After posting strong returns so far in August, the median growth-oriented superannuation fund is up an impressive 1.3% already this financial year, according to research company Chant West.
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A weak start bolstered by a strong August
Returns in July for the median growth fund, with 61% to 80% growth assets, were a modest 0.3%, however with share markets performing well in August so far, Chant West estimates the median growth fund is up 1.3% over the first seven weeks of the new financial year.
Chant West Head of Superannuation Investment Research, Mano Mohankumar, said that share markets were mixed during July with significant variation in returns across regions.
He said:
Over the month, developed market international shares returned 0.2% in hedged terms, largely due to a flat month from US shares, as the technology sector came under pressure amid concerns about the scale of AI investment and uncertainty surrounding future revenue growth. Due to the appreciation of the Australian dollar over the month, the return in unhedged terms was in the red at -0.9%. On average, super funds have about 70% of international shares unhedged. Emerging markets declined 4.4% where the previously strong performance from the tech sector in South Korea and Taiwan reversed sharply. Australian shares, on the other hand, were up a healthy 2.1% over the month supported by the financials and resources sectors, as well as the markets' relatively low tech and AI-related exposure. Bonds weakened with Australian and international bonds falling 0.4% and 0.9%, respectively, as bond yields rose on renewed inflation concerns.
For July, all growth funds led returns among all superannuation products with 0.5%, while conservative funds were steady at 0% gains.
Superannuation a good long-term bet
Mr Mohankumar said over the longer term, superannuation funds had outperformed their objectives.
He said:
Since the introduction of compulsory super in July 1992, the median growth fund has returned 8% p.a. The annual CPI increase over the same period is 2.7%, giving a real return of 5.3% p.a. – well above the typical 3.5% target. Even looking at the past 20 years, which includes three major share market downturns – the GFC in 2007-2009, COVID-19 in 2020, and the high inflation and rising interest rates in 2022 – super funds have returned 6.9% p.a., which is still ahead of the typical objective.
Over the past 10 years, all growth superannuation products have outperformed all other funds, returning a compound 9.3%.
This compares to growth funds with 7.6% and conservative funds with 4.5%.
Chant West said all risk categories have generally met their typical long-term return objectives, which generally range from inflation plus 1.5% for conservative funds to inflation plus 4.25% for all growth.
