SuperRatings Executive Director Kirby Rappell shares the latest performance results for superannuation funds and the future outlook for the industry.

Members should be prepared for more ups and downs. However, a patient approach has paid off for members over the long term with the median balanced style fund returning 7.0% per annum since the introduction of superannuation in 1992.

 

 

 


Any advice that SuperRatings provides is of a general nature and does not take into account an individual’s financial situation, objectives or needs. Because the information that SuperRatings receives about superannuation and pension financial products is from a number of sources, it is not guaranteed to be completely accurate. Because of this, individuals should, before acting on the information, consider its appropriateness having regard to their own financial objectives, situation and needs and if appropriate, obtain personal financial advice on the matter from a financial adviser. Before making a decision regarding any financial product, individuals should obtain and consider a copy of the relevant Product Disclosure Statement from the financial product issue.

There are plenty of fund managers who claim environmental, social and governance (ESG) credentials, but how many of them are actually the real deal?

When clients approach advisers looking to specifically invest in ESG, the problem has been distilling the true-to-label ESG players from those which only tick some of the boxes. Unfortunately, the objectives of investors are not necessarily identical to those of the fund managers.

There have always been ‘pretenders’ in the mix when it comes to ESG managers, but part of the issue is that mum and dad investors view ESG very differently to professional fund managers.

Confusion partly arises due to the different approaches to ESG, and this is where a gap in understanding arises. Often, when institutional fund managers discuss ESG, they are talking about a different thing to what regular investors might have in mind they think about how environmental, social and governance factors are incorporated into a portfolio.

Generally, when funds talk about ESG, they are looking at it through an investment prism – i.e. what will the ESG risk do to the value of a particular company?

However, when the mum and dads are looking at this, they are concerned about the ESG risks as they pertain to them, and what these mean for their community, planet and grandchildren. The bottom line is that the perspective the institutional fund managers and the mum and dad investors have may be quite different, and part of the adviser’s job is to work through this discrepancy and ensure their clients are investing in products that meet their expectations.

In order to do this, advisers and their clients need to understand the underlying investments of individual products and be able to make assessments and comparisons based on objective criteria. This is why Lonsec has been working with advisers to develop a new suite of research that is designed to give advisers and end investors the ability to identify investments that align with an investor’s values.

Under the new regime, all funds covered by Lonsec are issued with a sustainability score, which reflects the underlying investments of individual products and their compatibility with the United Nation’s 17 Sustainable Development Goals (SDGs). The research is provided in partnership with Sustainable Platform, a leading provider of sustainability data for investment managers and institutions.

There is growing awareness among investors of the importance of considering sustainability issues when constructing a portfolio. Advisers are now typically confronted with the question: ‘What am I really invested in?’ It’s essential that advisers are in a position to not only answer this question, but to create a portfolio that is truly aligned to their client’s preferences.

Under Lonsec’s new approach, a Sustainability Report is issued for each fund that undergoes assessment – a two-page document detailing the relative success of the fund in supporting the SDGs, together with any exposure to the 10 controversial industries. The Lonsec Sustainability Score reflects the net impact of these measures, which is peer ranked and results in a score of between one and five bees.

There are certainly a lot of traditional fund managers who have very good ESG processes, and they do understand the risks. However, if they feel the market is compensating investors sufficiently for these risks, they’ll take them. This is because they’re thinking about it in terms of the future value of a firm, but they’re not necessarily thinking about the risk to the future of the planet.

So there are certainly companies and funds that will be assessed very strongly by Lonsec as ESG managers because they do the work, understand the risks, and engage with companies, but that doesn’t mean that their portfolios will align with what investors are looking for.

Hence the need for a new way of assessing sustainability. This new approach is crucial in order to determine what is really going on behind the ‘sustainable’ and ‘ESG’ labels. That is what Lonsec has tried to do – we’ve tried to separate the way ESG is implemented and how fund managers think about it in terms of the investing process from what clients expect and care about.

This means looking beyond the marketing stories that managers are trying to tell. Instead, we need to assess portfolios based not only on what a particular company is, but what it makes (i.e. its products and services) and how are they used.

