Amid the concerns around investing in property and shares, super funds as an asset class have in general delivered double-digit returns, according to two research groups.
Super funds delivered an average 10.7 per cent return for the year to June 30, 2017, marking the eighth consecutive year of positive growth, according to research group Chant West.
Even among the super funds, industry funds performed best, returning an average of 11.1 per cent. Meanwhile, for-profit retail super funds returned 9.7 per cent, meaning industry funds outperformed their competitors for all periods out to 15 years.
The funds were resilient even in the face of political and economic shocks such asthe election of Donald Trump as US President and Brexit.
"It's been a really interesting and, in many ways, surprising year because this strong result has been achieved against a backdrop of considerable uncertainty, both political and economic,” Chant West director Warren Chant said.
“It just shows how markets – which represent the combined views of thousands of professional investors – are able to cut through the 'noise' and focus on the investment fundamentals.”
Rival researcher, SuperRatings, came up with similar results, with the average fund return for last financial year topping 10.4%.
SuperRatings estimates that $140 billion has been added to super accounts in investment earnings for the year.
“At a time when inflation hovers below 2% per annum, Australian super funds continue to far exceed expectations, with accrued earnings of well over 100% since the end of the GFC. Over the last 5 years alone, funds have averaged 10% earnings every year, more than erasing the pain of the GFC and putting retirees in a significantly improved position than they could ever have hoped for,” said Jeff Bresnahan, SuperRatings chairman.
Industry fund Hostplus topped the list with a 13.2 per cent return, with even the worst-performing fund in the median-growth category delivering 7.4 per cent, according to Chant West.
Funds in the median growth category have 61 per cent to 80 per cent allocation to growth assets and are usually the preferred ones.
Funds that excelled this year tended to go against the investment trend, by having higher allocations to unlisted assets, which traditionally come at a significantly higher cost than the increasingly popular passive strategies, said SuperRatings in a media release.
“This once again debunks the argument that low cost investment strategies are good for Australians. Low cost passive strategies will only guarantee chronic regular underperformance, which will impact retirement benefits for all Australians and undermine the superannuation system.”
The top 10 performing funds in 2016/17 covered more than 6 million Australians and all exceeded the SuperRatings’ Industry Benchmark of 10.4%, it said.
The key points to note for the 2016/17 financial year, according to Chant West were.
- Hedged international shares were the strongest performing asset sector, surging 18.9%. However, the appreciation of the Australian dollar pulled this return back to 14.7% in unhedged terms.
- Australian shares performed strongly with a return of 13.8%.
- After being the strongest performer in 2015/16, Australian listed property was the worst performing sector this year, falling 5.6%. Global listed property fared better, but still returned just 2.2%. Unlisted property, on the other hand, had another solid year, up 10.3%.
- Infrastructure also performed well, with global listed infrastructure up 11.1% and unlisted infrastructure delivering returns in the low teens. Private equity also provided a healthy return of 11.3%.
- The traditional defensive asset sectors yielded very low returns. Australian and international bonds barely made it into positive territory with returns of 0.2% and 0.5%, respectively, while the return from cash was just 1.8%.