Australian superannuation fund members have scored another year of strong returns with SuperRatings reporting the median balanced option (60 to 76 per cent growth assets) returning 8.8 per cent for the June year.

Although competitor research group Chant West has yet to release official figures, the group said in June that it expected results to come in just under 9 per cent.

SuperRatings executive director Kirby Rappell said there had been a good turnaround during 2024 after weakness in mid-2023.

“Fund returns have made a strong turnaround since November 2023 to deliver a second year of above-average returns,” Rappell said.

Interestingly, there was quite a difference between returns for balanced funds in pension accumulation modes.

Accumulation funds recorded the 8.8 per cent returns shown above, while pension accounts recorded a 10 per cent median return.

“Most of the difference there is accounted for by tax,” Rappell said.

That is because super accounts in pension mode pay no tax on earnings inside the fund.

Those in accumulation mode are taxed on internal returns because the members have not yet retired.

There has been significant diversity among the funds that have detailed the financial year results to members already.

“Top performers will be handing members double-digit returns for the year, reinforcing superannuation funds’ ability to deliver a competitive outcome for everyday Australians,” Rappell said.

No comprehensive table on fund returns is yet available, but some of the popular funds have reported financial year returns for different products.

• Telstra MySuper balanced – 8 per cent
• MLC balanced – 7.7 per cent
• Australian Retirement Trust balanced – 9.74 per cent
• AustralianSuper balanced – 8.46 per cent
• Rest balanced – 6.71 per cent, balanced indexed 12.41 per cent
• AMP balanced – 10.53 per cent
• Cbus balanced – 8.87 per cent
• Colonial balanced – 9.4 per cent
• HESTA balanced growth – 9.1 per cent.

There were a couple of drivers for strong returns through the year, Rappell said.

One was the international tech sector which, in turn, drove international share performance.

“International shares were the standout performers for super funds, with the sector estimated to return 17 per cent as developments in artificial intelligence and associated industries led a small number of technology shares in the US to unprecedented highs,” Rappell said.

Australian shares, meanwhile, returned 11 per cent with the banking sector driving much of that growth.

Although those results were pleasing, much of the growth in performance came from narrow sectors of the economy that could result in underperformance in the future if those sectors sag.

But with that said super continues to outperform expectations for the sector, with Rappell saying “returns are outpacing inflation again, which is great for members”.

The chart below shows how superannuation has harnessed itself to economic growth which, in turn, enabled it to deliver average annual returns of 7.1 per cent since the compulsory system was introduced in 1992.

That has enabled the typical balanced fund to exceed its long-term return objective of CPI plus 3 per cent.

There were concerns about the narrow base of some of the market growth driving super returns, but BetaShares chief economist David Bassanese said there were broader economic factors that should be good for markets in the coming year.

“The outlook is for continued disinflation in the developed markets – Europe and the United States – and slowly but surely that is moving towards Australia,” Bassanese said.

That falling inflation will mean central banks will be able to cut interest rates, which will drive stronger economic growth.

Sunny weather

“So the outlook is pretty good for both bond and equity markets and economies will move towards a soft landing scenario playing out.”

That means the recession feared as interest rates were hiked as economies moved out of Covid may not eventuate.

This scenario favours growth in the tech sector, especially among the big seven tech stocks that have driven outperformance in markets.

However in the Australian market growth possibilities were likely to be restricted because “while we have a small and virbrant tech sector” it cannon deliver the widespread growth of its US counterpart, Bassanese said.

Also the resources and energy sectors that have driven the market post-Covid are now restricted in growth and consequently super funds will have to increasingly focus on offshore investing to find the returns they need for ongoing growth to members.

Rappell said members should not be lulled by the strong returns from shares and resist the temptation “to seek out higher exposure to these assets”.

Risks remain, particularly around the trajectory for inflation in Australia and geopolitical factors, such as ongoing wars and the upcoming presidential elections in the US, Rappell said.

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