Shares drive super funds to eighth consecutive year of investment gains

Superannuation funds have had an eighth consecutive year of positive investment returns, driven in large part by share markets, according to Chant West.

The ‘median growth fund’ – with 61-80% in growth assets – was up 10.7% in 2016/17, according to the firm.

“Shares are still the main drivers of performance, but the major funds are well diversified across other asset sectors as well,” said Chant West director Warren Chant.

“The better performing funds over the year were those that had higher allocations to listed shares and to unlisted assets generally. It also helped to have a lower exposure to listed property, bonds and cash,” he said.

Mr Chant said that share markets have focused on the improving global economy, instead of the US election, moves by the US Fed to normalise interest rates and Brexit.

“It’s been a really interesting and, in many ways, surprising year because this strong result has been achieved against a backdrop of considerable uncertainty, both political and economic. It just shows how markets – which represent the combined views of thousands of professional investors – are able to cut through the ‘noise’ and focus on the investment fundamentals.”

Chant West has international shares up 18.9% over the 2016/17 year in currency hedged terms, and up 14.7% in unhedged terms. Australian shares had an “excellent year”, up 13.8%.

Though super fund members are encouraged to think long term.

“With the growing importance of retirement income streams within super, most people will have money in the super system long after they retire. By all means look at what your fund delivered over the financial year, but what’s really important is to know what its long-term objectives are and whether it’s achieving them,” said Mr Chant.

“Funds themselves think long term, and typically the return objective for growth funds is to beat inflation by 3% to 4% per annum over rolling five year periods. We now have data going back 25 years to July 1992, which is when compulsory super was introduced. When we look back over that very long period, we find that the annualised return is 8.3% and the annual CPI increase is 2.5%, so the real return above inflation has averaged 5.8% per annum. So, over the longest period we can measure, funds have well and truly met their return objective.”

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