Boom for superannuation savings as share markets rally despite Middle East war fears and US election turmoil

Australian superannuation funds have enjoyed their strongest September quarter in more than a decade as financial markets rise through global turbulence.

SuperRatings estimates so-called balanced funds, with around two-thirds of investor savings in higher risk assets, rose a healthy 3.4 per cent in the first quarter of the new financial year.

And growth funds, with up to 90 per cent of money in higher risk assets, surged 3.8 per cent for the quarter — taking their average 12 month return to a boom-time 15.7 per cent.

Pointing to the biggest September quarter rise since 2013, SuperRatings executive director Kirby Rappell said it was likely to be the first time in five years that funds delivered growth to members in the month. “I barely believed these returns knowing what is going on in the world,” he said.

And the top super fund analyst warned Australians to be prepared to see their retirement savings balances go up and down in the months ahead. “With the escalation of conflicts in the Middle East and a close race in the US presidential election, the path for super fund returns remains uncertain,” he said.

With the rising expectation of interest rate cuts having been supported the strong recent returns, he also pointed to the uncertainty about cuts in Australia as another source for worry in financial markets.

As Australian equities jumped 2.2 per cent in September and share markets world wide gained an average of 1.7 per cent for the month, growth super investment options rose an average 1.3 per cent and balanced options rose an average 1.1 per cent. Average fund returns are not directly related to market returns.

This is because the popular offering of many of the biggest industry super funds heavily invested in private property, infrastructure, debt and infrastructure investments.

SuperRatings estimates that the average holdings of Australian balance investment pools are around 29 per cent Australian shares, 25 per cent international shares and around 15 per cent in fixed interest funds, which may be linked to publicly-traded assets.

These balanced pools can have upwards of 25 per cent of investor funds in infrastructure, private equity and higher-risk private debt plays. Their valuations do not closely reflect movements in financial markets.

Their returns have generally fallen well behind the new generation of lower cost index investment offerings thanks to share markets having rallied around 30 per cent over the past year.

Returns have been particularly strong over the past year for super funds lower-cost index investment offerings with a heavy focus on publicly-traded shares thanks to share markets having rallied an average 30 per cent.

The renowned investment options of some highly-rated super funds being beaten by their low-cost offerings theoretically involving similar risk levels.

Mr Rappell said investment settings with big holdings of unlisted assets had clearly not done as well recently, but the test would come when the next big downturn came.

“When the water goes out, who will cope so well,” he said.