Super median growth funds deliver 7.7pc return in 2016

Superannuation extended a strong run of returns in 2016 as industry funds again outpaced their retail counterparts.

Median growth funds have posted average returns of 8.6 per cent per annum across eight years.

Australian superannuation funds have recorded their fifth straight positive annual return, extending a strong run since the GFC that has seen average returns of 8.6 per cent per annum across eight years.

Figures released by Chant West today show the median growth fund delivered a robust 7.7 per cent return in 2016.

If your money was in a growth fund last year you would have seen a positive outcome as every such fund booked a gain, with a range from 4.2 to 10.1 per cent recorded.

Leading the way were Catholic Super and Hostplus.

“Members should be very pleased with the 2016 result, which was achieved against a backdrop of unsettled global politics and a relatively weak economic environment,” Chant West director, Warren Chant, said.

“Three of the key stories in 2016 were the shock ‘Brexit’ vote, the equally surprising Donald Trump election victory and the timing of the second US interest rate hike.

“All of these created uncertainty, but share markets again proved how resilient they can be.”

Growth funds are defined as those with a 61 to 80 per cent allocation to growth assets and enjoy the highest percentage of Australians’ more than $2 trillion worth of investments in super.

Key to the strong showing was the 11.8 per cent surge in the local sharemarket, the bulk of which came through a strong rally following the US election in November.

“While shares are the main drivers of performance, the major funds are well diversified across other assets as well, and in 2016 all asset sectors delivered positive returns,” Mr West noted.

“Some did better than others, of course, and the better performing funds were generally those that had higher allocations to Australian shares, Australian listed property, unlisted property and infrastructure.

“Those that kept more of their defensive assets in bonds rather than cash would also have benefited.”

The best-performed asset class was unlisted infrastructure, which generated an average 17.3 per cent return, ahead of Australian listed property, which appreciated 13.2 per cent.

In contrast, lacklustre investments came in the form of Australian bonds and cash, with returns of just 2.9 and 2.1 per cent, respectively.

Since a 21.5 per cent slump in 2008, the cumulative return for the median growth funds comes in at 93 per cent, given the 8.6 per cent per annum average.

Over the longer time frame of 24.5 years since compulsory super was introduced in mid-1992, the annualised return is 8.2 per cent.

After factoring inflation, this represents a real return of 5.7 per cent per annum, above the typical 3-4 per cent target.

Industry funds outpaced their retail counterparts in 2016, with average growth of 8.2 per cent set against a still robust 6.9 per cent.

Over the past decade, industry funds have returned 5.5 per cent a year on average, versus 4.6 per cent for retail funds.

During that time period, the Rest Core strategy has led all growth funds with an average return of 6.4 per cent per year, ahead of CareSuper Balanced and Cbus Growth.

“Over the longer term, industry funds have outperformed retail funds largely because, as a group, they tended to have lower allocations to listed shares during periods when shares underperformed,” Mr West said.

“That situation no longer applies, but at the same time they have also had higher allocations to unlisted assets such as private equity, unlisted property and unlisted infrastructure which have performed well for them.”