By mapping these activities to the SDGs and controversial industries, and distilling this into a single score, we hope to give advisers the tools and information they need to make investment decisions that genuinely align with their clients’ values. We also wanted to present this information in a way that allows advisers to clearly demonstrate how their investment selection is helping them contribute to a better world.

ESG is not a redundant process – far from it. If investors understand what ESG products are trying to achieve and how they work, then they may find these products valuable. However, we need to enable advisers to have these conversations with clients and fund managers so that investors can make informed decisions. That’s a goal we hope everyone can support.

 

Kirby Rappell (Executive Director, SuperRatings) reveals insights into the superannuation landscape, based on SuperRatings’ latest benchmark report. It incorporates comments on the current market conditions, as well as the initiative to permit the early release of superannuation and the fund merger environment. A consistent theme of this year’s report is the state of flux being observed, coupled with pressures from regulatory and compliance initiatives, as well as COVID-19 impacts. Thoughts around the future outlook and key areas of focus for providers as they navigate the current environment are also provided.

 


Any advice that SuperRatings provides is of a general nature and does not take into account an individual’s financial situation, objectives or needs. Because the information that SuperRatings receives about superannuation and pension financial products is from a number of sources, it is not guaranteed to be completely accurate. Because of this, individuals should, before acting on the information, consider its appropriateness having regard to their own financial objectives, situation and needs and if appropriate, obtain personal financial advice on the matter from a financial adviser. Before making a decision regarding any financial product, individuals should obtain and consider a copy of the relevant Product Disclosure Statement from the financial product issuer. © 2020 SuperRatings Pty Ltd ABN 95 100 192 283 AFSL 311880


Lonsec’s experts look at four key themes we believe every financial adviser needs to understand to help their clients weather the storm and be in the best position possible to take advantage of future market conditions.

Bonds

Lukasz de Pourbaix, Executive Director & Chief Investment Officer

Providing insight into current market dynamics and performance-driven by historically high levels of volatility and tight liquidity conditions

Equities

Danial Moradi, Portfolio Manager Listed-Products

An overall update on the banking sector, focusing on the future of dividends in the current environment and a look into what the future may hold.

Performance of portfolios

David Wilson, Senior Investment Consultant

A summary of the overall performance of Lonsec’s managed accounts, including a deeper dive into the underlying strategies used and drivers of returns at the security selection level.

Dynamic Asset Allocation

Brook Sweeney, Senior Investment Consultant

Insight into Lonsec’s dynamic asset allocation process and the valuation, cycle, policy, and momentum factors that drive decision making.

 


This information is provided by Lonsec Investment Solutions as a corporate authorised representative of Lonsec Research Pty Ltd who holds an AFSL number 421445. This is general advice, which doesn’t consider your personal circumstances. Consider these and always read the product disclosure statement or seek professional advice prior to making any decision about a financial product. You can access a copy of our financial services guide at lonsec.com.au

This video is provided by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research). LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Past performance is not a reliable indicator of future performance. This is general advice, which doesn’t consider your personal circumstances. Consider these and always read the product disclosure statement or seek professional advice prior to making any decision about a financial product. While care has been taken to prepare the content of this video, LIS makes no representation or warranty to the accuracy or completeness of the information presented, which is drawn from public information not verified by LIS. The information contained in this video is current as at the date of publication. Copyright © 2020 Lonsec Investment Solutions Pty Ltd ACN 608 837 583

In the wake of the most challenging quarter for financial markets in living memory, super members are scrambling to check their account balances to see what effect the sell-off is having on their retirement savings.

While members are undoubtedly nervous and wondering what the market has in store for them next, leading research house SuperRatings cautioned members against making investment decisions based on an emotional reaction to the current environment.

“Our message for super members, especially those further from retirement, is stay invested if you can,” said SuperRatings Executive Director Kirby Rappell.

“Knee-jerk changes to your portfolio could have a negative effect on your retirement. Switching to cash will lock in losses and mean you miss out on the upside when the market eventually recovers. We suggest members talk to their fund or financial adviser to help ensure any decision is aligned with a long-term strategy.”

