Super funds face tough year

Volatility in global stock markets due to weakening growth in China is likely to result in a negative return for super funds in 2016

Superannuation returns shrank to 5.6% in 2015 and experts predict another choppy year ahead amid turmoil on global financial markets. The good news for those SME owners who incorporate their commercial property into an SMSF is that Australian-listed property was the best performing Super asset class, rising by 14.4% in 2015.

So far in January, overall returns are down by 3.8% due to volatility in Chinese markets, new industry figures show. Returns are closely linked to local and international share markets, and Australia’s benchmark ASX 200 index is already down 7.4% so far this month, according to superannuation research company SuperRatings – that compares with around a 8.5% fall in international markets over the same period.

Still, the drop by the Australian dollar to under 70 US cents has helped offset some of the losses, SuperRatings founder and chairman Jeff Bresnahan said. He expects the average balanced option superannuation fund – which is mostly made up of local and international equities, property and infrastructure, and a mix of fixed interest and cash – to come in around the low-to-mid single digits in 2016.

That compares to 5.6% returns last year. ‘The funds have a long term target of CPI plus about 3% so the funds targets are somewhere between 5% and 6% per annum,’ he said. ‘Now obviously they’re not going to hit them year in, year out.’

Returns have already started to slow over the past few years. The last time returns fell was in 2011, down 1.9%, according to SuperRatings. Prior to that it was in 2008, dropping 19.7%, after major losses on international stock markets because of the GFC.

‘That was the worst year on record for super funds,’ Mr Bresnahan said.

‘As a rough rule of thumb, whatever the markets are down, the balanced super funds will be down by about half of that because of the diversification benefits,’ he said.

The main returns driver in 2015 were international shares, up 8.8% last year.

Chief executive Adam Gee said it was ‘quite possible that we could have a negative return’ in 2016, given heightened volatility about China’s growth, and the knock-on effect of Australia’s export prospects to the region.