Superannuation heads for double-digit returns for the year as sharemarket gains

The Australian

21 April 2021

Cliona O’Dowd

Super funds are racing toward double-digit returns for the financial year, after riding investment markets over the past three months to lock in a 3.1 per cent gain.

The median growth fund returned 12.2 per cent for the first nine months of the year and is up more than 2.2 per cent already this month, according to research house Chant West.

With just 10 weeks left until the end of the financial year, a double-digit return is now in sight, Chant West senior investment research manager Mano Mohankumar said.

The figures come as ultra-low interest rates is pushing more funds into equity markets, seeing Australian shares hover just short of record levels, while Wall Street continues to push fresh highs.

“Despite the brief volatility in late February on fears that a stronger than expected economic recovery may result in increased inflation, the March quarter was characterised by optimism around the global rollout of vaccines and a return to some economic normality,” he said.

As the median growth fund return climbs past 14 per cent, the market leaders are powering ahead at an even faster pace. The $80bn Sunsuper and $48bn Hostplus are among those with growth funds sitting on 20 per cent-plus returns for the financial year to date, while the nation’s largest super fund, the $200bn AustralianSuper, isn’t far off with a 19 per cent return.

“Zero interest rates and zero inflation means there’s nowhere else to put your money other than dividend-paying sharemarkets around the world,” Hostplus chief investment officer Sam Sicilia said.

“Institutions can put their money in anything, but the vast majority of people can’t do that, and that’s the wind in the sails of equity markets,” he told The Australian.

Hostplus’ growth fund returned 20.4 per cent to mid-April, while its balanced option is sitting at 16.3 per cent. Sunsuper’s growth option, meanwhile, racked up a 26 per cent return by the end of March, and its balanced option 21 per cent.

Equity markets have powered much of the gains over the past year following the March 2020 market meltdown. Australian shares rose 4.2 per cent in the last the quarter, and have since climbed past 7000 points, while international shares gained more than 6 per cent over the three months through March.

“This game of volatilie equity markets fluctuating will persist until there are alternative places for people to put their money. And I can’t see that (happening) any time soon,” Mr Sicilia said.

Alongside equity markets, unlisted investments including private equity have been the outperformers for Hostplus. The fund has shunned fixed income, favouring to diversify through other, better-returning asset classes.

Bond yields rose over the quarter amid persistent fears of rising inflation. This was reflected in negative bond market returns, Mr Mohankumar said, with Australian and international bonds down 3.2 per cent and 2.5 per cent.

After the “very strong performance” in equity markets in recent months, Tribeca Investment Partners’ portfolio manager Jun Bei Liu is anticipating a more volatile period ahead.

“Quite possibly over the next couple of months we might see a bit of profit-taking behavior. But that’s purely tactical, and whether it’s the tax year-end or anything else, fundamentally, the market looks pretty strong,” she said.

On the prospect of investors choosing to “sell in May and go away” Ms Liu said that would likely be short-lived.

“It could take place but, ultimately, it comes down to whether the economy‘s holding strong or not. So far, every indication is showing it’s doing quite well. So even if we see a weak patch in May or June, we may well see it come back quite quickly in July and August.”

Research house SuperRatings also cautioned Australians to prepare for more volatility in markets even amid the recovery as the jobs market improves and economic activity picks up.

“The March returns data reinforced the success that super has seen in rebuilding from the depths of the pandemic last year,” SuperRatings executive director Kirby Rappell said.

“The real bright spot has been the bounce back in the labour market, which has restored confidence to households and helped reboot consumer spending. The reopening of the economy and the low or zero rates of community transmission we’ve experienced in Australia in recent months have galvanised the recovery.”

The continued strength in share markets has seen the median growth fund put on a further 2.2 per cent in April, in addition to the 12.2 per cent to the end of March, bringing the cumulative return since the end of March last year to about 22 per cent.

“(This) is remarkable given the health concerns, disruptions and economic damage caused by COVID-19,” Mr Mohankumar said.

The median growth fund is now more than 7 per cent above the pre-COVID crisis high reached at the end of January 2020.

While the median growth fund has returned just over 12 per cent in the financial year to date, all-growth fund returns reached 18.7 per cent and high growth returns are at 15.7 per cent. The median balanced fund has returned 8.7 per cent so far this year.

As super funds push toward a strong end to fiscal 2021, the economy has already recovered all of its COVID losses, according to the latest Reserve Bank of Australia meeting minutes.

“Overall, preliminary data suggested that GDP in the March quarter was likely to have recovered further to around its pre-pandemic level, earlier than previously expected,” the minutes from the April 6 meeting said.

Despite the swift recovery, the central bank is unwavering in its bid to keep rates at a record-low 0.1 per cent until at least 2024.