Superannuation funds stage partial recovery as market confidence improves

Median growth superannuation funds rebounded by 3.1 per cent in April, after taking a major hit in previous months due to COVID-19, according to Chant West data.

The median growth super fund lost about 12 per cent in February and March as investors rushed to sell their shares in response to fears around the coronavirus.

While retirement savings have seen a slight bounce-back in April, returns for the 2019-20 financial year to date were still in negative territory at -3.3 per cent.

Chant West senior investment research manager Mano Mohankumar attributed the April rebound to recovering investor confidence.

“April saw share markets rebound as investors grew more optimistic around coronavirus curves flattening around the world, the expectations of lockdowns easing and economies starting to reopen, partially at least,” he said.

Mr Mohankumar warned against being too hopeful too soon, noting that the world was heading towards a global recession.

“While this provided some relief after the pounding markets took in the previous two months, it’s still far too early to tell what the full impact of COVID-19 will be on individual companies, industries and the global economy,” he said.

“Regardless of the pace of any recovery, we should expect heightened volatility to continue as investors react sharply to news – good or bad.”

Losses nowhere as bad as the GFC

Alex Dunnin, executive director of research at Rainmaker Information, said super returns during the global financial crisis were much worse than what is seen today. 

“Super fund members worried about their investment returns should take solace that during the global financial crisis in 2008-09 returns got as low as -21 per cent at one point,” he said.

“Results so far during the corona financial crisis (CFC) are nowhere near as deep.”

The Australian Securities Exchange has seen significant volatility late February, when the coronavirus began impacting financial markets. Despite a relatively strong recovery, the ASX has still seen a decline of 22 per cent since the start of the CFC.

“At face value super funds have fallen less than half as much as the ASX,” said Mr Dunnin.

“While this is a scary story for super fund members, it’s also a good story because it shows how their fund’s investment strategies have insulated them from the worst of the share market falls."

Super fund holders should think long-term

Mr Mohankumar said many people have already locked in their losses by switching to another less risky super option.

“If you take panic action after share markets have already fallen, you only convert paper losses into real ones,” he said.

“Not only that, you also risk missing out when markets rebound as they will at some point.”

Given that markets generally bounce back faster than economies, Mr Mohankumar added that anyone with a super fund should have a long-term mindset.

“The best strategy is almost always to remain patient and ride out the volatility.”

Not everyone has heeded that advice to wait out the tough times.

Nearly 1.2 million Australians have cashed out their super funds, Australian Prudential Regulation Authority numbers show, after the federal government allowed workers affected by the pandemic to access their retirement savings. The scheme was designed to help combat the impacts of the economic downturn.

About $9 billion worth of payments have been handed out since the beginning of the scheme on April 20. The average payment amount is $7,546.

Traditional diversified super fund performance (results to April 30, 2020)

Note: Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions.

Source: Chant West.

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