After delivering a return of 3.6% for the challenging 2020 calendar year – an excellent outcome under the most testing of circumstances – super funds have maintained the positive momentum into 2021. The median growth fund (61 to 80% in growth assets) was up 0.2% in January, and February is looking very positive so far.

Listed share markets, which are the main drivers of growth fund performance, were relatively flat in January. Australian shares were up 0.3% while international shares returned -0.2% and 0.1% in hedged and unhedged terms, respectively.
 
Chant West Senior Investment Research Manager, Mano Mohankumar says the remarkable turnaround since the end of March last year continues. "While the January return of 0.2% represents a small uplift, share markets have picked up speed in February and we estimate that the median growth fund is up a further 2.5% so far this month. That brings the return since the end of March last year to over 18%. That's remarkable, considering the health and economic damage wrought by COVID-19.
 
"In January, emerging markets outperformed developed markets despite a sell-off late in the month on concerns around a resurgence in COVID-19 cases. The US share market experienced increased volatility as a result of highly unusual and targeted trading by a segment of retail investors. This overshadowed the underlying investor optimism brought about by President Biden's proposed stimulus plan.
 
"In the UK, the COVID-19 vaccine roll-out gained momentum but the ongoing lockdown continued to hurt economic activity. In the Euro zone, the roll-out of vaccines has been slower than hoped. The region also experienced some political instability with the resignation of Italian Prime Minister, Giuseppe Conte, who has been replaced by former European Central Bank Chief, Mario Draghi.
 
"Back at home, all states now have COVID case numbers largely under control – although occasional mini outbreaks, such as we've seen in Victoria in recent days, must still be expected. Earlier this month the RBA left the official cash rate unchanged at 0.10%. That, together with a 'better than expected' start to the half-year reporting season, an uplift in employment numbers and positive commentary from the Reserve Bank, has underpinned a general improvement in corporate and consumer confidence."
 
Table 1 compares the median performance for each of the traditional diversified risk categories in Chant West's Multi-Manager Survey, ranging from All Growth to Conservative. Over 3, 5, 7, 10 and 15 years, all risk categories have met their typical long-term return objectives, which range from CPI + 2% for Conservative funds to CPI + 4.25% for All Growth.

MR-Table-1-Feb21.PNG

Note: Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions.
Source: Chant West

 

Lifecycle products behaving as expected

Mohankumar says that while the Growth category is still where most people have their super invested, a meaningful number are now in so-called 'lifecycle' products. Most retail funds have adopted a lifecycle design for their MySuper defaults, where members are allocated to an age-based option that's progressively de-risked as that cohort gets older.
 
It's difficult to make direct comparisons of the performance of these age-based options with the traditional options that are based on a single risk category, and for that reason we report them separately. Table 2 shows the median performance for each of the retail age cohorts, together with their current median allocation to growth assets. It also includes a row for traditional MySuper Growth options for comparison – nearly all of which are not-for-profit funds. Care should be taken when comparing the performance of the retail lifecycle cohorts with the median MySuper Growth option, however, as they're managed differently so their level of risk varies over time.

MR-Table-2-Feb21.PNG
Notes:
1. Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions.
2. January 2014 represents the introduction of MySuper.
Source: Chant West

 
As a result of the strong recovery since April, the options that have higher allocations to growth assets have now generally done better over all periods shown. Younger members of retail lifecycle products – those born in the 1970s, 1980s and 1990s – have outperformed the MySuper Growth median over the short term and have generally held their own over the medium and longer terms. However, they've done so by taking on more share market risk.
 
The older cohorts (those born in the 1950s or earlier) are relatively less exposed to growth assets so you'd expect them to underperform the MySuper Growth median over longer periods. Capital preservation is more important at those ages so, while they miss out on the full benefit in rising markets, older members in retail lifecycle options are better protected in the event of a market downturn.
 

Long-term performance remains above target

MySuper products have only been operating for seven years, so when considering performance, it is important to remember that super is a much longer-term proposition. Since the introduction of compulsory super in 1992, the median growth fund has returned 8% p.a. The annual CPI increase over the same period is 2.4%, giving a real return of 5.6% p.a. – well above the typical 3.5% target. Even looking at the past 20 years, which now includes three share major market downturns – the 'tech wreck' in 2001–2003, the GFC in 2007–2009 and now COVID-19 – the median growth fund has returned 6.5% p.a., which is still well ahead of the typical return objective.
 
The chart below shows that, for the majority of the time, the median growth fund has exceeded its return objective over rolling ten-year periods, which is a commonly-used timeframe consistent with the long-term focus of super. The exceptions are two periods between mid-2008 and late-2017, when it fell behind. This is because of the devastating impact of the 16-month GFC period (end-October 2007 to end-February 2009) during which growth funds lost about 26% on average.

MR-Chart-1-Feb21.PNG
Note: The CPI figure for January 2021 is an estimate.







International share market returns in this media release are sourced from MSCI. This data is the   property of MSCI. No use or distribution without written consent. Data provided “as is” without any warranties. MSCI assumes no liability for or in connection with the data. Product is not sponsored, endorsed, sold or promoted by MSCI. Please see complete MSCI disclaimer.


 

Disclaimer: ©Zenith CW Pty Ltd ABN 20 639 121 403 (Chant West), Authorised Representative of Zenith Investment Partners Pty Ltd ABN 27 103 132 672, AFSL 226872 under AFS Representative Number 1280401, 2021. This website is only intended for use by Australian residents and is subject to use in accordance with Chant West’s Terms of Use and should be read with Chant West’s Financial Services Guide. Products, reports, ratings (Information) are based on data which may be sourced from a third party and may not contain all the information required to evaluate the nominated product providers, you are responsible for obtaining further information as required. To the extent that any Information provided is advice, it is General Advice (s766B Corporations Act). Individuals should seek their own independent financial advice and consider the appropriateness of any financial product in light of their own circumstances and needs before making any investment decision. Chant West has not taken into account the objectives, financial situation or needs of any specific person who may access or use the Information provided including target markets of financial products, where applicable. It is not a specific recommendation to purchase, sell or hold any product(s) and is subject to change at any time without prior notice. Individuals should consider the appropriateness of any advice in light of their own objectives, financial situations or needs and should obtain a copy of and consider any relevant PDS or offer document before making any decision. Information is provided in good faith and is believed to be accurate, however, no representation, warranty or undertaking is provided in relation to the accuracy or completeness of the Information. Information provided is subject to copyright and may not be reproduced, modified or distributed without the consent of the copyright owner. Except for any liability which cannot be excluded, Chant West does not accept any liability whether direct or indirect, arising from use of the Information. Past performance is not an indication of future performance. Chant West ratings and research are prepared by Chant West and are not connected in any way to research and ratings prepared by any of our related entities.

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