Super funds are closing in on another strong return this financial year.
Just over a week before June 30th, the median growth fund was sitting on a return of about 9 per cent for the financial year, according to estimates by super fund researcher, Chant West.
After a pull-back in April, the median growth fund added 0.9 per cent in May.
With markets up in June a positive FY24 result is now a near certainty, says Chant West Senior Investment Research Manager, Mano Mohankumar.
A positive return this financial year would represent the 13th positive return out of the most recent 15 years and would follow a 9.2 per cent return in FY23.
Growth funds typically have between 61 and 80 per cent of their funds in growth assets.
Chant West's Mohankumar says that resilient share markets have been the primary driver of the healthy FY24 return so far, in particular international share markets.
“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.
The experience over the past two years is another reminder of the importance of "remaining patient and not getting distracted by shorter-term noise."
"If you think back to nearly two years ago, FY22 closed with some sharp losses over the June quarter amid surging inflation and uncertainty as to when interest rate rises might come to an end," he said.
"At that time, very few could have foreseen a return of 19 per cent over the subsequent two years.
"More importantly, super funds continue to meet their long-term return and risk objectives."
Super funds have delivered on their risk and return objectives over the long term, with the median growth fund returning 7.9 per cent per annum since the start of compulsory super in July 1992. The annual CPI increase over the same period was 2.7 per cent, giving a real return of 5.2 per cent per annum – well above the typical 3.5 per cent target.
Even looking at 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 in 2022 – super funds have returned 7.3 per cent per annum, comfortably ahead of the typical objective.
“On the risk side, there have only been five negative years over the entire period, which translates to about one year in every six. Again, funds have done better than their typical long-term risk objective which is one negative return in every five years, on average,” said Mohankumar.
