Strong share markets set super funds for a good start of new financial year

Oksana Patron

23 August 2023

The stronger performance of listed share markets in July saw super funds have a good start to the new financial year with the median growth fund returning 1.5%, according to Chant West.

Australian shares went up 2.9% for the month and developed market international shares rose 2.9% in hedged terms and 2.1% unhedged.

According to Chant West Senior Investment Research Manager, Mano Mohankumar, the listed share markets were driven by a strong month recorded by the energy sector.

At the same time, international bonds were flat, while Australian bonds were up 0.5%.

With share markets performing strongly, naturally it was the higher risk investment options that benefited most.

During the same period, in the US share market gains were driven by resilient economic growth data and falling inflation.

“Emerging markets outperformed developed markets in July, returning 4.9% as the Chinese government indicated support for its struggling property sector. It also pledged to boost consumption and alleviate local government debt issues,” Mohankumar said.

“Back at home, the Reserve Bank left interest rates on hold at 4.1% earlier this month for the second consecutive month. This was in response to slowing economic growth, which is starting to bring down inflation, and also to the burgeoning cost of living pressures on Australian households.”

According to Chant West’s Multi-Manager Survey, all risk categories had met their typical long-term return objectives, which ranged from CPI + 1.5% for Conservative funds to CPI + 4.25% for All Growth.

Chant West also said that long-term performance remained above target and that is was important when considering performance that MySuper products has been only operating for about nine and a half years while super was a long-term proposition.

“Since the introduction of compulsory super in July 1992, the median growth fund has returned 7.8% p.a. The annual CPI increase over the same period is 2.6%, giving a real return of 5.2% p.a. – well above the typical 3.5% target,” the firm said.

“Even looking at the past 20 years, which includes three major share market downturns – the GFC in 2007-2009, COVID-19 in 2020, and the high inflation and rising interest rates in 2022 – super funds have returned 7.4 % p.a., which is still comfortably ahead of the typical objective.”