The Australian Business Review
16 December 2020
David Ross
Australian super funds are on the track to end the year in positive territory, with returns buoyed by a 4.9 per cent sharemarket boost in November.
The dramatic turnaround in retirement savings follows rising optimism around the success of COVID-19 vaccine trials coupled with record rock bottom interest rates which has lifted the market from the March sharemarket collapse after COVID-19 hit the global economy.
Figures from super research group SuperRatings shows the median balanced fund – the most widely held investment option – has delivered a 2.3 per cent return since the start of 2020, despite the.
New data suggests funds may be on track to close the year as much as 3 per cent up on where they started, despite the first months of the pandemic sending balance fund down as much as 10 per cent.
The eighth consecutive month of positive returns meant the median balanced option was “on track to finish the year in positive territory”, SuperRatings said.
Super funds have bounced back strongly, booming 7.5 per cent since July, reversing falls through February and March as the pandemic rocked markets.
According to SuperRatings figures equities-exposed median growth options delivered an estimated 6.2 per cent return in November and 2.4 per cent over the calendar year.
The median capital stable option, which includes defensive assets such as bonds and cash, returned only 2 per cent in November and 1.7 per cent for the year.
Chant West, a consultancy which also tracks super funds, said current trends looked set to deliver a 3 per cent market return by year’s end, in what could prove an “excellent outcome” for fund members after the “disruption and economic damage caused by COVID-19”.
Chant West investment manager Mano Mohankumar said the recent recovery in funds had been “surprisingly sharp” after the shuddering halt of lockdowns imposed in the first half of the year.
“If we look back to the end of March, the world was in chaos. We were facing a frightening health crisis which saw most countries introduce some form of lockdown. Whole industries ground to a halt, countless jobs were lost and the global economy was heading rapidly into recession,” Mr Mohankumar said.
The market has seen a wild year since the coronavirus pandemic struck in January.
After rising to a record high of 7197.2 points by late February as investors initially switched out of Chinese assets when the pandemic took hold in the city of Wuhan, Australia’s S&P/ASX 200 share index dived almost 40 per cent to a 7.5-year low of 4402.5 points in just four weeks as the pandemic went global and the world faced unprecedented shutdowns of economic activity.
SuperRatings noted that capital stable options – which skew to bonds and cash – proved far more defensive for investors seeking to weather the pandemic, only falling 1.6 per cent by July.
Compared to that median balanced options were down 5.1 per cent in July.
But the fastest-ever bear markets in US and Australian shares were followed by the fastest ever bull markets, with Australia’s S&P/ASX 200 index bouncing more than 50 per cent as governments and central banks responded with unprecedented fiscal and monetary policy stimulus.
Australia’s federal government moved quickly to introduce a highly-effective income support scheme in the form of its JobKeeper program, later extended from September to March.
The turnaround in the markets marks a break with past trends, with markets tumbling 36 per cent in the wake of the 2008 global financial crisis, followed by a further 12.7 per cent crash in 2009.
The fiscal stimulus in the October federal budget shored up consumer and business confidence in the face of a damaging second-wave of coronavirus and strict lockdowns in Victoria which were subsequently lifted along with many state border closures.
The Reserve Bank started quantitative easing in November with a bigger-than-expected $100bn commonwealth and federal government bond buying program while also cutting interest rate targets including the overnight cash rate and the three-year bond rate target to just 0.1 per cent, providing a major leg of support to asset prices including shares and property.
The development of highly effective COVID vaccines proved much faster than expected with UK and US vaccinations starting in November and Australia giving emergency use authorisation for the AstraZeneca-Oxford vaccine from January.
A narrower-than-expected US presidential election win for Joe Biden helped fuel a surge in the US share market by lessening the chance of tax hikes while potentially still allowing greater US fiscal stimulus, and the US Federal Reserve has retained a bias to do more asset buying if needed.
Damian Graham, the chief investment officer of the $130bn Aware Super, said government support and the interest rate environment would go to driving market movements in 2021.
“When there’s such limited return in defensive assets it’s pushing people into growth assets,” he said.
“We think the market is reasonably priced but an expensive market is not the only requirement to see a correction.”
SuperRatings executive director Kirby Rappell said November had delivered a “watershed” month.
“Given the world is battling a pandemic that has resulted in large sections of the economy being placed in lockdown, the results are remarkable,” he said.
“This is the year super proved its worth once again and reminded us why it is so critical to our economic success.”
Mr Rappell said Australia’s success in containing the pandemic had put the economy in an “enviable position”, but significant risks still haunted the broader market.
“The pandemic is not yet defeated and there are geopolitical issues weighing on the outlook.
“Members should be optimistic but prepare themselves for potential surprises as we head into 2021,” he said.
The Chant West analysis found that despite the wild swings that had hit the market in recent decades super fund holders invested in median growth funds remained well ahead.
It noted that since the introduction of compulsory super in 1992 the median growth fund had delivered a 5.7 per cent real annual return, well above the 3.5 per cent target.
Mr Mohankumar said 2020 demonstrated the need for super fund members to maintain a long-term focus.
“Those who panicked and switched to cash or a more conservative option back in March would not only have crystallised losses, but as markets rebounded so sharply they would have missed out on some or all of the rebound,” he said.
