Superannuation fund investment returns in 2017-2018

Super funds performed strongly in the 2017-18 financial year. We look at what’s been driving their performance and consider the outlook for returns going forward.

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.

Strong performance

The last financial year has been a strong period for super funds. For the 12 months to 30 June equity markets posted solid gains both in Australia and overseas, up 13.7% and 15.4% respectively. Returns were also positive across other asset classes such as direct property and infrastructure, and bond returns, although modest, were much stronger than the previous year.

Overall, global growth conditions helped to drive earnings and although the US Federal Reserve continued to raise interest rates over the past 12 months, monetary policy - both in the US and globally - remained favourable.

In this article and short video, we look at what’s been driving these returns and consider the outlook for returns over the medium-term.

The year of two halves

The 2017/18 financial year was characterised as a year of two halves with strong returns in the first half then more volatile markets in the second half of the year. Equity markets were particularly weak at the start of 2018 due to concerns that inflation was emerging in the US and that growth had reached a peak. These fears quickly settled, and the markets were able to recover but market volatility returned with the threat of a global trade war between the US and China.

Return on asset

1 month (%)

3 month (%)

6 month (%)

2017/18 FY (%)

3 year (%)

5 year (%)

10 year (%)

Australian shares

3.0

8.0

4.0

13.7

9.5

10.3

6.2

International shares (unhedged)

2.3

5.5

6.4

15.4

10.0

14.9

9.2

International shares (hedged)

0.3

3.7

1.3

11.5

9.8

12.9

9.0

Australian listed property

2.2

10.0

3.0

13.0

9.7

12.0

6.0

Global listed property

2.7

8.0

1.6

5.8

7.6

9.4

-

Global listed infrastructure

3.2

6.6

0.8

3.2

6.3

10.2

11.5

Australian bonds

0.5

0.8

1.7

3.1

3.4

4.4

6.1

International bonds

0.2

0.2

0.1

1.9

3.8

5.0

6.9

Cash

0.2

0.5

0.9

1.8

2.0

2.2

3.3

Looking ahead

Looking forward, we remain fully invested in equities as economic and earnings prospects remain solid. However, we believe the market may be underestimating inflation and the threat of additional interest rate increases in the US. We are coming to the end of a long period of growth and there is uncertainty over how far interest rates can rise before they have a dampening impact on the share market and how central banks will respond once inflation begins increasing. These factors, alongside ongoing geopolitical uncertainty, mean that trading conditions could be less supportive over the year ahead, so returns are likely to moderate.

Diversification is the key to managing volatility

Volatility will continue over the medium-term and while often seen as a negative, it can create trading opportunities for our super portfolios that have a longer-term investment horizon. But we are mindful of building portfolios across the board that can better withstand volatility through investing across a broad combination of assets and actively managing within and across asset classes to deliver a better risk and return outcome.

What this means for you and your super

Super is a long-term investment and members have had a nine-year run of strong positive returns so don’t be too concerned about short-term ups and downs. It’s important to stick to your long-term investment strategy and you should consider seeking 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 2018; Australian shares: S&P ASX All Ords Accumulation Index (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. 

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