Superannuation funds had an “outstanding” financial performance in 2019, according to firm Chant West, which described it as a “standout year”.
The ‘median growth fund’ – with 61-80% invested in growth assets, and in which the majority of Australians have their super invested – returned 14.7% for the 2019 calendar year. For a calendar year, this is the best return since 2013, and the seventh best year since compulsory superannuation started.
Chant West senior investment manager Mano Mohankumar said: “Very few would have predicted such a strong result 12 months ago when growth funds had just lost 4.6% over the December 2018 quarter and investor sentiment was decidedly negative. The 14.7% return represents the eighth straight positive year, and the 10th out of the past eleven.”
Including 2019, the average return over the past 10 years is 7.9% per annum, though Mohankumar warns that the such great returns could revert lower returns more in line with historical averages.
“That’s a tremendous run, but we should remember that it partly represents the recovery from the GFC when the median growth fund fell about 26%. We also need to keep in mind that growth funds aren’t designed to yield such returns over the long term – typically they’re built to return 3.5% above inflation per annum which translates to 5.5% to 6% per annum over the long term, or rather less than that in today’s low inflation environment. So it would be a mistake to assume that the level of returns over the past decade will continue. At some stage they’re going to revert to more ‘normal’ levels, and there will be more challenging times ahead.”
Mohankumar said that in 2019 all asset sectors had positive returns. The better performing funds were those that had higher allocations to listed shares, which drove a “terrific year” of returns. International shares “surged” 27.4% when hedged for currency and 28% unhedged, compared to the 23.8% return from Australian shares.
“Funds would also have benefited greatly from having money invested in listed real assets with global listed infrastructure, global listed property and Australian listed property returning 24.2%, 21.2% and 19.6%, respectively. Those that kept more of their traditional defensive exposure in bonds rather than cash would also have helped their performance,” said Mohankumar.