Geared funds have their day with returns to 60%
A rising tide lifts all boats, but geared Australian share funds blitzed their rivals in the 2013 financial year, the best returning almost four times the average fund.
The best superannuation return for the year to June was 63 per cent, by the Colonial First State FirstChoice geared fund. Over five years, the fund has posted a 0.1 per cent annual loss; but over a decade its annual return is 11.4 per cent.
According to super research firm Rainmaker, the top workplace and personal funds in 2013 were geared, with funds run by Colonial First State, Perpetual and AMP returning between 40 and 58 per cent.
By contrast, the worst investment choice for the year lost 14.4 per cent.
Alex Dunnin, Rainmaker executive director of research and compliance, said the bumper Colonial First State return was a reward for greater risk during a sharemarket rally, and demonstrated the benefit of choosing funds carefully.
"It was no fluke when you think about it because the sharemarket earned 25 per cent in Australia and around 35 per cent overseas - meaning geared funds leveraging into these markets could have earned twice these returns," he said.
"So the performance boost is the leverage. This explains why the top performing industry fund investment choice (REST Industry Super Overseas Shares) earned a comparatively slow 31 per cent - it doesn't use leverage."
There are dozens of geared funds in Australia, and 2013's results would be among their best. Geared options are dominated by "retail", or for-profit, funds and their rules stipulate that the fund itself can't borrow, but its investment vehicles can leverage themselves.
Mr Dunnin said while only a small number of people chose geared funds, the results "nonetheless show how much money superannuation investors can make if they are well informed, well advised and perhaps a bit lucky".
Median growth funds - the most common fund type, with 61 to 80 per cent invested in growth assets - returned 15.6 per cent in 2013, on the back of rocketing sharemarkets.
Rival super research firm Chant West said although retail master trusts bested industry funds last financial year, due to their higher allocation of listed shares and property, not-for-profit funds have outperformed over the long term.
And SuperRatings data shows that since July, the median-performing balanced option has returned a touch over 14 per cent, as sharemarkets continue their rise.