Superannuation returns rebound thanks to global shares rally

A global shares rally has lifted super fund returns back into the black, setting the scene for a “reasonable” calendar year ahead of a more volatile 2024.

A global sharemarket rally has lifted superannuation fund returns back into the black, setting the scene for a “reasonable” calendar year performance ahead of a more volatile 2024 for investors.

The median balanced option returned an estimated 3.1 per cent in November after three months of negative returns, according to research house SuperRatings.

SuperRatings executive director Kirby Rappell said expectations of peak inflation drove positive returns across most sectors of the market in November, leading to a bounce in returns.

“Despite the uncertainties around inflation, markets and rates, we have seen funds recording strong returns into Christmas,” Mr Rappell said.

SuperRatings said the November gains were set to recover most of the losses recorded between August and October, setting up “a modest, but positive, scene” for most fund members approaching the halfway point of the financial year.

SuperRatings estimated the median fund would provide a 1 per cent gain over the first five months of the financial year.

Despite the modest returns over the second half of the 2023 calendar year, SuperRatings said funds were on track to deliver a 6.8 per cent return over the January to November period for the median balanced option.

SuperRatings predicted members would see a “reasonable positive return” for the calendar year, which it said may be similar to the estimated 6.4 per cent per annum result for the medium balanced option since 2000.

The median balanced option, where a super fund has 60 to 76 per cent of the portfolio invested in growth assets, returned a negative 4.8 per cent for the 2022 calendar year.

AMP chief economist Shane Oliver put the average balanced super fund return at 7.2 per cent so far in 2023, compared to a negative 5.2 per cent result in 2022.

“Balanced super funds had solid returns, continuing a zigzag pattern of strong, weak, strong, etc, years since 2017,” he said.

Dr Oliver expected balanced super funds to return around 5.3 per cent in calendar year 2024.

He said 2024 was likely to see positive returns for diversified investors helped by falling interest rates, but expected the returns to be more constrained given likely volatility associated with the high risk of a recession.

“Easing inflation pressures, central banks moving to cut rates and prospects for stronger growth in 2025 should make for okay returns in 2024,” Dr Oliver said.

“However, with growth still slowing, shares historically tending to fall during the initial phase of rate cuts, a very high risk of recession and investors and sharemarket valuations no longer positioned for recession, it’s likely to be a rougher and more constrained ride than in 2023.”

Mr Rappell said inflation would remain a key driver of market performance next year.

“We continue to believe that inflation will be a strong driver of markets in 2024, coupled with softening consumer demand,” Mr Rappell said.

“However, most members should remain reassured by super funds’ ability to navigate the range of market conditions we’ve seen over the past few years.”

“December has been more mixed for shares so far, however there is still potential for a Santa rally in the second half of the month.”

SuperRatings estimated super funds’ median growth option, where 77 to 90 per cent of the portfolio was invested in growth assets, returned 3.5 per cent in November.

The median capital stable option, with 20 to 40 per cent in growth assets, had a more modest return of 2 per cent due to a lower exposure to shares.

US shares and bonds rallied in November on expectations the Federal Reserve was done hiking rates, as the benchmark S&P 500 index rose 8.9 per cent in its best monthly gain since July 2022.

Global equities and the Australian sharemarket also rallied, with the benchmark S&P/ASX 200 index rising 4.5 per cent in November to mark its strongest month since January.

Originally published as Superannuation returns rebound thanks to global shares rally