Superannuation funds’ returns have been dented by the escalating war in the Middle East, which has left markets on edge over the economic damage that the spiralling oil price could unleash.
Global sharemarkets are down more than 5 per cent since the US and Israel launched attacks on Iran at the end of February, and this is flowing through to lower returns for the typical super fund, which has a large share of its investments in Australian and international shares.
The median “growth” investment option has lost about 3 per cent so far in March, figures from research house Chant West show, taking returns for the financial year to date to about 3.3 per cent. Super Ratings data also pointed to a 2.85 per cent decline for a “balanced” portfolio since the war erupted.
The market reaction to the war, and the impact on super, has been notably less dramatic than during the Liberation Day market panic of April last year, when US President Donald Trump unveiled sweeping tariffs, but uncertainty remains over the future path of the war and its economic impact, particularly from the surge in oil prices.
Australia’s sharemarket has declined over each of the past three weeks, and futures are pointing to a further 1.8 per cent dip on Monday, after a slump on Wall Street on Friday (US time).
While there are signs of increased anxiety among some members, experts have cautioned that switching to a more conservative investment option during bouts of volatility runs the risk of locking in losses.
Australian Retirement Trust general manager of defensive and liquid assets and portfolio intelligence Jody Fitzgerald said volatility was a normal part of investing.
Fitzgerald said super funds were also invested in unlisted assets, such as property or infrastructure assets, and these tended to hold their value better during periods of volatility.
“It’s important for members to understand that their superannuation is the longest-term asset they’ll probably ever hold,” she said. “And that they should be thinking in terms of decades and not in terms of weeks and months when these events tend to play out.”
Fitzgerald said there was a tendency for people to want to take less investment risk at a time of volatility, but doing so could result in a locking in of investment losses, while missing out on any market rebound.
“If you de-risk, what occurs is that you get lower levels of exposure to volatility because you’ve got less exposure to growth assets that are more volatile. However, you’re also less exposed to the potential upside once the markets recover, once we get through this period,” she said.
A spokesman for ART said that since the war, the number of incoming calls from members relating to balances and investments was up by a third, but the number of calls from people wanting to switch their investment option was unchanged.
Fitzgerald said members should seek advice before changing the level of risk in their super. She said ART and other big super funds could take advantage of market volatility through a program that allows them to buy assets such as shares or equities that had become cheaper during volatile times.
Super giant HESTA chief executive Debby Blakey said the fund anticipated and prepared for a wide range of market conditions, and she pointed to the benefits of a diversified portfolio in times of volatility.
“We began the year with a cautious outlook, with total exposure to stock markets lower than target given geopolitical risk and stretched valuations,” she said.
“Financial markets are still weighing the risk of a long conflict, which is driving the current uncertainty. We are closely monitoring developments and updating scenario planning to help ensure our ongoing activities both manage emerging risks and take advantage of new opportunities,” Blakey said.
HESTA’s balanced growth fund, its most popular investment option, is up 3.44 per cent for the financial year to date.
Chant West head of super investment Mano Mohankumar said the recent dip followed three positive financial years in a row for super, which enjoyed returns of 10.4 per cent last financial year, and more than 9 per cent in each of the two financial years before that.
“It’s times like this where we try to encourage members to think long-term. Super is a long-term investment and along the way there will be periods of volatility,” Mohankumar said.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
Clancy Yeates is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X or email.