According to estimates from leading research house SuperRatings, super funds had a positive start to 2020, with the median balanced option returning 1.9% in January, driven predominately by gains from Australian and International shares.

The start of February was a different story as markets were affected by the outbreak of the Coronavirus, which led to a selloff in global share markets as investors sought out safe-haven assets.

Asian equity markets have borne the brunt of the initial impact, but the effects are likely to be felt across global markets, noting that previous outbreaks over the last two decades have resulted in short–term equity market corrections within a range of 5–15%.

As super funds face the new normal of lower returns and yields, managing volatility is becoming increasingly necessary. However, despite the current swings in the market, SuperRatings said funds remained focused on long-term member outcomes.

“The funds we’ve spoken to are not responding to the current market situation with knee-jerk reactions,” said SuperRatings Executive Director Kirby Rappell.

“They’re watching developments closely, but so far market volatility has been in line with similar risk events experienced in recent years. Fund investment strategies are generally well placed to manage these types of movements.”

Looking back at previous epidemics, such as the Ebola outbreak in 2018 or the SARS epidemic back in 2003, Australian super funds have proved relatively resilient to short-term market movements. Quarterly returns during each episode have ranged between -2.1% and +4.3%, with markets largely unfazed over longer periods.

Outbreaks and SR50 Balanced Index performance

Source: SuperRatings, Financial Express

Whether the effect of the Coronavirus has a more lasting impact on markets remains to be seen, but funds are unlikely to implement any dramatic changes to their investment strategies without further evidence that the virus will deal more prolonged damage to the global economy.

Con Michalakis, Chief Investment Officer at StateWide Super, said that while there would undoubtedly be some economic fallout, the fund remains focused on long-term member outcomes. “This is a classic case of a black swan, and like all black swans the markets struggle with uncertainty,” said Mr Michalakis.

“What we can be sure about is that the economy in China and Australia will be slower due to the restrictions in place in the first quarter of 2020. However, from a long-term perspective, diversification and strategy based on member age and risk tolerance is more important.”

Suzanne Branton, Chief Investment Officer at CareSuper, said the fund’s investment strategies are designed to provide downside protection during bouts of market turmoil.

“When new influences on the investment outlook emerge, it’s important to analyse and monitor these closely,” said Ms Branton.

“There could be a short-term impact that provides investment opportunities or avenues to adjust positioning. However, there are reasons to expect a more short-term rather than extended large-scale market impact. Our investment approach is structured to deliver downside protection so our investment program resilience to short-term volatility is high.”

Super funds post solid returns in January as share markets powered into 2020

Super funds started the year in positive territory as momentum in local and international share markets carried through into the new year. This was quickly reversed following the outbreak of the Coronavirus and the ensuing drawdown in markets, but over longer periods super fund returns are holding up remarkably well.

Over 12 months to the end of January, the median balanced option returned an estimated 13.8%, while the median growth option return was estimated at an impressive 16.2%. Returns over the past seven years are estimated at 8.8% and 9.8% respectively.

Estimated accumulation returns (% p.a. to end of January 2020)

  1 yr 3 yrs 5 yrs 7 yrs 10 yrs
SR50 Growth (77-90) Index 16.2% 10.2% 8.2% 9.8% 8.8%
SR50 Balanced (60-76) Index 13.8% 9.1% 7.7% 8.8% 8.2%
SR50 Capital Stable (20-40) Index 7.7% 5.3% 4.6% 5.3% 5.6%

Source: SuperRatings

Pensions have delivered even higher returns than accumulation products, with the median balanced pension option returning an estimated 15.4% over the 12 months to the end of January, while the median growth pension option had an estimated return of 18.0%. Over the past seven years each have returned 9.6% and 10.8% respectively.

Estimated pension returns (% p.a. to end of January 2020)

  1 yr 3 yrs 5 yrs 7 yrs 10 yrs
SRP50 Growth (77-90) Index 18.0% 11.4% 9.3% 10.8% 9.7%
SRP50 Balanced (60-76) Index 15.4% 9.8% 8.1% 9.6% 9.0%
SRP50 Capital Stable (20-40) Index 8.9% 6.2% 5.2% 5.9% 6.3%

Source: SuperRatings

“We expect to see volatility appear more frequently over the course of 2020, but overall our outlook for super funds is positive,” said Mr Rappell.

“Long-term returns will continue to hold up despite the challenging return environment we find ourselves in at present. Members should look forward to a solid 2020, but expect some bumpiness along the way.”

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