Super fund performance was impacted in January following a turbulent month for domestic and global equities, as rising inflation concerns, and looming rate hikes added to investors’ worries.
Supply shortages relating to COVID-19 have put upward pressure on input costs for companies around the world. As a result, we have seen the price of goods and services such as food, automotive fuel, and healthcare bearing the brunt of the impact.
However, these pressures are hoped to ease as supply chains reopen and as we emerge out of the pandemic. Nonetheless, markets have been spooked by the situation which has resulted in a rocky start to the year for super funds.
According to estimates from leading superannuation research house SuperRatings, the median balanced option returned -2.1% in January following the market sell-off, despite some of the initial losses being recovered towards the end of the month reducing the negative impact.
“Falling interest rates have supported rising asset prices and we have seen extremely strong returns over the past 5, 10 and 20 years. Inflation has been within the RBA’s target for much of this time. However, we are seeing an uptick here which has flow on effects for investment markets and the super balances of Australians,” said SuperRatings Executive Director Kirby Rappell.
Mr Rappell continued “Always remember, only about 50% of investments are in shares so your super should be less volatile if you are in a balanced option or a more conservative option. This means that members sitting in these options are not as affected by the ups and downs in stock markets we have seen recently.”
Super funds still have some way to go before recovering from the latest market drop. The median growth option is down an estimated 2.9%. The capital stable option, which includes more defensive assets like bonds and cash, has fared relatively better, falling only 0.9%.
Accumulation returns to January 2022
| YTD | 1 yr | 3 yrs (p.a.) | 5 yrs (p.a.) | 7 yrs (p.a.) | 10 yrs (p.a.) | |
| SR50 Balanced (60-76) Index | -2.1% | 10.9% | 8.7% | 8.0% | 7.4% | 8.7% |
| SR50 Capital Stable (20-40) Index | -0.9% | 4.5% | 4.5% | 4.4% | 4.3% | 5.3% |
| SR50 Growth (77-90) Index | -2.9% | 12.6% | 10.2% | 9.2% | 8.3% | 9.8% |
Source: SuperRatings estimates
Pension returns have also fallen in January, with the median balanced pension option down an estimated 2.3%, compared to a fall of 3.2% for the median growth option and 1.1% for the capital stable option.
Pension returns to January 2022
| YTD | 1 yr | 3 yrs (p.a.) | 5 yrs (p.a.) | 7 yrs (p.a.) | 10 yrs (p.a.) | |
| SRP50 Balanced (60-76) Index | -2.3% | 11.3% | 9.6% | 8.7% | 7.9% | 9.7% |
| SRP50 Capital Stable (20-40) Index | -1.1% | 4.9% | 5.0% | 4.9% | 4.7% | 5.8% |
| SRP50 Growth (77-90) Index | -3.2% | 13.1% | 10.8% | 10.0% | 9.1% | 11.0% |
Source: SuperRatings estimates
We saw the RBA maintain the cash rate at 0.1% and signal the end of quantitative easing but this does not mean a rate rise is imminent.
Mr Rappell said “While we have seen super fund performance take a hit this month, it is important that people remember that super is a long-term investment. Trying to time the market can see members end up in a worse position, so it’s best to talk to your fund or an adviser before making any changes.
Looking ahead, it’s likely that we will need to embrace the increased volatility that may come from an increase in rates. This is a big shift given we have become so used to the trend of falling rates over an extended period. We have had a strong decade of super returns and we have been through a variety of market environments since 1992.”
Mr Rappell continued “A couple of things to consider, super funds delivered a return of 13.4% in 2021 and over the long-term super returns have exceeded the typical objective of CPI+3%. It’s about checking you are in the right long-term option and sticking to it. If you had switched to cash at the start of last year you would have seen a return of 0.1% instead of 13.4% for a balanced option”.
Remember, your super fund is focused on helping you to navigate these changing markets. Thinking long-term when it comes to strategy and blocking out shorter-term noise remains the pragmatic approach and is aligned with funds’ approaches.
Release ends
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For more information contact:
Kirby Rappell
Executive Director
Tel: 1300 826 395
Mob: +61 408 250 725
Kirby.Rappell@superratings.com.au
Require further information? Simply visit www.superratings.com.au
