Superannuation funds have had a solid start to the financial year, with the median growth fund growing by 1.1% over the first two months, according to industry research company Chant West.
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Volatility not hindering superannuation returns
Chant West said despite concerns around inflation and ongoing geopolitical tensions, superannuation funds gained ground in August with the median growth fund, with 61% to 80% of its funds in growth assets, gaining 0.9%.
Chant West Head of Superannuation Investment Research Mano Mohankumar said the healthy return for August was driven by domestic and global share markets, which in aggregate account for about 55% of a typical growth portfolio.
He added:
Despite some volatility towards the latter part of August, over the full month, developed market international shares advanced 2.5% in hedged terms led by the US. Markets were supported by strong corporate earnings and the tech sector regained momentum after some AI-related companies had been sold down in July. The Australian dollar appreciated over the month, which pulled the 2.5% hedged return back to 0.5% in unhedged terms. On average, super funds have about 70% of international shares unhedged. Emerging markets also finished higher, returning 1.3%.
Mr Mohankumar said Australian shares gained 1.6% over August, falling short of international markets but still a solid result.
A stronger resources sector offset weakness among financial shares, he said.
High growth portfolios led the gains over August with 1.2% growth, with all growth second with 1.1%, and growth third on 0.9%.
Mr Mohankumar said over the long term, superannuation had outperformed its aims.
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.
Time for a superannuation check-up?
If you're looking to top up your super, it's worth reading up on concessional contributions.
Concessional contributions include the amount contributed by your employer, but can also include extra amounts paid into your super on top of that.
This can be tax-effective, as these contributions are taxed at just 15%, meaning you could get tax back at the end of the year if your tax rate is higher than this.
The cap for such contributions, including your employer's contribution, salary sacrifice amounts, and extra contributions, is $32,500 per year.
