With sharemarkets recovering globally, fund members are likely to see an improvement in returns on their super.
Superannuation fund members opening their annual statements for the year to June 30 will, in most cases, be disappointed by what they see. But the good news is that since that date, their funds are likely to have done much better.
The typical "balanced" investment option, where most people have their super guarantee charge going, returned 0.4 per cent, according to SuperRatings.
Sharemarkets around the world, including Australia, have performed strongly since June 30.
With most of the other major investment classes also doing well, the return for the 12 months to August 31 is 6.5 per cent. It is too early for performance data for the year ending September 30, but Kirby Rappell, the research manager at SuperRatings, estimates the typical return will be between 7.5 per cent and 8 per cent.
Over the long term there is some reason for fund members not to feel too hard done by. SuperRating's data shows that for the 10 years to August 31, the typical balanced option has produced an annual average return of 5.9 per cent.
Most super funds have more than a dozen investment options. Some will be pre-mixed or diversified options, and others will be single-asset class options, such as Australian shares, fixed-interest or property. Fixed-interest is the best-performing investment option, with a return for the year to August 31 of 7.9 per cent.
Next-best is the growth category, with 6.9 per cent.
SuperRatings disregards the names or labels a fund gives to its investment options. The researcher defines a "growth" option as any option with an exposure to growth assets, such as shares and property, of between 77 per cent and 90 per cent. It defines balanced investment options as those with an exposure to growth assets, such as shares and property, of between 60 per cent and 76 per cent.
These options are usually the default options of most funds, and where most people have their money. Rappell says that while fixed-interest had a good 12 months, investors need to be wary of chasing returns as the best period for fixed-interest could well be over, he says.
As for the growth investment options, where most people have their money, UniSuper Accumulation Balanced Growth is the best-performing option over the 12 months to August 31, with a return of 8.6 per cent.
The runner-up is the Core Strategy investment option of the 2 million-member REST industry super fund, with a return of 8.3 per cent.
In third place is the CareSuper Balanced option, with a return of 8 per cent. All top-10 performers over the year are non-profit funds.
Watch out for fees on cash
Cash is the ultimate safe-haven investment. Cash options of super funds have produced an annual average return of 4.5 per cent over the 10 years to August 31 this year. But that is the typical performance, and there is a large range of returns.
The research manager at SuperRatings, Kirby Rappell, says over the past five years there has been an annualised 3.5 percentage point gap between the best- and worst-performing cash options. Typically, funds have management fees for their cash options, but the investment fee is fairly small, about 0.12 per cent, he says.
Cash options are actively managed, with the funds adjusting exposures between bonds issued by the Commonwealth and states, and bank bills with various dates for maturity.
However, Rappell warns that on some of the older retail funds, cash options can have management fees of up to 1.5 per cent.
Frequently Asked Questions about this Article…
What should I expect to see in my superannuation annual statement for the year to June 30?
Many fund members opening statements for the year to June 30 are likely to be disappointed — SuperRatings says the typical "balanced" investment option returned just 0.4% for that year. However, sharemarkets and most major investment classes recovered after June 30, so returns for the period since then (for example the 12 months to August 31) look much stronger.
Have sharemarkets and superannuation investment returns improved since June 30?
Yes. The article notes that sharemarkets around the world, including Australia, performed strongly after June 30. SuperRatings reports a 6.5% return for the typical balanced option for the 12 months to August 31, and its research manager estimates the year to September 30 could be about 7.5–8%.
What is a "balanced" super investment option and how has it performed long term?
SuperRatings defines balanced options as those with 60–76% exposure to growth assets (shares and property). While the typical balanced option returned 0.4% for the year to June 30, its 10‑year annualised return to August 31 was about 5.9%.
What is a "growth" option in super, and which growth options performed best recently?
A growth option is defined as having 77–90% exposure to growth assets such as shares and property. Over the 12 months to August 31, UniSuper's Accumulation Balanced Growth led with an 8.6% return, REST's Core Strategy returned 8.3%, and CareSuper Balanced returned 8.0%; the top 10 performers were all non‑profit funds.
Fixed‑interest options did well — should I switch my super into fixed interest now?
Fixed‑interest was the best‑performing option for the year to August 31, returning 7.9%. But SuperRatings' research manager Kirby Rappell cautions investors not to chase recent returns — the strong period for fixed interest may not persist, so switching solely because of past performance can be risky.
How do cash options in superannuation perform, and are they safe?
Cash options are considered the safest super investment and have produced a 10‑year annual average return of about 4.5% to August 31. However, returns vary widely between funds, and over the past five years there has been an annualised 3.5 percentage point gap between the best‑ and worst‑performing cash options.
What fees should I watch for in super cash options?
While the investment fee on cash options is typically small (around 0.12%), many funds charge a management fee for cash options. Some older retail funds can charge management fees of up to about 1.5%, which can significantly reduce net returns.
How many investment options do super funds usually offer and where is most money held?
Most super funds offer more than a dozen investment options, including pre‑mixed/diversified options and single‑asset options like Australian shares, fixed‑interest or property. Default options — usually balanced options — are where most members have their super guarantee money invested.
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