Despite some sharp share market falls in in early August, the median growth fund (61 to 80% in growth assets) finished the month in positive territory with a return of 0.3%, bringing the return over the first two months of FY25 to 2.3%.

Chant West Senior Investment Research Manager, Mano Mohankumar, says that the catalysts for the market volatility in early August were flow-on effects from the Bank of Japan raising interest rates and increased fears of a recession in the US resulting from weaker job data. “Markets rebounded quite quickly as economic data released later in the month was more reassuring, coupled with US Fed Chair, Jerome Powell, stating that the ’time has come’ for interest rate cuts. Indeed, the first rate cut is officially expected to be announced today – representing the first cut by the Fed in over four years.

“Despite sharp share market falls in early August, both Australian shares and international shares hedged finished the month in positive territory. The volatility experienced in August is another reminder to super fund members of the importance of maintaining a long-term focus and not getting distracted by short-term noise.

“Over the full month, international shares were up 1.9% in hedged terms, but the appreciation of the Australian dollar (up from US$0.65 to US$0.68) turned that into a loss of 1.2% in unhedged terms. Super funds on average have about 70% of their international shares exposure unhedged. Australian shares finished the month in positive territory with a small gain of 0.4%. Bond markets were also up over the month as bond yields fell with Australian and international bonds up 1.2% and 1%, respectively. The experience in August also serves as another reminder of how resilient share markets can be and highlights the benefits of having investment exposures spread across a range of asset classes.”

The table below compares the median performance to the end of July 2024 for each of the traditional diversified risk categories in Chant West’s Super Fund Performance Survey, ranging from All Growth to Conservative. All risk categories have generally met their typical long-term return objectives, which generally range from CPI + 1.5% for Conservative funds to CPI + 4.25% for All Growth.

Long-term performance remains above target

MySuper products have been operating for just over 10 years, so when considering performance, Mohankumar says it’s important to remember that super is a much longer-term proposition.

“Since the introduction of compulsory super in July 1992, the median growth fund has returned 8% p.a. The annual CPI increase over the same period is 2.7%, giving a real return of 5.3% p.a. – well above the typical 3.5% target. Even looking at the past 20 years, which includes three major share market downturns – the GFC in 2007-2009, COVID-19 in 2020, and the high inflation and rising interest rates in 2022 – super funds have returned 7.3% p.a., which is still comfortably ahead of the typical objective.”

The chart below shows that for most of the time, the median growth fund has exceeded its return objective over rolling 10-year periods, which is a commonly used timeframe consistent with the long-term focus of super. The exceptions are two periods between mid-2008 and late-2017, when it fell behind. This is because of the devastating impact of the 16-month GFC period (end-October 2007 to end-February 2009) during which growth funds lost about 26% on average.