A recovery in April and May has put superannuation funds on track to generate high single-digit returns this financial year but the future is uncertain, according to SuperRatings.
The superannuation research house estimated the balance of a median balanced fund in the accumulation phase rose by 2.1% in May, bringing the financial-year-to-date (FYTD) return to 7.9%.
The result, which was largely driven by a rally led by technology stocks overseas, built on the 2.6% gain in April and meant funds had fully recovered from the 3.2% loss recorded in March after the outbreak of the United States-Iran conflict.
The median growth option gained an estimated 2.4% while the median capital stable option rose 1.3% last month, producing 11 month returns of 9.0% and 4.9% respectively.
“As we approach the end of the financial year, we seem to be getting used to the ups and downs of markets,” SuperRatings Director Kirby Rappell said in a media release.
Artificial intelligence (AI)- related news and initial public offering (IPO) listings were an increasing focus while the situation around Iran remained “somewhat fluid”.
“This is educating members on how to deal with uncertainty, which has been more subdued in recent years,” Rappell said.
“It is somewhat surreal to see that the median Balanced super fund has delivered a return of 7.9% over the financial year so far and 7.4% per annum over the past decade.”
Pension fund returns also rebounded in May, with the median balanced option achieving an estimated return of 2.3%, compared to the April gain of 2.7% and March loss of 3.6%, lifting the FYTD return to 8.9%.
The median capital stable pension option was estimated to have risen 1.5% over the month, lifting the FYTD return to 5.6%, while the median growth pension option was estimated to have risen 2.6%, returning 9.6% over the period to the end May.
Rappell said the pace of the market turnaround since the start of the U.S.-Iran conflict was a powerful reminder for super funds members of the benefit of a long-term focus.
He said members who switched to cash or other defensive assets in March would have missed the rebound.
“At the end of May, funds are now on track to deliver high single digit returns for the financial year, with more growth-orientated options potentially reaching double-digits if the current momentum holds through June,” Rappell said.
“Looking ahead, we face continued uncertainty in the Middle East and a number of AI IPOs coming to market, meaning the path to the end of the financial year is far from certain.
“However, as March reminded us, investor sentiment and markets can shift quickly. We encourage members to remember that superannuation is a long-term investment and to speak with their fund or a trusted professional financial advisor before making any changes to their investment strategy.”
