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Funds gear up for potential market shifts amid Trump’s re-election and steady rates
Despite strong superannuation returns at the start of the financial year, super funds could be in for a rockier ride ahead with volatility expected to increase.
In October, super funds faced a tougher market, with most asset classes reporting negative returns, except for international shares and cash. However, according to SuperRatings, the overall result was still fairly positive.
Namely, the firm estimated that the median balanced option gained 0.2 per cent in October, while the median growth option added an estimated 0.4 per cent, and the median capital stable option fell by 0.3 per cent.
Speaking to Super Review sister brand InvestorDaily, SuperRatings director Kirby Rappell said moving forward, members should prepare for market fluctuations amid steady rates and Donald Trump’s re-election.
“People are probably a little bit more concerned about the economic environment and it does feel tough but I think the positive thing is that super funds will continue to navigate that,” Rappell said.
“I think it is really comforting for most people that funds have navigated economic uncertainty pretty well since 1992.”
Discussing the potential volatility, the SuperRatings’ director said that much depends on whether Trump’s proposed policies will be implemented in full over the next four years.
Rappell also said that in an environment of higher volatility, it is crucial for fund members to understand what their long-term risk profile is and to “stick to it”.
“We can’t control short-term movements, so for many members, it is ensuring they have an understanding of how much risk they are able to take, or using fund’s risk profiling tools, and then setting their strategy up to align to this over the long-term,” he said.
“Hopefully, this allows for members to block out the shorter-term noise.”
Rappell pointed to data demonstrating that since 2000, super fund returns for the calendar year averaged at around 6.2 per cent per annum and there were only four negative returns.
“This period includes the dotcom bubble, the GFC and COVID,” he said.
“So, I think people will be alert to a potential increase in volatility, hopefully they remain focused on the long term with the risk profile in alignment with what is appropriate for them.”
The median balanced option recorded negative returns in 2002 (-4.8 per cent), 2008 (-19.7 per cent), 2011 (-1.9 per cent), and in 2022 (-4.8 per cent), according to data.
Concerns over core inflation remaining stubbornly above the RBA’s target, as evidenced by the September Consumer Price Index print, have shifted the outlook for interest rate cuts in Australia into the next year.
In line with market expectations, earlier this month, the RBA announced another rate hold, leaving the cash rate unchanged at 4.35 per cent for the eighth consecutive time.
This heightened market expectations that a rate cut is unlikely in the near term.
As such, Rappell expressed concern that higher mortgage and rent costs, if prolonged, could strain members’ cost of living, with potential inflationary pressures from promised tariffs further exacerbating the situation.
No significant change
Earlier this month and ahead of Trump’s election win, Joshua Lowen, insights manager at SuperRatings, told InvestorDaily the outcome of the US election is not likely to result in a significant change to superannuation fund investment strategies.
“This is because these strategies are designed with long-term investment horizons, usually at least 10 years and therefore, while the result of the election may have an impact on some specific assets that funds invest in, at a strategic level, it is unlikely to have a major impact on long-term outcomes,” Lowen said.
However, investment teams will remain vigilant, closely monitoring potential shifts in US policy and their implications for equity markets.
“Funds and their investment teams or managers will be thinking about likely changes in US policy and any expected impacts on US equity markets because of the presidential election result, as they will move to capitalise on any opportunities that may arise; however, fund responses in this regard would be similar to those made in response to any major global event,” he said at the time.
AUTHOR
Maja Garaca Djurdjevic
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