EOFY super returns: how have markets faired?

Over the past few years, super fund returns have been strong with double-digit annual gains being commonly recorded. You may be surprised to see that your super return for the 2016 fiscal year is much lower than in previous years. In this article we look at what’s been driving weaker returns and consider the outlook for returns over the medium-term.

Fund returns are linked to market returns

Through super, you generally hold a wide range of investments such as shares, property, fixed income and cash. Most of these investments are listed on global market exchanges or are publicly traded and are usually priced daily. This means that the value of your super will move up and down with market movements.

Volatile and weak share markets

Share markets were volatile during 2015/16 and delivered poor returns for the period. Share market performance was adversely impacted by a number of concerns, including falling commodity prices and lacklustre global growth. Of particular note, economic growth in China has been weaker than expected; while in Europe, growth has been so sluggish that policy makers in many European countries have turned to negative interest rates to stimulate growth. 

In June, Britain’s decision to leave the European Union, or ‘Brexit,’ also contributed to market volatility and pushed most global share markets lower.

Australian equities ended the financial year with an annualised return of 0.6%. International sharemarkets delivered an annualised return of -1.4% on a fully hedged basis.

On the positive side, Australian listed and global listed property continued their positive trend, benefiting from the chase for yield, delivering annualised returns of 24.6% and 18.7% respectively. Australian and international bond returns also delivered solid positive returns.

Figure 1: End of financial year – investment market performance snapshot1

Return on asset 1 month (%) 3 month (%) 6 month (%) 2015/16 FY (%) 3 year (%) 5 year (%) 10 year (%)
Australian shares -2.5 3.9 1.1 0.6 7.7 7.4 4.9
International shares (unhedged) -3.8 4.4 -1.7 0.4 14.8 14.9 4.4
International shares (hedged) -1.2 -1.7 -0.2 -1.4 10.9 11.3 6.5
Australian listed property 3.5 9.3 16.3 24.6 18.5 18.1 3.1
Global listed property 4.0 4.8 9.8 18.7 14.3 13.1 -
Global listed infrastructure 5.5 9.0 16.0 6.6 13.0 14.8 12.1
Australian bonds 1.3 2.9 5.0 7.0 6.3 6.7 6.6
International bonds 2.0 2.9 6.7 9.3 7.6 7.8 8.1
Cash 0.2 0.6 1.1 2.2 2.5 3.1 4.35

Looking ahead – expect lower for longer

With cash rates and bond yields already so low, share markets are likely to be a key source of return for investors.
However, as global growth and inflation are likely to remain subdued for some time, overall super returns are likely to remain relatively muted. We anticipate that single-digit super returns are likely over the next few years.

Keep your focus on what really matters

With market volatility expected to continue in the near term, investments in well-diversified, actively managed portfolios will help to smooth out returns.

We expect active positions in the Australian dollar will be important going forward, but so too will investment in alternative assets, such as infrastructure, absolute return strategies and private equity, which have a low correlation with mainstream markets, such as shares.

What this means for you and your super

Super is a long-term investment, so don’t be too concerned about short-term ups and downs. It’s important to stick to your long-term super strategy.

If you sell your shares, or change your super investment portfolio when share markets are down, you could potentially make a loss, so you should seek financial advice before you make any changes.

About the author

Debbie Alliston, Head of Multi-Asset Portfolio Management, AMP Capital. Debbie Alliston is the Head of Portfolio Management within the Multi-Asset Group, responsible for overseeing the Group’s multi-asset investment capability which specialises in the management of diversified portfolios. She is also the Portfolio Manager for AMP’s flagship Corporate Super portfolios.

1 Past performance is not a reliable indicator of future performance. Source: Bloomberg, AMP Capital, as at 30 June 2016; Australian shares: S&P ASX 200 Accumulation (AUD); International shares (unhedged): MSCI World ex AU Accumulation (AUD); International shares (hedged): MSCI World ex AU Accumulation Hedged AUD; Australian listed property: S&P ASX 200 A-REIT Accumulation; Global listed property (hedged): FTSE EPRA/NAREIT Developed Rental Hedged AUD; Global listed infrastructure (hedged): Dow Jones Brookfield Global Infrastructure Net Accumulation Index Hedged (AUD); Australian bonds: Bloomberg AusBond Composite 0+ Yr Index; International bonds (hedged): Barclays Global Aggregate Index Hedged AUD; Cash: Bloomberg AusBond Bank Bill Index.

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While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

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