Superannuation has been hit hard by the coronavirus and the market’s reaction to extreme measures such as social distancing, lockdowns, and travel bans.

According to estimates from leading research house SuperRatings, the median balanced option fell 8.9% in March and is down 10.0% over the quarter.

The median growth option, which generally has a higher exposure to shares, fell 12.5% in March and 14.1% over the quarter. The median capital stable option fared relatively well amid the market turmoil, falling only 4.1% in March and 3.8% over the quarter.

Accumulation returns to end of March 2020

  CYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a)
SR50 Growth (77-90) Index -14.1% -6.4% 3.1% 3.7% 6.8% 6.5%
SR50 Balanced (60-76) Index -10.0% -3.1% 3.7% 4.3% 6.7% 6.5%
SR50 Capital Stable (20-40) Index -3.8% 0.4% 3.1% 3.2% 4.5% 4.9%

Source: SuperRatings estimates

Pension returns have also been buffeted by the wave of selling. The median balanced pension option fell an estimated 10.2% over the March quarter, while the median growth option fell 14.4%. In contrast, the median capital stable option was down 3.8%.

Pension returns to end of March 2020

  CYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a)
SRP50 Growth (77-90) Index -14.4% -5.9% 3.7% 4.4% 7.8% 7.3%
SRP50 Balanced (60-76) Index -10.2% -2.5% 4.2% 4.6% 7.3% 7.2%
SRP50 Capital Stable (20-40) Index -3.8% 1.0% 3.8% 3.7% 5.1% 5.6%

Source: SuperRatings estimates

The only good news in March seemed to be signs of a relief rally as markets priced in the government’s fiscal stimulus packages and the Reserve Bank of Australia’s bond-buying program, along with similar efforts from governments globally.

While more pain is expected, markets have already sold off heavily in response to the coronavirus and the measures taken to contain it.

How is your super option exposed to market moves?

According to SuperRatings, times of severe market stress can make investors second-guess their long-term investment strategy. For super members, switching to a more conservative investment option in the middle of a crisis can lock in significant losses and mean missing out on the upside when markets inevitably recover.

Older members nearing retirement are likely to be in conservative balanced or capital stable options which have higher allocations to defensive assets, providing protection from share market movements.

As the chart below shows, Australian and international shares generally make up just over half of the portfolio for a balanced option, with the rest invested in bonds, property, alternative assets, and cash. For growth options, shares typically make up around 67% of the portfolio, meaning members are more exposed to movements in share markets.

In contrast, members in a capital stable option will typically have only a 20% allocation to shares, with much higher allocations to bonds and cash, providing more stability and protection against share market swings.

Over time we have seen funds investing more in Alternative assets such as unlisted property, infrastructure and private equity, with these assets representing around 20% of the average balanced fund’s portfolio in 2019, up from 15% in 2008.

Asset allocation by investment option


Source: SuperRatings indices

Members need to keep the current market conditions in context. For most members, while there may be a fall on paper, the loss only becomes crystallised when members sell out. If you’re in the 20 to 40 age bracket, you have another 30 to 50 years to go before you need to start drawing down on your super. Even members in their 50s will need to rely on their super for drawdowns over the next 20 to 30 years.

Sadly, the title of our Symposium now seems all too prophetic.

Following the advice of the Australian government and health authorities, we’ve decided that the best option is to cancel the event.

Over 900 people were already registered to attend, but we all need to help ‘flatten the curve’ and prevent the spread as much as we can.

At this stage we’re not planning to re-schedule, but we’re working to make the content available to everyone who registered. We’ll provide further information on how to access these materials as it becomes available.

Who knows, we may all have plenty of time at home to watch and read!

We’d like to thank our event sponsors, AllianceBernstein, Fidante, Fidelity, Investors Mutual, Legg Mason, Pendal Group, Schroders and Talaria, and we look forward to continuing to work with them to keep you informed.

Feel free to put the Lonsec Symposium 2021 (Thursday 29th April 2021) in your diaries, and we look forward to seeing you all there, if not before.

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.”

