Following the strong gains seen in the first half of the year, September 2021 has marked the first month of negative growth for many Australian super funds.
According to data released by Chant West, the median growth fund fell 1 per cent in September as a consequence of disruptions in the share markets.
“Global share markets retreated in September, mainly due to a spike in interest rates prompted by growing concern about emerging inflation,” Chant West senior investment research manager Mano Mohankumar explained.
This is essentially a reversal of the trend in the previous months, where a tendency for growth funds to allocate more than 50 per cent of their portfolio to listed shares fueled a wave of growth.
Mr Mohankumar noted that there are multiple factors here, including the US Federal Reserve’s decision to begin tapering its quantitative easing program, growing concerns about inflation and a crackdown by China on the superpowers’ tech and private education sectors.
Despite these setbacks, Mr Mohankumar said that growth funds have still managed to deliver a strong 28 per cent growth over the past 18 months.
With a solid 2 per cent growth for the most recent quarter, he estimated these funds sit around 13 per cent above their pre-COVID crisis levels.
“International shares were up a modest 0.6 per cent in hedged terms but the depreciation of the Australian dollar (down from US$0.75 to $0.72) propelled the return in unhedged terms to 4 per cent,” he noted.
While the most popular superannuation options remain focused on growth, Mr Mohankumar acknowledged the broader shift towards lifestyle funds.
“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,” he said.
While comparisons between these lifestyle funds and growth funds are inevitable, Mr Mohankumar recommended that those seeking to do so keep a few of the differences between the two categories in mind.
“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,” he said.