Australian Retirement Trust defies rising interest rates to deliver 10pc FY23 return

Australian Retirement Trust managed to offset challenges in the property market to deliver a resilient 10 per cent return for its members amid soaring interest rates.

Australian Retirement Trust, the country’s second largest super fund, has defied the fastest surge in interest rates in decades to post a 10 per cent return for members of its flagship fund over the last financial year.

The performance of the MySuper option, largely driven by double-digit gains in equities that were offset by returns of between 0 and 10 per cent on its portfolio of illiquid assets, will put it among the sector’s best.

“That’s very pleasing because it puts us in the top quartile quite comfortably,” chief investment officer Ian Patrick told The Australian. “But for members it’s all about the long-term returns.”

The result puts ART members well ahead of inflation but follows losses of 0.96 per cent last year, when the sharemarket slump left most retirement funds in negative territory. The option has returned 8.4 per cent over the 10-year investment horizon.

Equity markets saved the day in a year marked by rapidly rising interest rates, which hurt asset valuations as the price of debt rises and future cashflows have to be adjusted by higher discount rates.

Australia’s ASX300 total return index was up 14.4 per cent for the year, while the total return for the US benchmark was 19.6 per cent, according to S&P Global. The MSCI World Index rose 16.5 per cent over the period, reflecting investor hopes that interest rates will soon peak.

About 54 per cent of ART’s flagship portfolio – in which the vast majority of its public members are invested – is allocated to equities.

Alternative assets, including property, infrastructure, private equity and private debt, saw “challenges” but delivered returns of up to 10 per cent.

“Anything that’s high leverage and has floating debt in that leverage has been challenged because interest rates have been on the increase,” Mr Patrick said.

“But by and large most of those assets have good long-term cash flows, good long-term debt that was struck at reasonable rates, and have continued to operate well.”

Within its property investments, falls in valuations in the broader commercial property market of about 10 to 15 per cent were “indicative” of the markdowns in its own portfolio, he said.

That was offset by larger holdings in other property investments such as logistics or industrial property, self-storage, medical office and multi-family residential investments in the US.

“That diversification has been hugely important for our portfolio. All that combined to deliver us zero in the public offer property portfolio,” Mr Patrick said.

“It doesn’t hide the fact that commercial property has come off meaningfully.”

ART is positioned more defensively this year with an allocation of about 18.5 per cent to the fixed income asset class (up from 12 per cent), which Mr Patrick said had a weaker year but was an important part of its diversification strategy.

Cbus, the building industry-backed super fund, last week said its default option had achieved returns of 8.5 per cent this financial year, despite “material” losses in some real estate investments.

It did not disclose the extent of the decline on its commercial property investments but said it had a negative return on its overall property portfolio.

Super is Australians’ largest asset after their homes, with 11 per cent of workers’ earnings going into their retirement savings.

Results from ART and Cbus come ahead of the rest of the big five funds – also including AusSuper, Hostplus and UniSuper – which are expected to reveal their numbers in coming days.