Superannuation funds have taken a beating this month after global sharemarkets plummeted following fears of a double dip recession in the United States and a full-blown sovereign debt crisis in Europe, and experts say the pain will continue.
New figures from Super Ratings show a median balanced fund lost 1.84% of its value during August, 3.79% in the prior three months and 3.12% over the financial year so far.
However, in the previous 12 months funds have improved by 3.78%, and by 1.85% in the previous five years, 5.34% in the previous seven, and 4.95% over the decade.
Super Ratings found that diversified options with exposure to shares were down, with the median growth fund recording a fall of 2.5%. “There were few places to hide,” it says, “except defensive assets”, such as government bonds, cash and gold.
Head of research Salvador Saiz says the market is purely acting out due to uncertainty.
“The markets are really moving from one extreme to the other on just the slightest piece of either negative or positive noise, whether it’s Band-Aid solutions, or solutions over debt in Europe.”
Saiz says it has been incredibly difficult for anyone to record a balanced return, with balanced funds, (which have anywhere between 50-60% in shares), “bearing the brunt of the market sell-off”. Growth funds with even higher allocations have seen worse results, he warns.
During August Australian shares were down 1.2%, while unhedged international shares were down 4.8%. Hedged international shares fell 6.7% due to the fall of the Australian dollar.
However, despite the volatility, Saiz says members shouldn’t panic and automatically switch funds, saying these losses are nowhere near where they were during the GFC.
“We’ve been saying this for a few months, but the current bout of volatility is here for awhile yet until confidence is regained, and we see concrete steps by governments to address various issues.”
The report states that while it is understandable the first reaction is to consider switching to other assets, “we can only remind members that superannuation is a long-term story, and that despite the temptation to move to cash or long-term deposits, these investments have been shown to underperform”.
Over the last 12 months, the best median results were found in balanced funds, with a 3.8% gain, with growth funds following at 2.9%. Capital stable funds recorded growth of 4.7%, followed by Australian shares at 1.8%. International shares have fallen 2.1%, while property and cash have seen gains of 5.8% and 4.4%.
OSF Super, REST, Catholic Super, FSS and NGS Super were named as the top five balanced investment options over the past five years.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
