From Business Spectator:
Super performance hits 3-year low in Q3
24 Oct 2011
Superannuation default funds lost 5.1 per cent during the September quarter as global equity markets sold off, making it the worst quarterly performance since the peak of the credit crisis in 2008.
The funds now need to grow by 11 per cent to return to their pre-global financial crisis (GFC) highs achieved in October 2007.
That task will take at least a year, assuming they meet annual performance objectives set out in product disclosure statements, research firm Chant West says.
Default funds are used by 80 per cent of Australians.
They are funds nominated by employers to receive super guarantee contributions when employees do not select their own funds.
The median growth fund, which is the investment profile of most default funds, lost 5.1 per cent in value in the three months to September 30 - the worst quarterly return since the December 2008 quarter following the collapse of US investment bank Lehman Brothers.
Three years later, it is Europe's sovereign debt crisis that has plagued global financial markets and caused the Australian share market to lose 11.6 per cent in the September quarter.
By June 30, 2011 the typical growth fund needed about six per cent growth to return to its pre-GFC high.
Now that shortfall has blown out to 11 per cent assuming, no contributions are made to the fund, Chant West's director Warren Chant said.
"Even if funds were to meet their typical performance objective of about seven per cent per annum, it would still take between one and two years to make that up."
This assumes a growth target of inflation (consumer price index) plus 3.5 per cent and is a "hopeful" estimation, senior investment analyst Mano Mohankumar said.
"It's during times like this that you see the benefits of diversification.
"By investing across a range of asset classes - both growth and defensive - you're able to cushion the blow.
"Growth funds in net terms have returned negative 5.1 per cent - that loss is limited by having that exposure to a number of different asset classes."
The Australian dollar's fall against the US dollar during the quarter cushioned losses for international share funds if they were unhedged, Chant West said.
In hedged terms they fell 14.9 per cent, but unhedged funds lost 8.0 per cent.
Global real estate investment trusts (REITS) posted quarterly losses of 14.5 per cent, while local REITS fell 8.1 per cent.
Industry funds easily outperformed master trusts during the quarter, as they have done for the last 10 years.
Chant West defines growth funds as having between 61 and 80 per cent of assets in growth assets, which Mr Mohankumar said was equivalent to most default funds.
They include shares, REITS, unlisted infrastructure, private equity and other unlisted assets.
Chant West defines balanced funds as having 41 to 60 per cent of their assets invested in growth assets. Balanced funds lost 3.0 per cent in the September quarter.
