Super Funds On Course To Have Worst Ever Year

Post by Sharat on June 23, 2009 · Under Super Funds, Wealth Management, investments · Comment

Superannuation funds stand to have their worst year on record this financial year with expected double digit losses for most accounts despite the global rally in equity and other asset prices over the last few months.

Two market research firms that analyse the super fund industry Chant West and SuperRatings have expectations that four out of every five workers will post losses of between 10 to 14 per cent on their super fund account in 2008-09.

Such losses would result in the worst performance of fund accounts since super funds became obligatory in 1992. The loss in this financial year would also mean that it would be the second consecutive year that super funds posted negative returns. In the previous financial year, super fund posted a median loss of 6.4 per cent.

SuperRatings spokesperson Jeff Bresnahan expressed a lack of surprise at the result due to the effect that the global crisis in banking had on the value of most investments.

“It got as bad as minus 20 per cent at one point, so if we can bring it to minus 10 per cent, in a broad sense, I think that is quite a good result given what we have been through in the last 18 months,” Mr. Bresnahan said.

The expectation for a record year of losses comes in spite of the fact that super funds posted positive results in May, with a median balanced portfolio with 60-76 per cent allocation in growth assets returning 1.01 per cent.

The positive result in May took three month returns ending May 31st to 6.25 per cent and according to the research firm was the first period of three month positive consecutive returns since October 2007.

Chant West spokesperson Warren Chant, said that the turnaround in super fund returns was largely driven by rising equity valuations on domestic and international stock markets. The ASX has rallied 25 per cent since hitting 5 and half year lows at the start of March.

“The general consensus of opinion among the investment experts we speak to is that the two sectors that are most likely to perform best (next financial year) are equities and credit and the ones that are likely to perform the worst are cash and government bonds. So if we look over the year ahead and if markets generally did improve, we would expect the next financial year to return to positive returns. But I think it is going to be a number of years before we return to the levels we saw (before the GFC).” Mr. Chant said.

Mr. Chant said investors should expect long term returns after tax of between 7 and 8 per cent a year for the average balanced option. Data from SuperRatings suggest that the return over a seven year horizon for most balanced options has been 5 per cent a year.

Compare Australian Online Share Trading Accounts