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Australian super funds delivered a record-breaking eighth straight year of positive returns to members in 2019.
Australian super funds delivered a record-breaking eighth straight year of positive returns to members in 2019, bringing the average annual return over the decade to 7.9 per cent, says superannuation research house Chant West.
Industry super fund Hostplus topped Chant West's best performing growth funds of the decade. Its Balanced fund returned 9.2 per cent a year against the survey median of almost 8 per cent.
AustralianSuper Balanced came in a close second, returning 9 per cent to members, followed by UniSuper Balanced (8.9 per cent) and Cbus Growth (Cbus MySuper) (8.8 per cent).
Chant West senior investment manager Mano Mohankumar says the last decade has been fantastic for investors. But the party won’t go on forever, he warns.
"The 2019 result brings the average return over the past 10 years to 7.9 per cent per annum. That's a tremendous run, but we should remember that it partly represents the recovery from the GFC when the median growth fund fell about 26 per cent," he says.
"We also need to keep in mind that growth funds aren’t designed to yield such returns over the long term – typically they're built to return 3.5 per cent above inflation per annum which translates to 5.5 per cent to 6 per cent per annum over the long term, or rather less than that in today's low inflation environment.
"So, it would be a mistake to assume that the level of returns over the past decade will continue. At some stage they’re going to revert to more ‘normal’ levels, and there will be more challenging times ahead."
This year, the 1.2 million member Hostplus fund made a bid for SMSF money, opening six of its 23 funds to DIY super fund investors.
Top 10 performing growth funds – 10 years to December 2019 - % pa
Chant West defines growth funds, used by most industry funds as their default option, as those which have a 61 – 80 per cent allocation to growth assets like Australian and international stocks.
Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions.
27 years of returns
Almost three decades since the introduction of compulsory superannuation in July 1992, growth funds have delivered an annualised return of 8.3 per cent. This is an annual real return 5.9 per cent, including the annual CPI increase of 2.4 per cent.
This is well above funds 3 per cent to 4 per cent target, Mohankumar notes.
"Even removing the particularly strong years from the early to mid-1990s as we came out of recession and looking at the past 20 years, super funds have returned 6.9 per cent per annum – 4.3 per cent above inflation," he says.
"Let's not forget that the 20-year return still includes two sharemarket downturns – the 'tech wreck' and the GFC."
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UniSuper top of the class
Chant West says 2019 was a record-setting year for growth funds. The median fund returned 14.7 per cent, representing the best calendar year for growth funds since 2013 and the seventh best in compulsory super's 27-year history.
Higher education industry fund UniSuper took out the top stop in the category with its Balanced fund retuning 18.4 per cent, followed by Tasplan Balance at 17.6 per cent and CFS FirstChoice Growth at 17.4 per cent. Even the worst performing fund returned almost 9 per cent above the rate of inflation at 10.5 per cent, according to Chant Wesr. UniSuper is only open to higher education and research sector employees and their families.
This strong result came at the surprise of many, Mohankumar says.
"Very few would have predicted such a strong result 12 months ago when growth funds had just lost 4.6 per cent over the December 2018 quarter and investor sentiment was decidedly negative," he says.
Shares were the main contributor to growth fund performance, with an average allocation to the asset class of 53 per cent across growth funds. Mohankumar says the better performing funds were those which "maintained higher allocations to listed shares".
"Funds would also have benefited greatly from having money invested in listed real assets with global listed infrastructure, global listed property and Australian listed property returning 24.2 per cent, 21.2 per cent and 19.6 per cent, respectively," he says.
In defensive asset classes, bonds had a good year - Australian bonds up 7.3 per cent and global bonds following closely at 7.2 per cent. Cash was the worst performing sector with a return of just 1.5 per cent. Not surprising considering interest rates are at an all-time low.