Super funds return 18pc annual growth: Chant West

The return by median growth funds was the second highest on record, and one super performer hit 22.6pc, says Chant West. See which funds made the Top 10 list.

Australians’ super nest eggs have posted their second strongest growth rate.

Super funds have delivered their second strongest year since compulsory superannuation was introduced, with the median growth fund returning 18 per cent in the 2021 financial year, according to research house Chant West.

The only better run was in 1996-97, when the median growth fund – the most popular super investment option – returned 19.4 per cent.

But the also popular balanced investment option saw some strong performers, with fellow research house Super Ratings research showing the top 20 performers in the category each returned more than 18 per cent over the same period.

According to Chant West, the top performing growth fund was Mine Super, an industry fund for coal mine workers, that returned 22.6 per cent.

But the bottom end of the range still performed strongly, Chant West said, with the worst performing fund in the category returning 13 per cent.

Super Ratings said the strongest performing balanced fund was the QANTAS Super Gateway Growth Fund, which qualifies as a balanced option due to its more conservative asset allocation. It returned 22 per cent, boosting its average 10 year return to 8.1 per cent.

Due to methodology differences, Chant West counted AustralianSuper’s balanced fund as a growth fund while Super Ratings considers it a balanced fund - but both researches agreed it was the strongest overall performer over the past decade, with an average 9.7 per cent return.

AustralianSuper’s balanced growth fund is the strongest performer of the last decade. CEO Ian Silk recently announced he is retiring from the fund after 15 years. Picture: Aaron Francis

Chant West senior investment research manager Mano Mohankumar said the sector’s strong performance highlighted the resilience and prudent diversification strategies of the funds.

“Despite the battering that share markets took over February and March 2020, the diversification built into growth funds enabled them to limit the damage to a small loss of 0.6 per cent for FY20 which was a much better result than expected,” he said.

“And in FY21, with over 50 per cent allocated to listed shares, these funds were able to capture a meaningful proportion of the upside as markets staged a strong and sustained rally.

“In fact, growth funds finished FY21 more than 10 per cent above the pre-Covid crisis high that was reached at the end of January 2020.”

SuperRatings Executive Director Kirby Rappell said the funds that took the biggest hits from Covid in 2020 were the ones posting strong returns for FY21.

“While we saw funds that had a high exposure to equity markets fall dramatically when the pandemic first hit markets in February, these were the same funds that then rebounded strongly as markets recovered.”

However, the median returns still fell short of the global recovery in share markets: Australian shares gained 28.5 per cent over the financial year while international shares surged 37.1 per cent.

Mr Mohankumar said that as a result funds that had a higher allocation to listed shares performed better than those geared towards more defensive investment options.

“Cash was virtually flat with a return of just 0.1 per cent while Australian and international bonds fell 0.8 per cent and 0.2 per cent, respectively,” he said.

“Of the alternative asset sectors, private equity was the strongest performer delivering over 40 per cent on average.

“Funds would also have benefited from keeping their foreign currency exposure low, given the relative strength of the Australian dollar.”

The strong performance of growth-orientated investment options meant the performance of the median all growth fund over the financial year was 26.7 per cent, while the median conservative fund returned 7.9 per cent.

Although most workers have the super invested in the growth category, many fund members are in “lifecycle” products where members are allocated to an investment option that is de-risked as they age.

It means younger people saw much larger gains in the past year. Chant West data shows that lifecycle product members between 21 and 51 years of age saw gains around 22 per cent.

That’s more than 10 per cent higher than the return of lifecycle members born in the 1950s and 1940s.

Mr Mohankumar said that although fund members should be pleased with the strong returns seen across the board, they must think about performance in the long term.

“The typical long-term return objective for growth funds is to beat inflation by 3.5 per cent per annum, which translates to about 5.5 per cent to 6 per cent per annum,” he said.

ChantWest figures indicate since the start of compulsory super in 1992, the industry has provided an average real return of 5.8 per cent p.a., including the four years in that period that saw overall negative returns for the industry.

“Over the longest period we can measure, Australia’s major super funds have delivered on their promises to members, growing their wealth in real terms while protecting them from undue risk,” Mr Mohankumar said.