Green shoots emerge but super funds not yet out of the woods

Maybe 2020 will end on a positive note. Spring has sprung, Victorian coronavirus case numbers are falling and superannuation funds are clawing back investment losses following a major sharemarket meltdown in April.

The fastest bear market on record emerged in March when the pandemic stopped feeling like only a China problem and cities were sent into lockdown around the globe.

The fastest bear market in history emerged in March when the pandemic sent cities around the globe into lockdown.
The fastest bear market in history emerged in March when the pandemic sent cities around the globe into lockdown.Credit:Craig Abraham

The benchmark S&P/ASX 200 Index promptly fell more than 30 per cent.

Many investors predicted further losses, arguing that tech giants were massively overvalued and the market was arrogantly out of touch with the impending economic doom.


Retirees were terrified as they watched their super fund balances plummet.

Older Australians were both most exposed to the health and economic impacts of the pandemic and were suddenly confronted with tough choice – stay fully invested and watch their savings freefall or switch to cash to stem the hemorrhaging?

There were some loud voices from the industry: “Super is a long-term investment, stay invested, if you get out now you’ll lock in your losses,” was a common catch-cry.

It turns out they were right – for now.

Super funds have just posted their fifth consecutive month of gains.

Research by SuperRatings has found that a typical “balanced” investment option fund returned 1.8 per cent in August, taking gains to 2.9 per cent since July 1. The rolling one-year return for median “balanced” options moved back into the black – up 0.8 per cent – but are still down 2.4 per cent since the start of 2020.

Both “growth” and “capital-stable” investment options are both estimated to have gained about 0.7 per cent over the full year to August.

However, it’s hardly time to break out the champagne. Fears of another market stumble remain.

Scott Haslem, chief investment officer at wealth manager Crestone, says super fund members should brace for another period of “renewed volatility” in sharemarkets over the next few months.

“We have the uncertainty of the US election and Congress in the US seems to be struggling to approve a new stimulus deal. So, after what is likely to be a strong Q3 bounce in [economic] activity around the world, there are question marks over the pace of activity for the rest of the year,” he says.

Stockspot chief executive Chris Brycki: Bringing down super fund fees is more important than ever.
Stockspot chief executive Chris Brycki: Bringing down super fund fees is more important than ever.Credit:

Haslem would not be surprised to see a “fading of growth momentum” and he points to warning signs overseas as coronavirus cases spike in Europe. “It’s not over til it’s over with COVID,” he says.

It is for this reason that Stockspot chief executive Chris Brycki says bringing down super fund fees is more important than ever. His firm, which offers investors low-cost passive investment portfolios, ranks super funds on their performance after fees each year.

This year, the worst performer was AMP Capital’s Dynamic Markets Fund, which returned negative 15.59 per cent over the past year and negative 2.08 per cent over a five-year period.

“It was the first time we’ve had a ‘balanced’ fund with negative returns over five years,” Brycki says. “That fund tries to time which asset classes to be in and out of. They’ve just got it totally wrong. They’ve been too heavy on oil stocks [and] out of tech stocks.”

Brycki says the AMP fund is a shining example of how Australians could be retiring with more cash if more super funds switched from paying active managers to index-matching investing.

“This year has shown even well-paid fund managers can’t predict what is going to happen. They can’t necessarily protect your balances when sharemarkets fall.”

However, others claim that active investment managers remain the backbone of Australia’s super success story.

Since August 2005, a person with a starting balance of $100,000 would now have more than $238,000 in retirement savings, according to SuperRatings research.

Still, COVID-19 has forced major many financial institutions to rethink the status quo.

While green shoots of hope are emerging, it is not time to become complacent and super funds should take a hard look at the way they do business to ensure they act in members’ best interests.

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