Industry looks towards long-term as super returns slide on Trump-driven volatility

The median growth super option has fallen around 3 per cent since late January amid market volatility resulting from Trump’s unpredictable policy moves, but the industry remains confident in long-term performance.

Over recent weeks, US and Australian sharemarkets have seen significant declines from their all-time highs, mostly on the back of the “frenetic and often contradictory” policy announcements from the White House around tariffs.

Many super funds credited the strength of local and global sharemarkets as a key driver of their performance in 2024. However, the recent correction serves as a reminder that even long-running market winners are not immune to periodic downturns.

Last week, SuperRatings reported a 0.8 per cent decline in the median balanced option for the month of February – marking only the second negative monthly return for the financial year.

With market volatility persisting through March, returns appear to have declined even further.

Namely, new data from Chant West, shared with Super Review on Thursday, estimates that the median growth option (61–80 per cent growth assets) is currently down 3.3 per cent compared with late January.

Looking forward, the news is not favourable, with AMP’s Shane Oliver tipping a market correction of 15 per cent is “highly likely”.

“This will weigh on short-term super fund returns,” he warned in a recent market note.

But despite expectations that market volatility will persist for months, Chant West senior investment research manager Mano Mohankumar said funds’ “well-diversified portfolios” should help cushion returns in the months ahead.

“Super funds are long-term investors and manage well-diversified portfolios that have their investment exposure spread across a wide range of asset classes, including meaningful allocations to unlisted asset classes,” Mohankumar told Super Review.

“That diversification helps cushion the blow during periods of market volatility and with about 55 per cent on average invested in listed shares, they’re able to capture a significant proportion of the upside when sharemarkets perform strongly – as we saw in each of the past two calendar years.”

Political developments keeping funds busy

In a recent investment update, Aware Super acknowledged that short-term market volatility can be “unsettling” for members, but said it is “closely monitoring” the situation.

“Investors recently have been navigating abrupt changes, particularly tariff announcements coming out of the US. We’ve also seen tech companies that did very well in 2024, like Nvidia, sell-off more recently,” Aware Super said.

“Recent political developments are obviously keeping us busy – we’re closely monitoring what’s going on, but it will take a while for the impact of any policy changes to become clear.”

Aware Super cautioned that the political climate can shift rapidly and emphasised the importance of not “overreacting” to short-term market movements.

“Our focus remains on long-term investment dynamics, such as the growth of the digital economy, the energy transition and demographic changes, which we believe will remain dominant regardless of what is occurring politically.”

Earlier this week, in conversation with Super Review executive director of SuperRatings, Kirby Rappell said despite talks of a recession in the world’s biggest market, he doesn’t expect funds to move away from the US but anticipates a shift in focus to sectors that can thrive under the new Trump regime.

“Volatility is returning and likely to be higher than in recent times. This is a challenge and opportunity for funds, and funds have the opportunity to showcase their value of outperforming during periods of volatility,” he said.

Rappell acknowledged that while investing overseas is a balancing act for funds, given their everyday Australian members, expanding globally is essential for sustaining growth and deploying assets effectively.

But despite the recent setbacks, Rappel said funds have delivered around a 7 per cent return so far this financial year.

“Provided funds can navigate the next few months well, members are currently on track for a positive return for FY2025,” he added.

Volatility is the ‘price’ funds pay

According to AMP’s chief economist, markets are essentially reacting to Trump.

Prior to this correction, the Australian sharemarket was considered overvalued, with price-to-earnings (P/E) ratios around 20x, surpassing normal levels. Additionally, the earnings yield had fallen to levels offering minimal risk premium over bond yields.

In the US, Oliver said the situation was even more dire due to its higher P/E ratios compared to other markets, making it more sensitive to shifts in investor sentiment and economic policy uncertainties.

“The overvaluation that we had seen in markets after two years of pretty strong gains without much in the way of a correction had left shares overvalued and over-loved. And Donald Trump has turned out to be the trigger for the correction,” Oliver said.

“He has raised question marks around the earnings outlook basically. The tariffs will have a negative impact on profits for US companies, they run the risk of triggering a recession in the US, and we’ve also got a growing global trade war.

“And we’ve got more tariffs ahead of us. We’ve got tariffs on multiple industries. Trump’s talked about semiconductors, cars, pharmaceuticals, steel tariffs, aluminium tariffs. We’ve also got reciprocal tariffs … This is all creating a lot of uncertainty for investors,” he added.

Reflecting on how this will impact super, Oliver said bouts of volatility are the “price we pay for the higher longer-term returns from shares compared to more defensive assets like cash and government bond”.