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Performance review for FY2010 Part 5 – Summary
Although APRA’s Annual Superannuation Bulletin for June 2010 will not be available until Feb 2011, some preliminary reports have claimed that the average professionally managed super fund should be able to report a low double digit performance for FY2010. This is seen as a very remarkable recovery from the negative returns in the previous financial year, however, when I did a more detailed analysis, I found some worrying trends.
The most common super fund is the balanced fund with 60-76% exposure to stocks, so the performance of these funds is highly dependent on the performance of the stock market. When I look at the price chart of the Australian All Ordinaries (see chart below) for 30 June 2009 to 30 June 2010, I see a stock market that went up from June to October 2009 and then sideways after that. In fact, the chart looks pretty bearish from April to June 2010. On 30 June 2010, the All Ords was back at the same level as where it was at the end of August 2009 which means other than a big rally in July 2009, stock prices did not really go anywhere in the last financial year. I have also drawn in the Fibonacci retracement levels from the stock market top in October 2007 and you can see that even at the height of the rally, prices have only retraced 50% of the fall from Oct 2007 to March 2009.
When I look at the ASX 200 performance on a quarterly basis (see the red line in chart below), there was only one great quarter of growth which was the first quarter of FY2010 and growth got progressively weaker after that. The last quarter was quite a disaster with a growth of -12 percent which wiped out all the gains in the second and third quarters. Although you may see a good annual result, most of this growth would have come from the first quarter and the quarterly performance trend is negative, which does not bode well for FY 2011.
The green line on the chart above is the quarterly performance of our fund’s USD investments. I wanted to do a quarterly performance of our combined assets but it was too hard to track our AUD investment performance with new monthly contributions and assets being held in a number of different places. A combined performance would also include gains/losses due to currency exchange rate fluctuations which could obscure the true performance of our investment strategies. As all our US assets are held in one brokerage account, it was easy to get the balance at the end of each quarter. We only made one new “contribution” in August 2009 so I have added this to the previous quarter’s balance so I do not get artificially large first quarter growth.
Although we had a -1.6 percent annual growth in our US investments, most of the losses were in the second quarter which were mainly from some new bear market strategies which did not work out, and we were perhaps a little too early with some of our bearish investments. By adopting good risk management practices, I have managed to keep those losses small. The quarterly trend however is up and I am pretty optimistic that FY 2011 will be a better year for SLI Super Fund. FY 2010 was a “transition year” as we tried out new strategies to help us position our fund better for deflation and an extended bear market.
Our AUD investments which were mainly in defensive assets have generated a positive annual return of about 7.3 percent, giving an overall return of 5-6 percent if we do not include currency exchange gains/losses. Based on an estimated 10 percent return from the average balanced fund, we would have underperformed the APRA regulated funds in FY2010 but we are not too far below our own target of 5 percent after inflation, as set out in our investment strategy. As our outlook at the beginning of FY2010 was that the global financial crisis which began in 2007 is far from over, we were more concerned with the preservation of capital over returns on capital. We are pretty comfortable with our defensive asset allocation and are content with our small positive return for the year.
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