Against expectations, 2017 was a “stellar year” for superannuation fund investment returns, says Chant West.
The median growth fund, with 61% – 80% in growth assets, was up 10.8% for the year according to the firm, well ahead of performance targets.
“Growth funds have now delivered six straight positive calendar year returns, averaging over 10% a year. The last time we saw such a long sequence of positive returns was between 1995 and 2001,” said Chant West founder Warren Chant.
“The 2017 return of 10.8% is the best result since 2013 when funds surged 17.2%. It is also more than 5% ahead of the typical long-term return objective for that category which is CPI + 3.5%. With inflation running at about 2%, that translates to a target of about 5.5%.”
“Very few people would have predicted such an outstanding result 12 months ago. Back then, people were nervous about what Donald Trump’s shock victory might lead to. And that was only months after Europe was thrown into turmoil by the surprise Brexit vote. However, despite all the uncertainty, share markets around the world took it in their stride as investors focused on the improving global economy. International shares surged 18.7% over the year in hedged terms and 13.4% unhedged, while Australian shares also had an excellent year, gaining 11.9%.”
“Shares are still the main drivers of performance, but the major funds are well diversified across a wide range of other sectors including unlisted assets. The better performing funds in 2017 were those that had higher allocations to listed shares and to unlisted assets generally. A lower exposure to traditional bonds and cash also helped, given their mediocre returns.”
Chant West says super funds are delivering returns without undue risk. The firm says for a median growth fund the goal should be no more than five negative years over the 25 years since the introduction of compulsory super. In this time these funds have met this goal with only four negative years.
Industry funds outperformed retail funds over the year, returning 11.6% compared to 10%.