Super funds limit losses as weaker Aussie dollar boosts returns
The median growth superannuation fund fell 0.4% in September, according to Chant West’s latest figures. This brings the return for the first quarter of FY27 to 0.8%. Chant West head of superannuation investment research Mano Mohankumar noted that rising bond yields, increasing oil prices, and persistent inflation created a challenging environment for investment markets during the month.
A weaker Australian dollar helped cushion losses, boosting returns from international shares held without currency hedging. The dollar depreciated from US$0.72 to US$0.69 over the month. On average, super funds hold about 70% of their international shares unhedged. Additionally, funds’ unlisted asset exposures provided further support.
September’s Challenges
September proved a difficult month for investment markets. Bonds offered little protection as yields rose, with Australian bonds down 0.9% and international bonds down 1.7%. Despite these headwinds, the median growth fund’s loss was limited to 0.4%. The Australian dollar’s depreciation translated the 0.7% hedged loss on developed international shares into a 1.9% gain in unhedged terms, while emerging markets shares rose 2.4%.
Across Chant West’s diversified fund categories, all growth funds recorded the largest monthly decline at 0.6%, while high growth, growth, balanced, and conservative funds each fell 0.4%. Despite these losses, all five categories remained positive over the quarter, with returns ranging from 0.1% for conservative funds to 1.3% for all growth funds.
Long-Term Performance
Growth funds, which hold between 61% and 80% in growth assets, returned 6.3% over the year to September 30 and have achieved annualized returns of 10% over three years, 6.7% over five years, and 7.6% over 10 years. Mohankumar emphasized the importance of superannuation’s longer investment horizon, noting that the median growth fund has consistently exceeded its typical long-term objective.
Since the introduction of compulsory super in July 1992, the median growth fund has returned 8% per annum. This translates to a real return of 5.3% per annum, well above the typical 3.5% target. Over the past 20 years, they’ve returned 6.7% per annum, outperforming their objectives despite challenges like the GFC, COVID-19, and high inflation and rising interest rates in 2022.
Chant West noted that the median growth fund has exceeded its return objective over rolling 10-year periods for most of the time, with exceptions during two periods between mid-2008 and late-2017, reflecting the impact of the global financial crisis. Growth funds lost about 26% on average during the 16 months from the end of October 2007 to the end of February 2009.
