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Super funds continue to produce strong returns for their members in a difficult economic climate. The median Growth fund (61-80% growth assets), where most Australians are invested, was up 1.7% in August for a cumulative return of 2.8% in the first two months of the financial year..
Chant West senior research manager Mano Mohankumar says the main driver of growth was the ongoing share market rally. Australian shares were up 2.6% in August and international shares rose 2.7% hedged and 3.1% unhedged.
Growth funds are now up a remarkable 29% since last year’s March COVID low. “We’re now sitting about 14% above the pre-COVID crisis high,” says Mohankumar.
Although the COVID-19 Delta variant continues to disrupt lives in most jurisdictions, markets were reassured by the US Federal Reserve’s commitment to continue its supportive monetary policies.
In Europe and in Australia, a solid company reporting season supported share markets despite ongoing economic disruption.
The following table shows the median super performance for five investment risk categories across various timeframes.
Super fund performance (results to 31 July 2021)
Source: Chant West. Performance is shown net of investment fees and tax, before administration fees and adviser commissions.
As you can see in the table above, all five risk categories performed strongly in August, with positive returns across all time periods from one year to 15 years.
The chart below shows the year-by-year performance of the median Growth fund over the 29 years since the introduction of compulsory super in 1992. Since then, the median Growth fund has returned 8.3% per year. The annual CPI increase (a measure of inflation) over the same period is 2.4%, giving a real return of 5.9% per year. This is well above the typical 3.5% target set by funds.
Even looking at the past 20 years, which includes three major market downturns – the tech wreck, the GFC and now COVID – the median Growth fund has returned 7.2% per year, comfortably ahead of the typical return objective.
After last year’s heroic 18% return, Growth funds have produced positive returns in 16 of the past 29 financial years. Mohankumar says the typical risk objective for Growth funds would be no more than five negative returns during that period (there have been just four), so the risk objective has been met as well as the performance objective.
Source: Chant West