Why do 2022 performance returns look so different to 2021?

Article

After last financial year’s strong super fund returns, there may have been an expectation that this year’s returns will be similar. As we near the end of this financial year, we look at why they won’t.

An unprecedented number of global events have made market volatility a key theme for share, property, and bond markets this year.

Inflation has become a real issue as prices of goods and services rise globally, with energy and food costs soaring. And the tragic invasion of Ukraine by Russia has caused further pressures on inflation and weakened global supply chains. To combat higher consumer prices, central banks around the world started to raise interest rates (which aims to slow spending and borrowing, and in turn, reduce the price of goods), with more increases expected to come.

Global manufacturing and supply chains have also come under pressure as shortages of key materials used for production, and the increased cost in transportation of these goods has led to higher prices for consumers.

COVID-19 has continued to disrupt, especially in China, with some of its largest cities placed into months of lockdown as the world’s second largest economy pursued its COVID-zero policy.

Locally, heavy rain and floods in the early part of 2022 further affected supply chains, adding to already high prices (especially fruit and vegetable produce).

Impact on investment markets

Investment markets suffered as a result. Uncertainty over how these recent events will work through the global economies has made assessing company share price values, property prices and bond yields difficult.

For most developed markets, share prices have fallen. In the US, the S&P 500 index has fallen 21.6% over the year to date*. The Australian S&P/ASX 200 fared better year to date*, down 10.2%, supported mainly by our Materials (mining) and Utilities (energy) sectors.

Uncertainty in markets has also impacted traditionally ‘safer’ bond markets. With interest rates moving upwards from historical low levels of almost zero per cent, we have seen for the first time in over 30 years, negative returns on bonds over the last 12 months.

This is because when interest rates rise, bond prices fall. To understand this more, consider two bond purchases, one bought in the current, higher interest rate environment and the other, a year ago, when interest rates were lower. The bond that was bought at the low interest rate environment would now be less attractive because an investor can purchase a bond with higher rates today.

With only a few weeks to go until financial-year end, any surprise uptick in the bond, property and share markets that is sufficient to recover the recent losses is unlikely.

Why does this matter to super returns?

All of us have our super invested in different mixes across share, property, and bond markets. Typically, if you’re invested in our default Lifestage investment options, younger members (those who have many years until retirement), have a high proportion of their super invested in growth assets (like shares and property). Older members nearing retirement have less exposure to share markets and more allocation to defensive assets (such as bonds and cash).

What this means for your super returns?

Given the degree of share, property and bond market falls in recent weeks, there is a real possibility that many super fund members will see negative returns this financial year.

While things aren’t looking good for super fund returns this financial year, our message at this time and during any market volatility, is to stay calm and don’t panic, and remember the purpose of superannuation is to invest for the long term.

It’s important to see things in context.

1. For the last 29 years, there’s only been four times that the average growth-style super fund finished the financial year in negative territory, and there has been a strong run of returns averaging 8.4% per annum for the past decade^.

2. Super is a long-term investment, so while investment markets can be unpredictable over the shorter term, they typically recover over the longer term.

You’ll see below that the short-term returns for our Lifestage investment options are negative, but over the 2-year, 3-year, 7-year and 10-year periods, they are solid positives. This illustrates the importance of blocking out the short-term noise and focusing on long-term returns. 

Investment option

Financial year to 31 May 2022 %

2 years (pa) %

3 years (pa) %

7 years (pa) %

10 years (pa) %

BT MySuper 1940s Lifestage

-4.21

2.12

1.71

2.43

3.58

BT MySuper 1950s Lifestage

-4.01

3.17

2.39

2.81

4.88

BT MySuper 1960s Lifestage

-3.64

6.53

4.36

4.29

6.77

BT MySuper 1970s Lifestage

-3.41

10.60

6.75

5.98

8.58

BT MySuper 1980s Lifestage

-3.43

10.63

6.81

5.99

8.78

BT MySuper 1990s Lifestage

-3.31

10.68

6.90

6.08

8.91

BT MySuper 2000s Lifestage

-2.98

10.67

6.97

6.34

N/A

Note: Performance figures are calculated to 31 May 2022 in accordance with the APRA reporting standards. Total returns are calculated using withdrawal prices appropriate for the month end and take into account management costs and monthly administration fee and take into account earnings tax up to a maximum of 15%. Investment returns can move up or down and past performance is not necessarily indicative of future performance.

3. See a downturn as a potential opportunity

Your employer makes super guarantee contributions into your account regularly, meaning you’re likely already benefiting from an investment concept known as ‘dollar cost averaging’ - that is, you buy more of an asset when prices are low and buy less when prices are high.

If you need assistance with understanding what’s happening in investment markets and how it impacts your super, contact us or speak to your financial adviser, if you have one.

* As at 14 June 2022
^Chant West media release 18 May 2022.

Related content

Share markets around the world have been volatile in recent months, so if your super has exposure to international shares, it may have been affected by this.
Article
Share markets around the world have been volatile in recent months, so if your super has exposure to international shares, it may have been affected by this.
Article
This week, the Reserve Bank raised the official cash rate by 0.25% from a record low of 0.1%. The cash rate now stands at 0.35%. This was the first hike since November 2010 and marks the beginning of the end of ultra-cheap money.
Video
Your Annual Super Statement will show your personal net rate of return, and it's often different to the published performance figures of the investment options that you’re invested in. We explain why.
Article

Things you should know

The information is prepared by BT Funds Management Limited ABN 63 002 916 458 (BTFM) the trustee of the following: BT Super for Life, BT Super for Life Westpac Group Plan and BT Super part of the superannuation fund Retirement Wrap ABN 39 827 542 991.

This information has been prepared as general advice only and does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs before acting on it. Read the Product Disclosure Statement (PDS) to see if these products are right for you by visiting bt.com.au. The issuers of the products named in this article can be found in the relevant disclosure documents. Read the disclosure documents for your selected product before deciding. Target Market Determinations for our products can be found here. Past performance is not a reliable indication of future performance. All examples are illustrative only. Your portfolio value and performance will depend on the investment options you have selected and the time over which they are invested. 

Investment returns are historical. Investment returns can move up or down and past performance is not necessarily indicative of future performance. Future performance is not guaranteed. Performance differences between the investment options and respective underlying funds exist due to factors such as valuation timing differences, differences in fees and charges, distributions (as cash may be retained for liquidity purposes) and higher cash holdings. More information on the asset allocation and risk exposures of each fund can be found in the PDS.

BTFM is a member of the Westpac Banking Corporation ABN 33 007 457 141 (Westpac) group of companies. An investment in these products is not an investment in, deposit with or any other liability of Westpac, any division of Westpac or any other company in the Westpac Group. Westpac and its related entities do not stand behind or otherwise guarantee the capital value or investment performance of the products or any related assets of the products.