Superannuation funds have shrugged off the pandemic slump that roiled markets back in March, with the average growth or balanced fund returning an unexpectedly healthy 3.7 per cent for the 2020 calendar year.
The top performing fund, Suncorp Growth, returned a massive 9.6 per cent.
Chant West researcher Mano Mohankumar described the returns as “a tremendous outcome for super fund members and a great story for superannuation given the economic damage wrought by the COVID-19 pandemic”.
Although well below the 14.7 per cent that growth funds achieved in 2019, “it represents the ninth consecutive positive calendar year and the 11th in the past 12 years for growth funds”.
“If we take ourselves back to late March, the prospect of finishing the year up 3.7 per cent would’ve been inconceivable,” Mr Mohankumar said.
Independent economist Stephen Koukoulas said the strong returns had in part been driven by the economic recovery.
“The economy has done far better than almost everyone was expecting a few months ago,” he said.
Over February and March, as sharemarkets tanked, the median growth fund plummeted 12 per cent.
But growth funds went on to stage an impressive recovery in line with international sharemarkets – surging 15.5 per cent between April and December, according to Chant West.
“That demonstrates the importance of diversification in super fund portfolios,” Mr Mohankumar said.
“Growth funds [where most Australians have their super] have about 55 per cent of their portfolios in shares and 45 per cent in other assets, which helped cushion the blow of the market falls in March.
“When the market turned those equity holdings enabled funds to capture the upside.”
Although the median return was 3.7 per cent, the top ten growth funds did much better.
For-profit funds Suncorp and Australian Ethical topped the charts with 9.6 per cent and 8.3 per cent respectively, while the next eight, seven of which were not-for-profits, earned between 6.2 per cent and 5.1 per cent for the year.
“The better-performing funds over the full year were generally those that had a higher allocation to international shares, particularly those with a ‘growth’ style bias,” Mr Mohankumar said.
“Holding bonds rather than cash would also have helped, as would a relatively low exposure to listed infrastructure and listed property.”
Bond holdings performed well because falling interest rates pushed up their value.
But listed infrastructure and listed property have yet to fully recover from the March crash.
Over a 10-year time frame, all the top 10 funds were not-for-profits, with the balanced options at AustralianSuper and UniSuper tied in first place, with average annual returns of 9 per cent.
The rest of the top eight returned between 8.9 per cent and 8.3 per cent a year, while the median return over that period was 7.8 per cent.
Since compulsory superannuation’s inception in July 1992, the median balanced or growth fund has returned 8.1 per cent a year, well above the target set by the industry (5.9 per cent).
That industry target is set at 3.5 percentage points above the Consumer Price Index (2.4 per cent over the period).
The long view
Both the experience over 2020 and performance of superannuation since inception demonstrate the importance of “maintaining a long-term focus,” Mr Mohankumar said.
“If you reacted to the market falls in March by moving your money to cash not only would you have locked in losses, you would have missed out on the benefits of being exposed to the rises as the markets recovered strongly from April,” he said.
“Even looking at the past 20 years, which now includes three major sharemarket downturns – the ‘tech wreck’ in 2001-2003, the GFC in 2007-2009 and COVID-19 in 2020 – super funds have returned 6.7 per cent annually, which is still comfortably ahead of the typical return objective.”
The New Daily is owned by Industry Super Holdings