Last financial year was a great one for superannuation fund members, with median growth funds set to deliver investors 10.5 per cent, according to research house Chant West.
Industry funds are expected to lead the way, returning members 11 per cent on average, at least 80 basis points above retail funds. Retail funds will return an average of 10.2 per cent, Chant West director Warren Chant said.
Over eight years, those funds have returned 9 per cent.
“Given those funds aim to return 3 to 4 per cent above inflation, which is say 2 per cent, the returns are very good,” Mr Chant told The New Daily.
“If you’re getting a 6 per cent return in a year you would be reasonably happy. If you’re getting 10 per cent return you would be very happy.
“As always happens, some funds have performed better than others over this shortish period. This year’s top funds look likely to report returns as high as 12.5 per cent, while even the bottom end of the range is likely to be a respectable 7.5 per cent.”
Chant West’s median growth category covers funds with 70 to 75 per cent of investment in growth assets, which broadly covers the “balanced” category used by other researchers. This category covers 60 to 70 per cent of the super accounts held by Australians.
However, many retirees are not invested in median growth funds because they are looking for stability.
“They are invested in funds with between 50 and 70 per cent of assets in conservative assets like cash and bonds. They will see returns of 5.5 per cent which is a great result for those assets,” Mr Chant said.
Not-for-profit funds have dominated return tables, making up nine of the top 10 returning funds, according to SuperRatings performance tables for the 11 months to the end of May. Of those, eight were industry funds with the Telstra corporate fund making up the ninth, while Russell iQ was the only for-profit fund in the top 10.
The returns were driven by share market growth with both Australian and international shares rising strongly for the year.
“Global shares have been the big driver of returns over the past year, supported by a fall in the Australian dollar through early 2017,” SuperRatings chairman Jeff Bresnahan said.
The fall in the local currency increased the relative value of offshore assets in Australian dollar terms.
“Unlisted investments like private equity and infrastructure have also performed well and returns should be either in double digits or very close to it,” Mr Chant said.
“It’s been a different story for listed property, however. Australian REITs were the strongest-performing sector a year ago but have been the worst-performing sector this year [2016-17], falling 3 per cent. Meanwhile, global REITs, although in positive territory, returned just 3.3 per cent.”
Stephen Anthony, chief economist at Industry Super Australia, said the results were strong.
“The talk a year ago was about low growth and low yields and no one expected double-digit returns over 2016-17,” he said.
Dr Anthony said rather than focusing on yearly returns members needed to be satisfied that they were in a fund with “well-structured asset allocations that maximise returns over time”.
Funds may not perform as well in the current year, Dr Anthony said.
“Now we have talk of fully priced assets and in that environment it is hard to get a story that would support double-digit asset growth.”
Dr Anthony said the outperformance of industry funds was likely to be larger than Chant West predicts because the group does not factor fees into its tables. Industry funds have lower fees.
“Lower fees make up about half of the outperformance by industry funds,” he said.