The high Australian dollar weakened superannuation funds’ returns in April and was expected to take annual returns down into single-digit territory in May, according to the latest Chant West performance survey.


The median growth super fund, with an allocation of between 61 and 80 per cent to growth assets, experienced a flat 0.2 per cent return in April but maintained a cumulative return for the financial year to date of 10.2 per cent.

Chant West director, Warren Chant, judged that the appreciation of the $A had detracted about 3.5 per cent from the typical growth fund return in the financial year to date.

“Our dollar appreciated against all major currencies over the financial year to date, including a 30 per cent rise against the US dollar, from US$0.85 to US$1.10,” Chant said.

“Unless you hedged against that currency movement, it took a big chunk out of the value of your overseas investment returns.”

About 70 per cent of the funds Chant West surveyed hedged between 20 and 50 per cent of their international shares exposure, with an average hedging ratio of 29 per cent.

During April, the Australian sharemarket was down 0.3 per cent for the month. International shares returned 2.5 per cent in hedged terms, but due to the further appreciation of the Australian dollar, this return was reduced to a loss of 1.4 per cent in unhedged terms, Chant West found.

Overseas REITs performed strongly, returning 4.4 per cent, while their Australian equivalents were more subdued, returning 0.3 per cent.

In April industry funds also marginally outperformed master trusts, returning 0.2 and 0.1 per cent respectively.

But over the 10-year period to the end of April 2011, industry funds outperformed master trusts by 1.2 per cent each year, and returned an annualised 5.9 per cent compared with the 4.7 per cent delivered by master trusts.

Industry funds typically invest more heavily than retail funds in unlisted assets such as private equity, unlisted property, unlisted infrastructure and private equity hedge funds.

These more illiquid, alternative asset classes performed strongly in the long-term, and Chant West deduced that an optimal allocation to them was about 20 per cent.

Investment research manager at the ratings house, Mano Mohankumar, said it was likely that year-to-date returns could trend down by the end of May.

“May hasn’t been a very good month. Sharemarkets both in Australia and worldwide have been down around 2 per cent, so we may be dropping down below the 10 per cent mark by the time we reach the end of May,” Mohankumar said.

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