Strong Aussie dollar dents super returns as double-digit year slips away

(Editor’s note: this report was originally in English and is rewritten in Chinese per this site’s practice.)

The record-breaking Australian dollar has wiped 13.8 per cent off international share returns in the ten months to April 30, leaving Australia’s default superannuation funds struggling to keep double-digit returns for the year.

What dragged returns down?

A soaring local currency shrank overseas equity portfolios. Research firm Chant West said the median return for its growth funds — the industry’s default-fund equivalent — touched 10.2 per cent by April 30. But the local share market has since dropped 4.1 per cent and offshore markets have also declined, making double-digit returns for 2010/11 unlikely. “We’re confident it’s going to be a positive return. Members can view it as a year of consolidation after last year’s positive return,” said senior investment analyst Mano Mohankumar.

How exposed are default funds?

Eighty per cent of Australians sit in default funds. These are the funds employers nominate to receive super guarantee contributions when employees don’t choose their own. They typically hold 25 per cent of assets in international shares; despite 29 per cent of those global assets being hedged, the surging currency still caused heavy losses. Chant West’s growth funds hold 61 to 80 per cent of assets in growth assets, roughly matching most default funds.

How far from pre-GFC peaks?

The average growth fund still needs 4.5 per cent more growth to get back to pre-crisis levels. Mohankumar added that other global assets such as property, infrastructure and bonds are fully hedged — but under the strong dollar, climbing back to pre-GFC highs looks a tall order.

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