Super funds post their worst returns on record

A shocking year on global sharemarkets has resulted in superannuation funds posting their worst annual performance on record and their second consecutive year of negative return.

But despite the negative results, research firms SuperRatings and Chant West say that returns over the past several years have delivered long-term results in accordance with expectations.

SuperRatings chief executive Jason Clarke says the preliminary figures indicate average balanced super fund declined by 13% in the year ending in June, a figure supported by data from Chant West. The preliminary figures also indicate the gap between the best and worst balanced return options will likely be quite large.

The negative returns should not be much of a surprise. The sharemarket fell almost 25% during 2008-09, while SuperRatings says listed property returns declined by 33.4% over the 2008-09 year, followed by unlisted property returns at 13.3%.

Clarke says SuperRatings’ data is only in interim form due to the large number of funds filing their results late, after being forced to evaluate listed assets that have been devalued. But he says the full picture won’t necessarily be any better.

“Two negative returns is a huge shock and has never happened before. It is the largest loss in balanced options since the inception of superannuation.”

“Obviously there is a lot more optimism in the market at the minute, we’re hoping that flows through soon, but there are an equal number of people who are saying it could get worse. No one knows what’s going to happen.”

Clarke says the full picture should be known in the next few months when the remaining 40% of funds post their results, so people shouldn’t react too quickly to bad results.

“Really it’s important to understand the investment strategy you’re in, and the expected behaviour of that strategy. The two negative returns in a row is a shock, but over the long-term these results are expected and factored into disclosure statements.”

However, there are likely to be some big differences between the best and worst funds. In the 2001-02 and 2007-08 financial years, which also experienced negative returns, the gap between best and worst funds was 11.2% and 18.4% respectively. While Clarke says that gap is likely to decrease this year, it will still come in at around 17%.

But Clarke says long-term results are still within expectations and points to figures that show average Australians have recorded returns of 4% annually above the inflation rate since the introduction of compulsory super in 1992.

That sentiment is echoed by Chant West, which has reported that over the past 15 years the average super fund has recorded an annual return of 6.9%.

Chant West also pointed out that not-for-profit super funds have continued to outperform competitors. The company’s figures found that not-for-profit funds took out eight of the top 10 performing funds, and outperformed master trusts by 2.6 percentage points.

“These observations deserve to be drawn to the attention of super fund members,” Chant West principal Warren Chant told the Australian Financial Review.