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Listed market woes continue to drag on super fund returns
Continued weakness in share markets in the December quarter led to a disappointing year of performance for superannuation funds. Never has asset allocation been more important, with the gap between the best and worse performed Growth funds blowing out to nearly 15%, mainly accounted for by the funds’ different exposures to listed markets.

Listed Australian and international (unhedged) share markets recorded -38.9% and -24.9% for the year, respectively. Property markets were even worse, with listed Australian property recording -55.3% and international property -45.7%. In contrast, Australian unlisted property delivered a negative return of just 0.3% (which included -4% for the month of December).

Defensive assets, and especially conventional Government bonds, performed well in a relative and absolute sense. Australian and international bonds (hedged) recorded positive returns of 14.9% and 9.2%, respectively.

The Chant West median for Growth funds (those with a 61 to 80% allocation to growth assets and the default option for most members) based on interim figures returned -11.0% for the quarter and -22.3% for the year. The range was unusually wide, from -15% to -30%.

Table 1 shows the median performance for each category in Chant West’s multi-manager performance survey – ranging from All Growth to Conservative Growth. As expected, considering the downturn in financial markets worldwide, the returns were progressively worse the higher the allocation to growth assets. In all categories, over almost all periods, returns were below broad performance objectives (expressed as a real return over CPI). This was due largely to the unprecedented losses in 2008.

Table 1: Median performance by fund category to 31 December 2008 (%)
Fund category 3 Mths 1 Yr 3 Yrs (pa) 5 Yrs (pa) 7 Yrs (pa)
All Growth (100% growth assets) -15.6 -31.6 -4.6 3.9 1.9
High Growth (81 - 100% growth assets) -13.5 -26.5 -2.6 4.6 3.4
Growth (61 - 80% growth assets) -11.0  -22.3 -0.7   5.3   4.5 
Balanced Growth (41 - 60% growth assets)  -7.5  -14.1  1.2   4.6   4.5 
Conservative Growth (21 - 40% growth assets)   -4.5   -7.5   2.0  4.8 4.5
Note: Performance is shown net of investment fees and tax.   It does not include administration fees or advisor commissions.

Table 2 shows the median performance for the calendar year to December of the different industry segments – industry funds and master trusts. Over the year, the difference was about 6%, which is considerably higher than the historical average of about 1.5% to 2% per annum. The main reason for this blowout in performance gap is that industry funds generally have higher weightings to unlisted assets – about 25% versus 7% for master trusts – and unlisted asset returns have been far stronger (or less weak) than those of listed assets.

We continue to believe that there is considerable scope for the downward revaluation of unlisted assets over the next six months as valuers take into account the higher price for risk demanded by investors and the effects on profitability and cash flows of the worsening real economies around the world. As this occurs, we expect to see the performance gap narrow considerably.

Table 2: Median performance by industry segment to 31 December 2008 (%)
Segment3 Mths 1 Yr 3 Yrs (pa) 5 Yrs (pa) 7 Yrs (pa)
Industry Funds-8.9 -18.1 0.66.1 5.5
Master Trusts-12.8-24.3 -2.8 4.0 3.3
Note: Performance is shown net of investment fees and tax.   It does not include administration fees or advisor commissions.

Returns for investment options in the growth and conservative growth categories are published on our website within the Investment Returns view.

Disclaimer
© Chant West Pty Limited (ABN 75 077 595 316) 1997 - 2013. You may only use this document for your own personal, non-commercial use. This document may not be copied, reproduced, scanned or embodied in any other document or distributed to another party unless you have obtained the prior written consent of Chant West to do so.

The information above is based on data supplied by third parties. While such data is believed to be accurate, Chant West does not accept responsibility for any inaccuracy in such data. Past performance is not a reliable indicator of future performance. The products, reports and ratings do not contain all of the information that is required in order to evaluate the nominated service providers, and you are responsible for obtaining such further information.

This information does not constitute financial product advice. However, to the extent that this document may be considered to be general financial product advice then you acknowledge that you have been provided with a Financial Services Guide and Chant West warns that: (a) Chant West has not considered any individual person’s objectives, financial situation or particular needs; (b) individuals need to consider whether the advice is appropriate in light of their goals, objectives and current situation; and (c) individuals should obtain a Product Disclosure Statement from the relevant fund provider before making any decision about whether to acquire a financial product from that fund provider.
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