment options. They have between 61 and 80 per cent of the money in growth assets, such as shares and property, and are the category of investment option that most people have their money in.

Chant West director, Warren Chant, says it is "almost certain that they'll finish the year in the black for the eighth consecutive time – and quite possibly in the double digits".

He says the federal budget has been well received, despite some contentious measures like the levy on the five major banks.

Chant says, the Reserve Bank keeping interest rates at a record low is good for investment markets, noting the Reserve Bank cited an improving global economy as one of the reasons for keeping rates on hold.

The Reserve Bank appears to have had two potential drivers for either lifting or lowering rates that cancelled each other out.

While there are early signs that heat is starting to come out of the Sydney and Melbourne property markets, the Reserve Bank will not have wanted to lower the cash rate and risk re-fuelling the price boom.

On the other hand, weak wages growth and low inflation are arguments against a rate rise.

Retail funds, those run by the banks and insurers, edged out not-for-profit industry funds in April, returning 1.6 per cent versus 1.4 per cent for industry funds.

Of course, it's the returns over the long term that matter.

Industry funds continue to outpace their retail rivals over the longer term with an annual average compound return of 5.4 per cent a year against 4.6 per cent for retail funds over the 10 years to April 30, 2017.

As I have written before, this comparison is going to become less relevant to more people over time.

That's because most of the retail super funds have switched their "default" members, those who don't make a choice of who runs their super, to a "lifestage" option.

Anyone born in the 1970s will be grouped with others born in the '70s and those in the '80s and so on.

They decrease the investment risk, every so often, as the fund members age.

Standard balanced options, which are the default options of almost all industry funds, have a fairly static asset allocation that is the same for everyone in the investment option. Their returns are easy to compare.

As the asset allocations of lifestage options are dynamic, I can't see how it can be known if these options are any good.

John Collett

The Age

23 May 2017

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