After one of the worst years for superannuation returns since the global financial crisis, uncertainty and volatility are set to continue to challenge investors and see balances bounce up and down in the year ahead.
But experts say that despite a turbulent 2022, characterised by high inflation, rising interest rates and the war in Ukraine, most super funds have continued to hit their long-term objectives and have urged members not to try to time the market or make rash decisions in reaction to negative returns.
Last year was one of the worst for super balances since the global financial crisis. Credit:Louie Douvis
Research released on Thursday by Chant West showed that super funds faced an “uphill battle” last year given falls in most of the traditional investment markets – shares, listed property and bonds.
The median growth option fell 4.6 per cent over the calendar year. The last time it ended in the red was in 2011 (-1.9 per cent) and prior to that, the GFC (-21.5 per cent).
However, Chant West senior researcher Mano Mohankumar said last year’s negative results came off the back of a decade of positive returns, and funds were still meeting their long-term return objectives by a comfortable margin.
“This was the first negative calendar year since 2011 and only the fifth in the full 30 years of compulsory super,” he said. “It … comes on the back of a particularly strong 2021, so perhaps we were due for a return to earth given the challenging investment backdrop.”
Mohankumar said that last year had been unusual in that all traditional listed asset sectors except cash finished in the red. This was made more challenging by the fact that bonds didn’t play their usual cushioning role, he said.
Alex Dunnin from Rainmaker said while 2021 was the best year for super fund returns ever, last year was one of the worst since the financial crisis.
“Equities got so whacked last year but … bonds got whacked more. It’s the two happening together that caused the chaos,” he said. “We know markets always recover, the only question is how long it will take.”
On Thursday, ANZ’s global market outlook forecast a challenging time for investors this year, with markets to remain under pressure. Equities are likely to struggle as earnings begin to reflect a recessionary environment, demand weakens and margins falter, said ANZ Private Bank head of investment strategy Lakshman Anantakrishnan.
“2023 will be hard-pressed to outdo the challenges that financial markets faced in 2022, however this year is unlikely to be a smooth ride for investors,” he said. “While the macro outlook will remain challenging, unlike 2022 there should be ample opportunity for investors this year – where and when remains the question.”
KPMG’s head of asset and wealth management, Linda Elkins, said the three major challenges super funds had grappled with last year were rising interest rates, rising inflation and uncertainty caused by the way in Europe.
“I think it’d be fair to say the uncertainty is continuing into this year with the same factors,” she said.
“But I think looking at those long-term returns is the real key to this, to understand just how well super funds have on the whole – certainly the quality performing funds – managed investment markets.”
She said a long-term view was vital, despite the bumps still predicted for the next 12 months. Retirees who switched their investments into higher growth options or shares to replace the returns they have lost through low-interest rates will be finding these markets a bumpy ride, she said.
“Being reactive around lower returns can mean that you’re just taking on more risk. That can, of course, be great or not great.”
Elkins said for those who were worried about last year’s negative returns and the economic outlook, they should firstly check whether they are in a MySuper fund, the default products, or a choice fund, where members have greater control and flexibility. They should then make sure they are in a well-performing fund, and also consider whether they want to access professional advice to help them with their decisions.
Chant West’s Mohankumar said when investment markets fell sharply, there was a tendency for some people to panic and consider moving their money into less risky investment options or to cash.
“We caution members about the perils of attempting to time the market,” he said.
“Far more often than not, it results in a worse outcome in the long run than if you stay the course. Panicking only converts paper losses into real ones. Not only that, you risk missing out when markets rebound – as they will at some point.”
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