Superannuation fund members achieved a crackerjack 2023, with the average balanced/growth fund growing by 9.9 per cent over the year the researchers found.

That was way above the average for 15 years of 7.8 per cent – it means that someone with a $150,000 balance at the beginning of the year would have seen it increase to $164,850.

“The return easily erases the entire 4.6 per cent loss from 2022 and represents the 11th positive return in the past 12 years,” Chant West lead researcher Mano Mohankumar said.

The return easily eclipses the typical long-term objectives of the superannuation sector of 6 per cent and is also well ahead of the inflation rate, which had fallen to 4.3 per cent in November – the most recent figure available.

Superannuation’s performance during 2023 demonstrated the benefits of sticking with a successful investment strategy in the long term, Mohankumar said.

“They’ve shown their ability to limit the damage during periods of sharemarket weakness, as we saw during the COVID crisis in early 2020 and again in 2022.  Then we saw rapidly rising inflation combatted by central banks who aggressively hiked interest rates,” Mohankumar said.

Super funds protected investors from those sharemarket downturns and at the same time managed to still capture a meaningful proportion of the upswing when markets perform strongly this year, Mohankumar said.

The top 10 super funds in the balanced/growth category with between 61 and 80 per cent growth assets all enjoyed returns in double figures with the top performer, Mine Super, weighing in with 11.8 per cent.

All of the top 10 performers were profit-to-member industry funds with no for-profit funds on the list.

“With sharemarkets performing so well in 2023, the better-performing funds over the year were generally those that had higher allocations to shares, particularly international shares,” Mohankumar said.

“Bonds were back in positive territory over the year with Australian bonds and international bonds up 5.1 per cent and 5.3 per cent, respectively.”

Over the longer term, industry funds still managed to account for nine of the top 10 performing funds over 10 years.

In that category all 10 funds outperformed the median outcome of 7 per cent with the best fund, Hostplus Balanced, returning 8.3 per cent and the No.10 fund and only for-profit operation, Australian Ethical Balanced, coming in at 7.3 per cent.

The order of the funds changed a little when the longer-term performance was considered, with the top funds by size showing their consistency over 10 years.

The big return over 2023 should be seen in perspective, said Robert Goudie, principal of Consortium Private Wealth.

Because the strong returns were largely driven by strong stockmarkets, investor sentiment played its part.

“When there is bad economic news markets typically undershoot economic reality and the same is true of good news with markets overshooting,” Goudie said.

“So it’s very unlikely that we’ll get a return of similar proportions next year but the main thing to be aware of is that staying with a suitable asset allocation will deliver good returns over time.”

To demonstrate the strong performance of superannuation over time SuperRatings executive director Kirby Rappell said “an investment of $100,000 in the median balanced option 10 years ago would now be worth $189,005 while investing in the median growth option would now be worth $201,539”.

“Members who invested in cash would have seen $100,000 grow to $117,637,” Rappell said.

Although sharemarket returns tend to drive the high and low points of super returns, high levels of diversification into assets such as infrastructure, private equity and both listed and unlisted property are important in giving super stability and reduce reliance on one asset class.

“The typical long-term return objective for growth funds is to beat inflation by 3.5 per cent, which translates to just over 6 per cent annually. Since the introduction of compulsory super, the annualised return is 7.9 per cent and the annual CPI increase is 2.7 per cent, giving a real return of 5.2 per cent,” Mohankumar said.

This story first appeared in our sister publication The New Daily, which is owned by Industry Super Holdings.