The outbreak of the coronavirus in over 28 countries has sent shockwaves through global financial markets over the past fortnight with increasing levels of uncertainty and misinformation evident across a number of regions. While there are many unknowns regarding this outbreak, there is likely to be continued disruption to economic activity ahead, which is unlikely to subside until the outbreak is brought under control.

The impact of the coronavirus on equity markets is likely to be multi-faceted with the potential to impact earnings across a numbers of sectors over 2020. While Asian equity markets are likely to take the brunt of the initial impact, 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%.

Implications on the Australian equity market

From an Australian equities perspective, we are likely to see earnings outlook downgrades across a number of sectors, at a time of elevated valuations and a sub-par growth outlook, particularly as we head into the February reporting season. While earnings across the Healthcare, Consumer Staples and Infrastructure sectors should be relatively immune to recent events, based on Lonsec’s initial estimates, 2020 earnings estimates for the Resources (Energy, Iron Ore and Copper), Tourism/Travel and Consumer Discretionary sectors are likely to see significant one-off earnings revisions, capturing the impact of the coronavirus outbreak and the recent bushfires across Australia. However, such downgrades are unlikely to impact the long-term investment thesis for most companies and should be regarded as short-term headwinds, reflecting a series of one-off unfortunate events.

Lonsec’s asset allocation views

From an asset allocation perspective, Lonsec’s multi-asset portfolios remain very well diversified with only a small direct exposure to Chinese equity and bond markets. Consequently, our current focus is on the flow on effects that a sustained slowdown in Chinese growth may have on the domestic growth outlook given our close trading ties. As previously noted, our valuation indicators for Australian equities remain elevated, making them susceptible to a pullback should Chinese authorities’ attempts to stabilise growth fail. We have maintained our slight underweight positions in both global and Australian equities for the time being, however continue to monitor events closely.

While there is a high degree of uncertainty regarding the coronavirus outbreak, Lonsec notes that this event does pose a long “tail risk” for global markets should the outbreak get out of hand. These factors make it a challenging period for investors, where factors other than fundamentals are having a material impact on the trajectory of markets. In such an environment, we believe selective valuation opportunities will present themselves for long-term investors, however ensuring that your portfolio is diversified will be very important in navigating an increasingly volatile market environment.

For consumers, 2019 was a year best forgotten as negative economic news created an almost perpetual drag on sentiment and global uncertainty resulted in repeated bouts of volatility. But for investors, including Australia’s 15 million super fund members, it was a year that saw a sizeable accumulation of wealth, driven by share market gains as well as some savvy investment decisions by the top-ranking funds.

Even with the high expectations set during a year that saw share markets rally ever higher, several super funds were able to translate this favourable environment into exceptional gains for members.

Topping the leader board in 2019 was UniSuper, whose balanced option delivered a return of 18.4% over the year and is among the top performers over 10 years with a return of 8.9% per annum. Over one year, UniSuper was followed by AustralianSuper – Australia’s largest fund – which returned 17.0% in 2019 and 9.0% over 10 years. However, it’s Hostplus that remains in first place over 10 years with an annual return of 9.2%.

Top 10 balanced options (return over 1 year)


*Interim return
Source: SuperRatings

Top 25 balanced options (return over 10 years)


*Interim return
Source: SuperRatings

UniSuper came out on top in a crowded field, in which the top 10 funds delivered an average return of 16.3%. It was a tight race over longer time periods, and while markets have certainly provided a tailwind, there’s no doubt that skilful management plays a role in squeezing out additional returns.

While returns may appear narrowly spread at the top, this hides some significant differences in asset allocation and investment strategies pursued by different funds. What was interesting to see was the diversity of approaches that funds take, even at the top of the leader board. While most funds have benefited from strong equity markets, the nuances among the top performers are where there has been strong value added for members.

In the case of UniSuper, the fund continues to pursue an active management strategy with exposures predominantly to Australian and International Equities, as well as significant cash and fixed interest exposures. Allocations to illiquid assets such as infrastructure and private equity are not a key component of their strategy.

Meanwhile, Hostplus has significant allocations to illiquid assets, with these being a key driver of its performance outcomes for Property, Infrastructure and Private Equity assets. AustralianSuper has also benefited from material unlisted asset exposures, as well as fee savings generated from its in-house investment structure.

