October 2013 super fund returns.

October was another strong month for super funds with the median growth fund (61 to 80% allocation to growth assets) gaining 1.8%, bringing the return over the first four months of the current financial year to a very healthy 6.8%. This is on the back of the 15.6% return for the 2012/13 financial year, which equalled the highest single year return since 1997.

Listed share markets which are the main drivers of growth fund performance performed well in October. Australian shares returned 3.9%. International shares advanced 3.9% in hedged terms but, due to the appreciation of the Australian dollar (up from US$0.93 to US$0.95), the return in unhedged terms was lower at 2.6%. Listed property also fared well, with Australian and global REITs returning 2.6% and 3.5% respectively.

Chant West director, Warren Chant says: “The typical long-term return objective for growth funds is to exceed inflation plus 3.5% per annum over rolling five years which translates to a return of about 6.5%. The strong performance over the past 18 months coupled with the GFC-period continuing to work its way out of the five year return, has seen the median growth fund’s return over this period rise quite markedly. At 8% per annum, it is now well above the return objective. Growth funds are up 60% since the GFC low-point at the end of February 2009 and now stand 18.5% above their pre-GFC high achieved in October 2007.

“All eyes were on the US in October with the 16-day partial government shutdown causing markets to react nervously. However, share markets rebounded strongly after a last minute agreement was reached to raise the US debt ceiling which prevented the possibility of a US default and saw the government resume full operations. Additionally, the Federal Reserve announced that there will be no tapering of its asset purchase program until there is further evidence that the recent economic progress seen is sustainable. In the Euro zone, economic data released in October indicated that the recovery that we saw in previous months may be slowing. The European Central Bank cut interest rates to a record low of 0.25%.

“Domestically, the RBA kept rates on hold at 2.5% at its November meeting. While most recent economic data released has been upbeat, it’s too soon to know whether this improvement is sustainable.”

Chart 1 compares the performance since July 1992 – the start of compulsory superannuation – of the Growth category median with the typical return objective for that category (CPI plus 3.5% per annum after investment fees and tax over rolling five year periods). 

Note: The CPI figure for the October 2013 quarter is an estimate.

 

Chart 2 compares the performance of the lower risk Conservative category (21 to 40% growth assets) median with its typical objective of CPI plus 2% per annum over rolling three year periods. It shows that Conservative funds have exceeded their objective in recent times.

Note: The CPI figure for the September 2013 quarter is an estimate.

Indices:

The Australian All Ordinaries Index has moved down decreasing by -0.3% since closing last Friday to 2:20 pm today. 

The rest of the world as measured by the MSCI index increased +3.2% in A$ from closing last Friday to end of trade Thursday.

Have a great weekend,

The team at IPS