Keep calm and contribute on: The bigger picture for your superannuation

If you’ve taken a look at your superannuation balance lately, you might be feeling a bit uncomfortable.

After all, the median monthly return for a growth portfolio in February 2025 was down 0.9% and for a balanced portfolio, down 0.4%. But before you change your option (or start hoarding the cash under the mattress), it’s worth taking a step back.

Your super might be one of your largest investments outside your home, and it’s certainly going to be a critical part of your retirement lifestyle – but it’s not a short-term investment and the allocations, therefore, need to be long-term.

On average, superannuation funds have offered positive returns for 27 of the last 32 calendar years and the way they are managed continues to evolve with the market.

To better understand what is going on in the world of super funds and how the experts think, I spoke to Darren Spencer, Lead Investment Director for Mercer about how the investment manager is approaching their portfolio and what fund members should know about current market conditions.

The recent volatility and your superannuation

The biggest detractor to returns in super funds recently has been large-cap equities.

“Over the last three months, the S&P 500 is down around 5%. When you look closer, it’s large-cap US tech names that have been particularly negatively impacted and, depending on the name, down by double-digits,” says Spencer.

He notes markets outside the US, including Australia, have fared better, with European shares a standout.

“There have been a few drivers for the performance of European shares. One of these has been defence spending, with European countries significantly increasing this, in particular, Germany,” he says.

On the flip side though, challenging performance is not universal across asset classes, with Spencer highlighting investments in private markets contributing positively to returns and acting as a buffer against volatility.

“As an example, private infrastructure provides essential services to an economy and often holds monopoly-like competitive positions. They tend to have a smoother cashflow profile and are less susceptible to the swings of public markets,” Spencer says.

Mercer Super’s portfolios have a 25% strategic asset allocation to private markets, with Spencer highlighting that he expects to continue to expand his program of investments in the private market space over time.

Positioning for ongoing uncertainty

When it comes to superannuation, funds might discuss the concept of strategic asset allocations (SAA) versus tactical asset allocations (TAA).

SAA is the long-term allocations set for the fund based on key themes and longer cycles, for example, the allocation to international equities. TAA is the shorter-term tilts that might be taken to account for market and geopolitical activities, for example, moving to more defensive sectors or countries within the international equities allocation.

Mercer has been adjusting some of their tactical positions to account for their expectations of market activities.

“We expect US economic activity to soften relative to the strength we saw last year. While we think a recession is unlikely, there are risks to near-term growth,” Spencer says.

He notes the US consumer is well positioned and is more likely to be resilient to more challenging conditions. This is a positive because “growth should continue to be driven by consumption and business capital spending. The consumption side is underpinned by real disposable income gains, a steady labour market and high household wealth.”

Overarching market uncertainty has meant he has taken more defensive positioning in developed market equities in recent months, and also taken on opportunities based on valuations. One opportunity he is monitoring is Japanese equities.

“We think the opportunity set from a valuation perspective is attractive relative to other markets and Japanese equities are set to continue to produce positive returns, particularly on the back of a reflationary environment,” Spencer says.

Another pocket of opportunity is listed real estate.

“It remains unloved and is actually quite attractively priced. There are strong fundamentals, outside of the office space, and if you watch the supply-demand picture across property types, there’s significant opportunity in residential property, particularly senior housing, along with industrial properties like data centres or communications infrastructure,” Spencer says.

Mercer also initiated an allocation to global unlisted property in 2024.

“We view the current environment as a highly attractive cyclical buying opportunity," he says.

"If you compare the current decline (US commercial property is down 17%) to similar declines in the past, the subsequent three-to-five-year returns have been positive."

How investors should approach their superannuation in the current market

While it may be tempting for nervous investors to consider switching their super to much more conservative options, Spencer suggests holding fire (unless of course, your option really doesn’t suit your needs, circumstances and objectives).

“Don't make rash decisions like changing your investment option to cash following a market downturn. It can really damage long-term returns and materially negatively impact your retirement outcomes,” he says.

He notes that volatility can be part and parcel of having a growth allocation in your portfolio – but for most of us, it is still a necessary part of your strategy.

“It’s really important to have an asset allocation built to perform over the very long-term. Even at retirement, you are likely to have another 25 years to live and this means you’ll need to maintain a significant portion of assets in growth,” he says.

Your superannuation should be well diversified across geographies, sectors and individual assets to help you weather market cycles – at the same time as volatility in equity markets, you may find other assets like private markets or commodities are offering positive returns and stability in your portfolio.

It’s also important to take a step back from short-term market activity and look over the longer term.

“If you’d invested $10,000 in the Australian All Ordinary Index at the end of 1979, that same investment would be worth over a million dollars today. 

Think about all that has transpired over that time. There was a significant stock market crash in 1987, a large correction after the tech bubble burst, the GFC and then covid,” Spencer says.

Final steps if you are worried about your superannuation

Aside from talking to your superannuation provider, there are a few steps Spencer suggests investors can take to help bolster their superannuation for the long-term.

“Take advantage of compound interest and to the extent possible, continue to put extra contributions in your superannuation. Small amounts add up over time and can have a real impact on your super,” Spencer suggests.

How are you feeling about your superannuation? Let me know in the comments if you’ve made any changes to your approach in the wake of recent volatility.