Lifecycle, index superannuation funds turbocharge returns

The top performing super funds of the past year delivered returns in excess of 14 per cent. But the nation’s largest fund, AustralianSuper, failed to make it into the top 10.

Funds that were heavily invested in equities, particularly technology stocks and US sharemarkets, outperformed.

High-growth lifecycle funds were among the top performers for super savers in the past year, with the best of the lot – one of Colonial First State’s lifecycle strategies – coming in a full 6 per cent higher than the default option at AustralianSuper, the nation’s largest super fund.

Colonial First State’s Essential Super MySuper option (Lifestage 1975-79), which is largely invested in growth assets such as equities, returned 14.6 per cent for the 12 months through to June 30, putting it at the top of the lifecycle strategy options in the market, according to research house ­SuperRatings.

The top 10 lifecycle strategies on a one-year basis, which include options from Vanguard, Russell Investments, AMP and Mercer, all returned more than 10 per cent to members for the 2024 financial year.

Looking at balanced strategies, which SuperRatings defines as having a 60-76 per cent allocation in growth assets, the top performer for the year was an index option: Hostplus’s indexed balanced strategy.

This fund delivered a return of 12.2 per cent over the 12 months to the end of June. But its performance is in stark contrast to the fund’s actively managed default strategy, where the majority of its members’ retirement savings sit.

Hostplus’s default balanced returned just 7.6 per cent over the year.

Second from the top was Raiz Super’s moderately aggressive strategy, which again has an ETF focus and delivered members a 12.1 per cent return.

In third place was CFS’s enhanced index balanced strategy, with a return of 11.4 per cent.

The nation’s biggest super fund, meanwhile, didn’t even make it into the top 10 for balanced strategies on a one-year basis.

The $335bn AustralianSuper’s default balanced option, where more than 90 per cent of its 3.4 million members have parked their retirement nest eggs, returned 8.5 per cent for the year.

On a 10-year basis, Hostplus took out the top spot with an 8.3 per cent return, followed by AustralianSuper and Australian Retirement Trust, which both returned 8.1 per cent.

Funds that were heavily invested in equities, particularly technology stocks and US sharemarkets, outperformed through the past year, SuperRatings said.

But members in lifecycle and index funds, which typically have a very high exposure to equities, should expect more volatility in the coming years, SuperRatings executive director Kirby Rappell said.

SuperRatings executive director Kirby Rappell.

“If you look at passive-style options, they’ve been the winner for the past year. The key challenge over the long term is how do you have a conversation with the end consumer to educate them that it’s also about risk,” Mr Rappell said.

“Hopefully super can keep this going, but I think we’re going to get a much bumpier ride on returns going forward.”

As megafund AustralianSuper lags with its 8.5 per cent return, the nation’s second-largest super fund, Australian Retirement Trust, fared slightly better with a 10 per cent return in its balanced option.

ART’s default lifecycle strategy failed to make the top 10 on SuperRatings’ list but the fund will be hoping to turn that around this year following an overhaul of its investment strategies.

ART, which manages $285bn in super savings, pushed millions of its members up the risk curve on July 1 in a bid to turbocharge returns. Throwing down the gauntlet to its rivals as competition for member growth heats up, ART has shifted the bulk of its 2.4 million members from the balanced pool of its lifecycle strategy to the high-growth pool, where their savings will be over­whel­mingly invested in growth assets like equities and private equity.