Top pension funds

One of the key challenges super funds face is the current low-yield environment, which is making it harder for funds to generate income for members. This challenge is likely to be felt more acutely by those in the post-retirement phase, who rely on the income generated by their pension product to fund living expenses.

In this environment, picking the right pension fund and option can be critical. The below chart shows how capital stable pension options (20–40% growth assets) stack up over 10 years, and while there is some dispersion in the results, every option in the top 25 by performance exceeded the typical CPI plus 3.0% target. AustralianSuper’s Stable option is the best performer, returning 7.6% p.a. over ten years, followed closely by TelstraSuper’s Conservative option and Hostplus’s Capital Stable option.

Top 25 capital stable pension options (return over 10 years)


Source: SuperRatings

Understanding risk is critical for consumers

Most consumers can’t define risk, but they know it when they experience it. For superannuation members, risk can mean the likelihood of running out of money in retirement, or not having enough cash to pay for holidays, car repairs, or an inheritance for their kids.

For young members starting out in the workforce, short-term market falls might not matter too much because their investment horizon is relatively long. But for members nearing retirement, the timing of market ups and downs can have a significant effect on the wealth they have available in the drawdown phase.

For a young worker with a relatively low super balance, being exposed to riskier assets is less of a problem – in fact, it can help them accumulate wealth over their working life. However, for members approaching retirement (aged 50 and over), an unexpected pullback in the market can mean the difference between living comfortably and having to cut back in order to get by.

For this reason, it’s important to consider not only the return that a fund delivers but also the level of risk it takes on to achieve that return. In this context, risk means the degree of variability in returns over time. Growth assets like shares may return more on average than traditionally defensive assets like fixed income, but the range of return outcomes in a given period is greater.

The table below shows the top 25 funds ranked according to their risk-adjusted return, which measures how much members are being rewarded for taking on the ups and downs.

Top 25 balanced options based on risk and return

Fund option name 7 year return (% p.a.) Rank
QSuper – Balanced 9.1 1
CareSuper – Balanced 9.8 2
Cbus – Growth (Cbus MySuper) 10.3 3
Hostplus – Balanced 10.5 4
BUSSQ Premium Choice – Balanced Growth 9.6 5
Sunsuper for Life – Balanced 10.0 6
Catholic Super – Balanced (MySuper) 9.4 7
HESTA – Core Pool 9.6 8
CSC PSSap – MySuper Balanced 9.0 9
MTAA Super – My AutoSuper 9.5 10
Media Super – Balanced 9.4 11
Intrust Core Super – MySuper 9.8 12
AustralianSuper – Balanced 10.5 13
Mercy Super – MySuper Balanced 10.0 14
Rest – Core Strategy 9.0 15
First State Super – Growth 9.7 16
QANTAS Super Gateway – Growth 8.3 17
TWUSUPER – Balanced 8.8 18
Energy Super – Balanced 9.3 19
Local Government Super Accum – Balanced Growth 9.0 20
AMIST Super – Balanced 8.9 21
VicSuper FutureSaver – Growth (MySuper) Option 9.8 22
Club Plus Super – MySuper 8.9 23
NGS Super – Diversified (MySuper) 8.9 24
LGIAsuper Accum – Diversified Growth* 8.9 25

Risk/return ranking determined by Sharpe Ratio
*Interim return
Source: SuperRatings

QSuper’s return of 9.1% p.a. over the past seven years is slightly below the average of 9.7% across the top 10 ranking funds, but it has the best return to risk ratio of its peers, meaning it delivered the best return given the level of risk involved. Funds such as CareSuper, Cbus and Hostplus were able to deliver higher returns, but for a slightly higher level of risk.

Super funds are on track to finish 2019 with the strongest returns in years, defying fears of a market fade in the final quarter. While market conditions have been challenging, investors have not yet succumbed to the negative economic headlines, which has been good news for super funds.

If momentum holds up through the rest of the year, members in the median balanced option will be looking at an annual return of around 15.0% for 2019 – a result not seen since 2013.

