High inflation that refuses to drop, coupled with continuing interest rate rises, have put pressure on superannuation returns in May, according to the latest estimates.
Superannuation research house SuperRatings is expecting a slight dip in fund performance for May, predicting the median balanced option return will fall by around 0.2 per cent.
At the same time, with the end of the financial year fast approaching, SuperRatings says those same inflationary pressures will most likely deliver a return in the 7 to 8 per cent range for the 12 months to 30 June.
Kirby Rappell, executive director at SuperRatings, says ending the year in profit in such a volatile economic environment has been difficult.
“While May saw a small fall, funds are currently on track to deliver a return in excess of inflation, so funds have kept the value of members money from diminishing in a high inflation environment, which has been no simple task,” he says.
“Inflation, and the central bank response to inflation, have been the most influential factors for superannuation performance this financial year and we expect this to continue into FY24.”
Mr Rappell added that $100,000 invested in a balanced option in July last year would have generated roughly $107,833 by the end of May 2023. He says this demonstrates that fund investment strategies are behaving as expected by trading off between account growth and a smooth return, even in uncertain times.
“Super fund returns have had a bumpy year, with markets facing several shocks over the last 11 months. However, funds continue to navigate the challenges well with most accounts seeing growth over the course of the full year,” he says.
While the figures are positive for now and the near future, many funds use unlisted assets to form part of your investment make-up. This is an asset that is not traded through a public exchange and usually includes commercial real estate and/or infrastructure holdings.
These assets are valued not by buying and selling on the market, but by financial experts making determinations behind the scenes. This leaves them open to being overvalued, especially when the jobs of people making the valuations depend on the number going up.
The Australian Prudential Regulation Authority (APRA) is currently examining ways to force super funds to “seriously scrutinise the valuations of unlisted assets held by their fund”.
APRA says it expects super funds to “consider the potential impacts on beneficiaries of selling assets at a stale price”, and has asked for evidence that internal and external audit teams are examining the assumptions used in valuing assets.
APRA will also require funds to detail the valuation methodology they use for assets that are not publicly traded and stipulates that there should be a strict separation between a fund’s investment managers and those responsible for valuing the assets in order to avoid conflicts of interest.
Is your superannuation fund on track to end the year positively? Does your fund invest in many unlisted assets? Let us know what you think in the comments section below.
Also read: What you must check when you receive your super fund statement
