AUSTRALIA - Superannuation growth funds have posted their second consecutive year of positive returns but have yet to fully recover from the global financial crisis, research by Chant West shows.
The superannuation research and consultancy firm said the median growth fund (with a 61 to 80% allocation to growth assets) posted an estimated return of about 9% for the year to 30 June, following returns of 10.4% last year.
Growth funds fell by 27% during the GFC, but have now returned 30% since the end of February 2009. However, Chant West principal Warren Chant said while in normal times that would be quite impressive, the damage done by the GFC has still not been fully repaired, and a further 6% is still needed to get back to the pre-GFC levels achieved in late October 2007.
The financial year can be split into two distinct periods, Chant added. "The first nine months saw strong domestic and global share markets, which are the main drivers of growth fund performance, push the running return for the year up to 10%. In the June quarter, however, we saw share markets falter on the back of ongoing concerns about a slowdown in China, negative economic data coming out of the US, and a resurfacing of the European debt crisis," he said.
"There was another factor that stifled returns over the financial year, and that was the appreciation of the Australian dollar. It rose from US$0.85 to US$1.07, which we estimate has detracted about 3% from the typical growth fund performance. Among the better performing funds were those that took out more currency protection by hedging a greater proportion of their international share exposure against the rising Australian dollar.
Chant says: "One of the most difficult jobs for fund trustees is to manage their members' expectations. We believe that, after a year of consolidation in 2010/11, there is a reasonable chance that funds will again match or exceed the long-term expected return of 7% over the year ahead. While we expect markets to remain volatile, there are enough positive signs domestically and globally to support this view. This would see growth funds finally return to pre-GFC levels.
Despite a disappointing June quarter, share markets delivered solid returns for the year, Chant said. The Australian market was up 11.9%, fully hedged international shares advanced 22.8%, but unhedged international shares gained just 2.6%.
Listed property markets were also up, with Australian REITs recording 4.3% and hedged international REITs 32.5%, making them the strongest performing asset sector for the second consecutive year. Australian bonds returned 5.6% while hedged international bonds returned 7.0%.
He added: "With the exception of unhedged international shares and Australian REITs, markets performed quite strongly across the board. We also expect unlisted assets such as infrastructure, property and private equity to deliver positive double digit returns once June quarter revaluations are factored in.
"Looking at the different types of funds, we expect industry funds to finish the year slightly ahead of master trusts on average due to their lower allocations to unhedged international shares (16% versus 20%) and bonds (11% versus 19%) which were among the poorer performing asset sectors, and of course their higher allocation to unlisted assets (19% versus 3%)."
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