Australian super funds are closing in on a decade of positive returns as the median growth fund ends the year up by 9.2 per cent, according to a report by superannuation research house Chant West.

For the second year in a row, Hostplus topped the rankings, posting a return of 12.5 per cent, beating rivals AustSafe MySuper (11.4 per cent) and Statewide Super MySuper (11.3 per cent).

Not-for-profit funds recorded the best returns over 10 years. UniSuper, CareSuper, Rest Core and Equip Balanced Growth all posted an annual rate of return of 7.5 per cent.

Every fund in Chant West's growth category easily topped the inflation rate, including the lowest performer, which posted 6.5 per cent, says Chant West senior investment manager Mano Mohankumar.

"Growth funds have now delivered nine consecutive positive financial year returns," Mohankumar said. "The only other time we've seen such a long sequence of positive returns was from 1992/93 to 2000/01.

"We've seen stellar returns from private equity, unlisted property and infrastructure. Even the worst-performing fund in the growth category returned a respectable 6.5 per cent."

Chant West super survey Top 10 growth funds

The top 10 is limited to growth options with assets of $1bn or more. Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions.

The 9.2 per cent return beat expectations and far outpaces the typical long-term return objective for Chant West's growth category, which is CPI + 3.5 per cent. Inflation is at about 2 per cent, which translates to a target of about 5.5 per cent, Mohankumar said.

The result flies in the face of geopolitical turbulence, including an escalating US-China trade war, tension between the US and North Korea and looming interest rate rises.

And yet, international shares rose 10.8 per cent over the year in hedged terms and 15.4 per cent unhedged. Australian shares also did well, gaining 13.2 per cent.

Hence the gain for growth funds, which tend to allocate most of their money to global and local share markets.

Hostplus CEO David Elia attributed two thirds of the fund's consistent outperformance to its investment beliefs and long-term investment strategy, heavily invested in unlisted assets and active management.

"The past 12 months has seen another exceptional year of double-digit net returns," Elia said. "Our long-term investment in unlisted infrastructure and property continues to deliver strong, bedrock returns. While our proactive shift in the private equity asset class towards niche and bespoke investments is now also bearing fruit.

"Overlaying our long-term strategic asset allocation, active management continues to play a critical role in Hostplus outperforming the Australian equities market, delivering returns around 3 per cent above the sharemarket benchmark."

Key points from the Chant West report:

  • Australian shares had an excellent year, returning 13.2 per cent
  • Hedged international shares also had a good year, rising 10.8 per cent. International shares did even better on an unhedged basis, surging 15.4 per cent as result of the depreciation of the Australian dollar.
  • Listed property delivered solid returns, especially Australian REITs which were up 13.2 per cent while global REITs gained 6.4 per cent. Unlisted property was also up, returning 10.4 per cent
  • Unlisted infrastructure had another healthy year, up 12.6 per cent, but global listed infrastructure returned a far more modest 4.2 per cent
  • Private equity performed particularly well, delivering a strong 17.6 per cent
  • The traditional defensive asset sectors – bonds and cash – delivered the lowest returns but were still in positive territory. Australian and international bonds rose 3.1 per cent and 1.9 per cent, respectively, while cash was up just 1.8 per cent

 

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Lex Hall is a Morningstar content editor, based in Sydney.

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