THE average superannuation fund rose by more than 9 per cent last year, but has still not recouped all the losses incurred during the global financial crisis.
The research company Chant West reported a gain of 9.2 per cent for the median growth fund over the past financial year, building on the 10.4 per cent gain in 2009-10. But a return of another 6 per cent is needed to fully restore the 27 per cent lost by the average fund between late 2007 and February 2009.
"Hopefully they will get back to their pre-GFC levels this year," Chant West's investment research manager, Mano Mohankumar, said. "If growth funds have a typical strategy and hit their 7 per cent target, they'll be back where they were with a little to spare."
He said growth funds had been on track to report double-digit returns this year, but weak sharemarkets in the June quarter knocked returns back. They still grew by more than the long-term average, thanks to strong returns from shares earlier in the year, and growth in unlisted investments such as infrastructure, private equity and property.
Mr Mohankumar said international shares also did well, though the rising Australian dollar meant most funds did not enjoy the full extent of the gains. While international shares returned 22.3 per cent, a fund that was unhedged against currency movements would be up just 2.7 per cent.
However, most super funds are partially hedged and would have reported gains of about 12 per cent.
Chant West's figures look at funds with between 61 per cent and 80 per cent of their assets in growth investments such as shares and property. Mr Mohankumar said most Australian super fund members were in this category.
He said industry funds provided a slightly better average return than retail master funds (9.5 per cent versus 9 per cent) and have outperformed by 1.3 per cent a year over the past 10 years, due to their greater willingness to use unlisted investments and change their mix of assets.
The importance of comparing returns was evident in the gap between the top and bottom growth funds. Last year, the best fund almost doubled the performance of the worst - 12.5 per cent versus 6.6 per cent - while over 10 years, the top fund returned 6.8 per cent compared with 3.6 per cent for the worst.
Frequently Asked Questions about this Article…
What were average superannuation growth fund returns last financial year?
Chant West reported the median growth super fund returned 9.2% in the past financial year, building on a 10.4% gain the prior year.
Have super funds fully recovered losses from the Global Financial Crisis (GFC)?
No — despite solid recent gains, the average super fund had not fully recouped the 27% lost between late 2007 and February 2009. Another roughly 6% return was needed to reach pre‑GFC levels.
How much return do growth funds need to get back to pre‑GFC levels?
Chant West said about a 6% additional return would restore the average fund to its late‑2007 level. Mano Mohankumar added that if growth funds hit a typical 7% target they'd be back with a little to spare.
Why didn’t super funds capture the full gains from international shares?
International shares returned 22.3%, but a rising Australian dollar reduced gains for unhedged funds (which would have been up about 2.7%). Most super funds are partially currency‑hedged, which meant they reported roughly 12% gains from international shares instead of the full 22.3%.
What drove growth fund performance over the year?
Growth funds benefited from strong returns from shares earlier in the year and from unlisted investments such as infrastructure, private equity and property, which helped push overall returns above the long‑term average.
How do industry super funds compare with retail master funds on returns?
Industry funds produced a slightly better average return (9.5%) than retail master funds (9%) for the year. Over the past 10 years industry funds have outperformed by about 1.3 percentage points per year, partly because they’re more willing to use unlisted investments and shift their asset mix.
How big is the performance gap between the best and worst growth funds?
The gap is significant: last year the top growth fund returned 12.5% while the worst returned 6.6%. Over 10 years the top fund averaged 6.8% versus 3.6% for the worst.
What does Chant West classify as a ‘growth’ fund and are most members in that category?
Chant West’s growth funds are those with between 61% and 80% of assets in growth investments like shares and property. The research notes most Australian super fund members are in this growth‑fund category.
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