Superannuation funds set for worst year since GFC

Superannuation funds will take a hit from the recent turmoil on global financial markets, with the typical fund set to post negative returns in the worst performance since the global financial crisis.

Research house Chant West on Monday said that with less than two weeks until June 30, the typical super fund will fall by 5 per cent so far this financial year. A decline of that size would be the worst financial year for super funds since the global financial crisis, and the fifth negative result since compulsory super was introduced in 1992.

The typical super fund is expected to post negative returns, after sharp falls in Australian shares this month.Credit:Jim Rice

ChantWest defines a typical super fund as one with between 61 per cent and 80 per cent allocated to growth assets such as shares.

Chant West senior investment research manager Mano Mohankumar said big falls in global sharemarkets during June had hit super returns significantly, while bonds, which are traditionally seen as safer assets, had endured a tough year. This meant that even more conservative funds were also likely to post negative returns, Mohankumar said, as he also urged caution to anyone thinking about switching their super investment option.

“Bonds have not played the diversification role that they have in other periods of sharemarket weakness,” Mohankumar said.

Bond prices move inversely to bond yields, and yields have increased sharply as markets have bet on interest rate rises. This has caused losses in bond portfolios around the world.

Roger Montgomery, chief investment officer at Montgomery Investment Management, also pointed to the poor returns from bonds, with a Bloomberg index of bonds posting its worst annual returns since 1976.

“For 50 years, roughly, people have thought of bonds as providing protection and defensive characteristics,” Montgomery said. “Well this time they’ve gone down with equities, so everybody has been hit with a double whammy.”

Australia’s sharemarket had been a relatively strong performer in the early part of this year, but since the start of June it has tumbled about 10 per cent, as investors fretted over rising interest rates and the risk of a global recession.

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