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Super funds flag 9pc gain for the 2024 financial year

The median growth fund is set to return 9 per cent for the financial year ending June 30, but passive strategies have fared even better.

Super funds have recorded negative annual returns just twice in the past 15 years, according to Chant West.
Super funds have recorded negative annual returns just twice in the past 15 years, according to Chant West.

Super funds are on track for high single digit gains for the financial year ending June 30, with the median growth fund delivering a return of 9 per cent, boosted by recent sharemarket strength.

International sharemarkets in particular have driven much of the year’s rise, with investors piling into growth stocks, including technology companies, amid an AI boom.

The 9 per cent return for the nation’s median growth fund is broadly in line with last year’s gains and means super funds have delivered positive returns for 13 out of the last 15 years, according to research house Chant West.

Returns in the negative years, in 2020 and 2022, came in at -0.6 per cent and -3.3 per cent. The best years of the past 15, meanwhile, were 2021’s stellar 18 per cent and 2013’s 15.6 per cent.

There have been just five negative-returning years since the introduction of compulsory super more than 30 years ago: in 2002, 2008, 2009, 2020 and 2022.

Resilient share markets have been the primary driver of this year’s return, Chant West senior investment research manager, Mano Mohankumar said.

“A final result close to 9 per cent would be an excellent outcome given all of the uncertainty around inflation, expectations of when the Fed will start cutting interest rates and ongoing geopolitical tensions,” he said.

US markets have surged this year, with the S&P 500 climbing 25 per cent, the Dow Jones rising 14 per cent and the Nasdaq gaining 30 per cent. The S&P/ASX 200, in comparison, is up about 6 per cent.

“This year’s result would follow the better-than-expected return for fiscal 2023 of 9.2 per cent. The experience over the past two years is another reminder of the importance of remaining patient and not getting distracted by shorter-term noise,” Mr Mohankumar added.

Looking at the long term, the median growth fund has returned 7.9 per cent a year since 1992, while the annual CPI increase over the same period is 2.7 per cent, giving a real return of 5.2 per cent per annum – well above the typical 3.5 per cent target.

Looking at the past 20 years, which capture the major share market downturns – the GFC in 2007-2009, Covid-19 in 2020, and the high inflation and rising interest rates in 2022 – super funds have returned 7.3 per cent per annum, Mr Mohankumar said.

As funds eye high single-digit returns for members this year, research by The Australian has found that passive strategies at the nation’s biggest super funds are outshining the more popular balanced and growth options, heaping pressure on active managers who have staked their reputations on bulking up in-house investment teams.

Indexed offerings at mega funds AustralianSuper, Australian Retirement Trust, Aware Super, Hostplus, CBUS, HESTA and Rest were already well into double-digit returns for the financial year to the end of May, compared with the median growth option. Some balanced funds, meanwhile, were sitting on returns of just 6 per cent for the first 11 months of the year.

Members in the default options, of course, are paying much higher fees, to the tune of hundreds of dollars extra a year, despite the lower relative performance.

The default balanced option at the nation’s biggest super fund, the $311bn AustralianSuper, recorded a return of 7.5 per cent for the year to the end of May, close to 3 per cent lower than its indexed option, at 10.2 per cent.

At the $265bn Australian Retirement Trust, the balanced option had gained 8.8 per cent by the end of May compared to the balanced index strategy’s 10.7 per cent. Its growth option, meanwhile, added 10.2 per cent in the first 11 months of the year.

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Original URL: https://www.theaustralian.com.au/business/financial-services/super-funds-flag-9pc-gain-for-the-2024-financial-year/news-story/7f07105bda4c2a2666598ab5adeb2b82