Superannuation funds have made dramatic gains over the past three years, with top performing sustainable funds topping traditional ones.

New figures from Rainmaker show the top default super funds – those where most Australians have their retirement savings invested by their bosses – returned more than 12 per cent a year in the past three years.

That’s despite the massive stockmarket crash at the onset of the pandemic in March 2020. Top-performing fund Aware Super returned 12.9 per cent while the GuildSuper Personal fund returned 12.3 per cent.

Retail fund Virgin Money Lifecycle returned 12 per cent, demonstrating that the lifecycle sector, which automatically moves members to less aggressive investment positions as they age, is now performing as well as traditional balanced funds, which leave their holdings in one place.

Figures from Chant West show the median balanced fund returned returned 13.4 per cent during 2021.

‘Stunning stuff’: Sharemarket drives gains

Strong sharemarket growth drove gains for all fund types in 2021.

“The Australian stockmarket over 2021 rose 17.2 per cent,” Rainmaker director Alex Dunnin said.

“The international market was a bit higher, so all this is pretty stunning stuff.”

That lines up with data released by Oxfam this week which found that Australia’s 47 billionaires had doubled their wealth over the pandemic to $255 billion – last year was a very good one for those with assets.

“If you had $100,000 in super and a house worth $700,000 then you would have made $170,000 [on higher asset values],” Mr Dunnin said.

Sustainable funds outperform

What’s even more stunning than the returns on default super though has been the performance of funds with sustainable investments.

The top sustainable asset allocation, UniSuper’s global environmental fund, returned 25.4 per cent for the year ended in November 2021.

Australian Ethical’s international shares fund wasn’t far behind it, while Perpetual’s Sustainable and Responsible fund returned 22.9 per cent.

The performance of sustainable funds over the past three years is even more impressive.

UniSuper’s global sustainable option shot the lights out with a 27.9 per cent return, while two other funds reached at least 12.8 per cent.

That performance was also a result of sharemarket movements, with Mr Dunnin saying “there’s been a tilt towards ESG [environment, sustainability and governance] in the equity space”.

In other words, more funds have pledged to tilt towards sustainability, helping to push up the value of stocks already in that space.

Cassandra Williams, ratings leader at the Responsible Investment Association of Australasia, said there has been a “dramatic” capital shift towards sustainable investments, fuelled by rising member demand.

Though there’s been some easing of that phenomena recently.

“There has been an increased demand for fossil fuel stocks, with the coal price increasing,” Mr Dunnin said.

Sky-high returns won’t last

Investment adviser Rob Goudie, principal of Consortium Private Wealth, said those 25 per cent-plus returns won’t last.

“We see average returns of 10 or 11 per cent in most markets around the world,” he said.

“Those figures include some big falls that even out large rises like we’ve seen recently.”

Over the longer term, sustainable investment returns were closer to overall averages of 10 or 11 per cent, Mr Goudie said.

“AustralianSuper made 10 per cent, Care Super was 9.1 per cent and Mercer at No.3 averaged 8.8 per cent,” he said.

There will still be strong drivers for sustainable investments though.

“Companies like Coles and Woolworths have committed themselves to dramatically reduce emissions by 2025 and others aim at 2030,” Mr Goudie said.

“That’s going to take a huge investment by companies to achieve those targets so industries that support those goals will have a huge investment tailwind driving them.”

The New Daily is owned by Industry Super Holdings