Santa rally pushes median super fund to 8.8pc, Chant West says

A late sharemarket rally, fuelled by tech stocks and expectations of rate cuts in 2024, will help superannuation funds finish the year on a high.

The average growth superannuation fund will finish a year of choppy returns close to 9 per cent ahead, helped by a sharemarket rally fuelled by tech stocks and expectations of lower rates.

“At a time when many Australians are feeling financial stress due to high inflation and high interest rates, the better-than-expected calendar year return will provide some good news,” says Mano Mohankumar, senior investment research manager at Chant West.

With 7 days of trading remaining in the year, the results of a preliminary Chant West survey shows the median return in funds with between 61 per cent to 80 per cent invested in growth assets, is expected to be about 8.8 per cent.

“It’s a reward for super fund members who have remained patient and maintained a long-term focus,” said Mr Mohankumar.

The performance will be well ahead of the current 5.4 per cent inflation rate and will offset last year losses, which dragged the median return of the growth fund down 4.6 per cent.

Over the two years, however, the overall gain of 3.8 per cent falls well short of inflation.

Chant West returns survey includes 42 funds, and reflects where the majority of Australians have their super invested.

Slowing inflation in the US, Australia and other regions has raised hopes that interest rates may have reached their peak. That has driven a pre-Christmas rally, with local shares surging 5.1 per cent in November and on track to return close to 6 per cent this month. International shares have fared even better, and are on track to return 22 per cent for the year.

Defying their historical negative correlation with shares, bonds have also performed strongly, with Australian and international bonds up 3 per cent and 3.2 per cent respectively in November.

“Despite this positive news, market volatility is unlikely to disappear given the uncertain backdrop, with signs of slowing economic growth in the US, stubborn services inflation and geopolitical risks,” said Mr Mohankumar.

He said most Australians are invested in well-diversified portfolios that have their investment exposure spread across a wide range of asset classes. “That diversification helps provide smoother returns during periods of market volatility.”

Mano Mohankumar, senior investment research manager, at Chant West.

Before last year, investors in growth funds hadn’t had losses since 2011. In the 30 years since the introduction of compulsory super, the median growth fund has returned 7.8 per cent per year, according to Chant West calculations.

The researchers said that given the annual CPI growth rate over the same period is 2.7 per cent, the real return has achieved the typical target of 3.5 per cent above inflation.

Over the past 20 years, which includes three major share market downturns – the GFC in 2007-2009, Covid-19 in 2020 and the high inflation and rising interest rates of 2022 – growth super funds have returned 7.2 per cent annually, comfortably ahead of the typical objective, according to Chant West.