According to leading research house SuperRatings, funds have done a good job of managing uncertainty, which has only been exacerbated by global risks and challenging economic conditions at home. But while consumers are feeling the pinch, their super is holding up well.

A rebounding share market saw the ASX 200 Index return 3.3% in November, putting Australian shares on track to deliver a return of around 26.0% for 2019, which would be the highest investors have seen since 2009. This is despite weakness from the major Financials sector, which slipped 2.0% over the month as the major banks were marked down due to the lower interest rate outlook, while Westpac (-13.1%) was the latest to be hit with negative headlines.

Looking at November’s results, the median balanced option returned an estimated 2.0% over the month, with Australian shares contributing 0.6% and international shares 1.0%, bringing the year-to-date return to 14.8%. The median growth option delivered an estimated 2.3% over the month, bringing the year-to-date return to 17.2%.

Over the past five years, the median balanced option has returned an estimated 7.9% p.a., compared to 8.7% p.a. for growth and 4.9% p.a. for capital stable (see table below).

Estimated accumulation returns (% p.a. to end of November 2019)

YTD</strong 1 yr 3 yrs 5 yrs 7 yrs 10 yrs
SR50 Growth (77-90) Index 17.2% 15.2% 10.5% 8.7% 10.4% 8.6%
SR50 Balanced (60-76) Index 14.8% 13.4% 9.3% 7.9% 9.3% 8.0%
SR50 Capital Stable (20-40) Index 8.3% 8.5% 5.5% 4.9% 5.4% 5.6%

Source: SuperRatings

Pensions products have similarly performed well over the course of 2019, with the median balanced pension option returning an estimated 16.3% year-to-date to the end of November, compared to 19.6% for growth and 9.6% for capital stable.

Estimated pension returns (% p.a. to end of November 2019)

YTD 1 yr 3 yrs 5 yrs 7 yrs 10 yrs
SRP50 Growth (77-90) Index 19.6% 17.1% 11.5% 9.9% 11.7% 9.6%
SRP50 Balanced (60-76) Index 16.3% 14.9% 10.0% 8.5% 10.2% 8.8%
SRP50 Capital Stable (20-40) Index 9.6% 9.4% 6.3% 5.7% 6.2% 6.4%

Source: SuperRatings

“We may not have seen the ramp up in shares before Christmas that some were hoping for, but it’s still safe to say that 2019 has been a highly successful year for super funds and their members,” said SuperRatings Executive Director Kirby Rappell.

“It’s been a nervous year for investors, so it’s great to see that super can deliver some much-needed stability and solid returns during this period. There might not be a lot of positive economic news at the moment, but at least super is one story we can all draw some hope from.”

“Since the Royal Commission’s final report at the start of the year, super funds have fought hard to restore members’ trust in the system. We’ve seen good funds responding proactively to the changing regulatory landscape, which has been pleasing. We expect to see an increase in fund mergers in 2020, but it’s important that regulatory responses don’t move us towards a one-size-fits-all approach, which could be detrimental to member outcomes.”

Members must look beyond raw returns

Everyone agrees that funds that aren’t delivering for members have no place in the super system. However, focusing purely on returns as a measure of a fund’s success ignores a range of factors, not least of which is the level of risk involved in generating that return.

As the chart below shows, there is a significant dispersion of risk and return outcomes among different funds. Looking at how balanced options compare over the past five years, there are some producing higher returns than the median option, but many are producing these higher returns by taking on a higher level of risk (measured as the standard deviation of returns).

Risk and return comparison – Balanced (5 years to 30 November 2019)

Risk and return quadrant - Balanced

Source: SuperRatings

When assessing investment performance over time, the top-left quadrant (higher return for lower risk) is what members should generally aim for. Similarly, the bottom-right quadrant (lower return for higher risk) represents the laggard funds. Over any given time period, there will always be funds that outperform and those that underperform.

Looking at past performance can be useful when picking the right fund, but it shouldn’t be the sole criteria. For one thing, past performance is no guarantee of future performance, but there are many factors members should take into account when assessing a super fund, including insurance, governance, member services, and of course fees.

Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.