A bad year for super fund returns has spelt a serious setback for “green” funds as coal and oil stocks soared and clean tech shares dropped sharply.
Overall returns in super were down nearly 5 per cent – but returns were regularly twice as bad at green funds which completely missed the energy sector rebound. The average balanced fund – where most investors have most of their money – dropped by 4.8 per cent last year, the fourth negative year recorded by such funds since 2000, according to the SuperRatings group.
Top-rated green funds such as Australian Ethical had nowhere to turn when the tech sell-off accelerated in the second half of 2022. The Australian Ethical balanced fund was down 9 per cent over the year.
Australian Ethical has been the fastest growing super fund in the market in terms of member accumulation over the last five years, according to KPMG.
Some of the worst performers were new funds that target younger investors with green products: Spaceship Super, a fund which has a focus on global technology, reported a minus 15 per cent return on its growth fund.
Younger investors have clearly been attracted to the Spaceship fund – its annual report said it had an 80 per cent growth in membership last year.
Future Super, which focuses on “climate conscious super”, reported an 11 per cent drop in its balanced fund while the group’s more specialised funds did even worse: The group’s Renewables Plus Growth fund fell by 13 per cent over the year.
Cruelty Free Super, the super fund which is a “happy supporter of the vegan community”, did a little better, though its returns were still below average at minus 7.25 per cent. The fund also managed to get hit with a fine from the Australian Securities and Investments Commission this month, which was concerned over “what may have been false and misleading statements”.
“It has been a tough period for all funds, but particularly funds where ESG (environment, social and governance) settings may have meant a concentration on technology investments,” says Kirby Rappell of SuperRatings.
Major funds that managed to navigate the parallel boom in fossil fuel stocks and a ferocious sell- off in technology stocks included Hostplus, the best performing fund in the local market over the longer term. Hostplus managed to hold negative returns at minus 2.5 per cent – around half the average return of its peers.
Industry funds dominate the top performers in the market, but it was a retail fund – Perpetual’s Wealthfocus – that topped the 12 month tables with a positive return of 1.7 per cent.
Perpetual was joined by First Super’s balanced fund as the only other fund with a positive return – the First Super balanced fund managed a very slender positive return of 0.1 per cent
The Australian Retirement Trust (created through the merger of Q Super and SunSuper) ranked seventh with a minus 2.6 per cent return.
Behind the numbers, a wider range of factors beyond an aversion to fossil fuels were pushing against green funds aiming at younger investors: the public performance figures now published by the ATO on super fund rankings mean that smaller funds with weaker returns are under huge pressure to close or merge with bigger operators.
Across the super sector the number of funds is shrinking rapidly: There are now just 28 industry funds (non-profit funds often linked with trade unions), down from 42 in 2016, and only 82 retail funds (profit-based funds often linked with insurers), down from 142 over the same period.
Rappell says: “We are looking at funds now where $5bn is not a large figure anymore: Many funds have not had the numbers to keep going. Around a third of the funds we were rating a few years ago have now disappeared from the tables.”
ChantWest, another super research group, reported similar figures in December when it said the median growth option for local super funds had returned a negative 4.6 per cent over 2022.
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