Chant West reported the widespread sell-off across share and property markets has resulted in the median growth fund (61 to 80 per cent in growth assets) falling 3.1 per cent in February.
But since then, the virus has spread at an exponential rate.
With major sharemarkets reversing from bull to bear phase in three weeks, Chant West has called the median growth fund will plunge by a further 10.5 per cent over March to date.
Across other categories, all growth funds saw a 5.4 per cent decline in performance over February, high growth decreased by 4 per cent, balanced was down by 2.1 per cent and conservative depleted by 1 per cent.
In February, Australian equities slid by 7.8 per cent while international shares were down 8.1 per cent in hedged terms but the depreciation of the Australian dollar (down from US$0.67 to US$0.65) limited the loss to 4.9 per cent in unhedged terms.
Listed property was also down for the month, with Australian and global REITs losing 5.1 per cent and 8.1 per cent respectively.
Bonds on the other hand stayed somewhat steady, with Australian and global bonds up 0.9 per cent and 1.2 per cent respectively.
Chant West senior investment research manager Mano Mohankumar said the rapid spread of the virus and fears of its impact have ravaged share markets, which have ultimately fed through to super funds. But, their performance has not impacted to the extent that some may have feared.
“Growth funds, which is where most Australians have their superannuation invested, hold diversified portfolios that are spread across a wide range of growth and defensive asset sectors. This diversification works to cushion the blow during periods of share market weakness,” Mr Mohankumar said.
“So while Australian and international shares are down at least 27 per cent since the end of January, the median growth fund’s loss has been limited to about 13 per cent. This is still a material reduction in account balances, but it comes on the back of the tremendous run funds have had since the end of the GFC.
“From the GFC low point in early 2009 to the end of January 2020, the median growth fund averaged a staggering 9.3 per cent per annum – well ahead of the typical long-term return objective of 5.5 per cent to 6 per cent per annum. The current sell-off has obviously eaten into that long-term average gain, but funds are still performing well ahead of their objectives since the end of the GFC.”
Meanwhile, life cycle products behaved “as expected”, where many retail funds have adopted a life cycle design for their MySuper defaults, with members being allocated to an age-based option that is progressively de-risked as the cohort gets older.
Younger members in the retail products (born in the 1970s, 1980s and 1990s) experienced greater losses in February than the MySuper growth median, with Chant West noting they will have experienced much greater losses in March to date.
However the older age cohorts in life cycle products were relatively less exposed to growth assets, and were better protected against the market falls than other members in other MySuper options.
Long-term performance remains above target
Despite the recent falls, the findings noted superannuation has tracked healthy returns in the long term.
When compulsory super was launched in 1992, the growth category median had a typical return objective of CPI (consumer price index) plus 3.5 per cent per annum after investment fees and tax over rolling five-year periods.
For the last six years, the category has seen longer term performance tracking well above the goal.
Mr Mohankumar added the key message to members is not to take panic measures that they may regret later.
“It’s too early to tell what the full economic impact of the virus will be, and trying to time markets now is a very risky proposition,” he commented.
“The negative returns we’ve seen in recent weeks are ‘unrealised’ losses, so you don’t actually lock them in unless you take your money out or switch to a lower risk option. If you do that, then not only do you turn those paper losses into real ones but you also miss out on the market rebound which will come sooner or later.
“Even in the case of older members, most don’t take out all their super when they retire so their money remains in the system in the pension phase, often long after retirement. So we encourage everyone to remember that superannuation is indeed a long-term investment, and if the investment option you are in suited you two months ago then it is most likely the one to stick with now.”
