Funds prepare for more volatility

The median balanced option returned 0.9 per cent in July as markets rebounded following falls through March, according to SuperRatings – but funds should be battening down the hatches in preparation for more volatility through the remainder of 2020.

“The outlook is still unclear but based on recent performance super funds have shown they can weather the [COVID-19] storm,” said SuperRatings executive director Kirby Rappell. “Looking at SuperRatings’ balanced option index, the sector is 4.0 per cent below where it was at the start of 2020.

“This is less than ideal for members, but thanks to the recovery we saw over the June quarter we have already made up a lot of ground. Hopefully this momentum can continue, and members can swiftly regain their super wealth.”

The median balanced option is down 1.2 per cent over the 12 months to July, while the median growth option is estimated to have fallen 1.7 per cent and the median capital stable option remains steady at 0.5 per cent. July is the fourth month in a row of positive returns for super following the 9.2 per cent drop through March.

“We can certainly take heart from recent performance, but we should not underestimate the challenge that we still face,” Mr Rappell said. “Markets are incredibly difficult to navigate at the moment.

“Globally, we are seeing a disconnect between the rise in share valuations and the weakness in economic data. Meanwhile, the [low-yield] environment will only be exacerbated by governments issuing more debt to shore up budgets and continue providing support to those affected by the virus.”

SuperRatings believes funds have done an “incredible job” of accumulating wealth for retirees over a period that includes two major financial and economic crises. Since July 2005, a starting balance of $100,000 would now be worth $235,877 for members in a balanced option.