17 June 2021
Super funds are on track to deliver the best annual returns in more than two decades, with the median growth fund clocking a 20 per cent return just nine trading days out from the end of the financial year.
The median growth fund returned 1.3 per cent in May, bringing the return for the first 11 months of the financial year to a stunning 19.8 per cent, according to research house SuperRatings.
The median balanced fund, meanwhile, is sitting on a 16 per cent return for the financial year to date.
With markets rising further in June, balanced funds are in sight of overtaking 1997’s 18 per cent return. This would make it the best financial year return since the introduction of compulsory super, according to SuperRatings.
The gains will also see some of the fastest-paced growth in the nation’s pool of superannuation assets, which totalled $3.1 trillion at the end of the March 2021 quarter.
Since the end of May, the local sharemarket has powered further ahead, gaining 3 per cent to a record high on Wednesday.
Over the past year it is up more than 24 per cent, fuelled by ultra-low interest rates around the world.
The stellar return figures were released hours after wide-ranging superannuation reforms passed parliament, with Australians now to be “stapled” to one super account through their working life, in a move opponents warn could see millions trapped in “dud” funds.
Before the final vote, Superannuation Minister Jane Hume said the reforms would save Australians “$17.9bn in fees and lost performance over the next 10 years”.
But Industry Super Australia chief executive Bernie Dean criticised the Your Future, Your Super reforms, saying many workers would lose out as a result of the legislation.
“The government was forced to drop a number of ideological proposals and to improve the performance tests for funds, but sadly it stopped short of protecting workers from losing their savings by being stuck in a dud super fund,” he said.
While the median growth fund is on track for a 20 per cent return for the current financial year, the market leaders have fared even better.
The nation’s largest super fund, the $2bn AustralianSuper, recorded a 23 per cent return in its growth option for the 11 months through May. Hostplus’s ‘‘Shares Plus’’ growth offering also returned 23 per cent over the same period, while UniSuper wasn’t far behind with a 21.7 per cent return for the year to date.
As he commented on the strong performance this year, SuperRatings executive director Kirby Rappell was also cautious on the market outlook.
“May is the eleventh month in a row we have seen a positive result for the median balanced fund … While strong performance this year is pleasing, market volatility prevails and we are erring on the side of caution in terms of the future outlook, with equity markets likely to provide investors with a bumpy ride,” he said.
“Further, with rates remaining at record lows, more defensive assets such as cash and bonds have delivered meagre returns, which is impacting retirees’ incomes.”
Fellow research house Chant West has the median growth fund sitting on a 17.5 per cent return for the year to date.
The figures between the two research houses vary slightly due to a difference in assessment criteria for what qualifies as a “growth” or “balanced” fund based on the percentage of investments in growth assets. “The past two financial years really have illustrated the strength and resilience of our leading super funds,” Chant West senior investment research manager Mano Mohankumar said.
“Despite the massive hit that Covid delivered to financial markets last year, the diversification built into growth funds enabled them to limit the damage, and the small loss of 0.6 per cent for fiscal 2020 was far better than expected.”
With a little over 50 per cent allocated to listed shares, super funds rode the upswing this financial year as markets staged a remarkable recovery.
The cumulative return since the Covid low point in March 2020 was about 25 per cent and funds were now 10 per cent above their pre-Covid crisis highs, Mr Mohankumar said.
Australian and US markets reached record highs in May, with Australian shares jumping 2.3 per cent and international shares rising 1 per cent in hedged terms and 1.2 per cent unhedged.
A strong quarterly earnings season in the US boosted the May performance, while in Britain, confidence was boosted as lockdown measures eased.
In the eurozone, the vaccine rollout gained momentum during the month while restrictions were also eased.
The S&P/ASX 200 on Thursday pulled back from this week’s record high and finished the session down 0.4 per cent following weak overseas leads after Wall Street fell overnight on higher inflation expectations from the US Federal Reserve amid the prospect of sooner-than-expected rate rises.