According to Chant West director Warren Chant, negative sentiment surrounding China has resulted in market volatility, and subsequently pulled down the returns of median balanced funds by 1.7 per cent for the first quarter of the financial year.
“The China malaise, which has led to declining energy and metal prices because of dwindling demand, has affected all major markets.
“The slowdown has a major impact on Australia’s economy given our strong trade links, with the energy and commodities sectors particularly hard hit.
“Meanwhile the Reserve Bank left the official interest rate at a record low of two per cent throughout the quarter, while leaving open the possibility of another rate cut by the end of the year,” he said.
Mr Chant pointed out that while both Australian and hedged international shares lost more than 6.5 per cent, diversification protected funds from higher losses.
“While growth funds feel the pain when listed share markets fall sharply, the fact that they’re also invested in a wide range of other growth and defensive assets, including alternative and unlisted assets, helps cushion the blow.
“So while Australian and hedged international shares both lost more than 6.5 per cent, the typical growth fund member only suffered a loss of 1.7 per cent,” Mr Chant said.
SuperRatings founder Jeff Bresnahan also pointed out the benefits of diversification in avoiding significant losses.
“Although the median balanced option recorded a 1.7 per cent fall during the quarter, this is substantially less than the falls seen across most growth asset classes and most investment options.
“Once again, the diversification of a balanced option has helped cushion losses for the majority of superannuation members,” he said.
According to SuperRatings, the long-term performance of median balanced options remains strong.
The median balanced option has provided an average return of 8.2 per cent per annum over the past five years and an average of 5.9 per cent per annum over the past 10 years, SuperRatings said.
