Bumper returns: can big super make it four in a row?
As super funds prepare to sign off on a third consecutive year of bumper returns, CIOs are dampening expectations it can continue into 2026.
Another year, another set of bumper results from Australia’s top super funds. For millions of workers, the retirement pot is looking healthier after 10 per cent-plus returns over the past 12 months. So, after three years of double digit gains, the big question is, can they make it four in a row?
Unsurprisingly, investment chiefs at the mega funds are already trying to temper expectations. A move back to long-term returns in the mid to high single digits is more likely, they say.
Certainly markets promise more volatility in the year ahead, regardless of where we end up in another 12 months.
“Double digit returns are going to be more challenging to achieve going forward,” Australian Retirement Trust chief investment officer Ian Patrick says.
“Geopolitics stands proud and tall at the moment, and so too the evolution of how capital is used. Europe’s increasing its defence spending; the US is trying to onshore manufacturing. All of these have real meaning to markets.”
Not to mention the extended US deficits and the lack of fiscal discipline to the US budget. That will keep rates higher once inflation is tamed, he warns.
Australian Retirement Trust, the nation’s second-largest super fund with $315bn in assets under management, is looking at returns of around 11 per cent in its default high growth option for this financial year. It’s driven by equities, despite the recent ructions.
The fund allocates holdings in the high growth option largely across three buckets: Australian shares, international shares and unlisteds/alternatives, with a relatively even split of around 32 per cent in each.
But its high-growth indexed option, with exposure to listed equities only, looks like it will fare even better, possibly around the 12 per cent mark. The indexed option also comes with lower fees.
Both of these options are better than the 10 per cent return research house ChantWest currently estimates as the median return across all growth funds.
Like last year, funds with high exposure to public equities look like they’ll top the tables again this time around, despite recent sharemarket volatility.
We won’t have the full list of top performers until mid next month.
Investors have largely looked through the tensions in the Middle East, betting that Iran won’t shoot itself in the foot by doing something as dramatic as blocking the key global shipping route, Strait of Hormuz. But there’s no doubt more market drama is coming.
Donald Trump’s suspension of the reciprocal tariffs ends on July 9, though the administration has just flagged that deadline may be extended. Still, big super is bracing for a potential repeat of the early April sell-off sparked by the US President’s Liberation Day tariff threats. At least they can breathe a sigh of relief that the so-called ‘revenge tax’ that would have levied additional tax on
“I think volatility is a given (in the near term),” says Cbus CIO Leigh Gavin, who has only been in the top job at the $100bn construction industry fund for two months.
“We’re going to have more volatility in the second half of this year than we did in the first half. Clearly some deals will need to be done on tariffs (between the US and its trading partners) or truces will need to be extended. That, in and of itself will give us more volatility,” Gavin predicts.
Certainly the stakes are rising as public markets trace record highs. Equities have fully recovered from April’s tariff shock despite the lack of trade deals. The S&P500 is up 11.2 per cent over the past 12 months, the Dow just shy of 10 per cent and the tech-focused Nasdaq has gained 12.4 per cent. In the same period, the S&P/ASX 200 has jumped 10 per cent.
Gavin, who expects the Cbus default option to come in at 10 per cent for the 12 months to June 30, is so cautious on the outlook that he’s actually moved the fund’s cash position higher despite its very long-term investment horizon.
“The range of outcomes for the US, that’s across US equities, US bonds or US dollar, is wider now than it’s been for some time. That doesn’t necessarily mean (returns will be) lower, but certainly the range of plausible outcomes, and therefore range of returns is wider,” he says.
“Looking forward a decade, the range of outcomes is wider this year than it was last year, and that’s why the portfolio has got a little bit more cash than it had a year ago, and more even than six months ago.”
