Australian superannuation funds are heading for a stellar year, with new research indicating current returns on typical growth funds this financial year of nearly 17.5%.
Figures released yesterday by superannuation research firm Chant West found an average-balanced fund returned 15.4% between July 1, 2012 and April 30 of this year.
Since April, Chant West investment research manager Mano Mohankumar told SmartCompany funds have returned an additional 2% as the Australian dollar dropped lower, bringing them to the highest levels in 16 years.
“It’s hard to forecast what’s going to happen in the next six weeks, but during May thus far a typical growth fund is up about 2%, which brings us to returns of about 17.5% since July 1, 2012.”
“This would be the highest single financial return since the 1996-97 financial year,” he says.
Mohankumar says the high returns are “remarkable” given the “patchy economic backdrop”.
“It’s somewhat surprising given the economic backdrop. The Reserve Bank has cut rates, so it’s clearly concerned about the state of the economy.
“The United States seems to be muddling through, there has been some positive economic data, particularly regarding employment, but concerns surrounding Europe do linger and China’s growth came in a little under what we were expecting,” he says.
Chant West found typical growth funds have an average allocation of 57% shares and listed property, and these investment types were the drivers of the higher than expected returns.
“Through to April, Australian shares were returning 30.8%, international shares on a hedged basis were at 22.3% and unhedged international shares were returning 19.5%. Listed property was at 30% and global listed property was at 27%.
“The more defensive asset classes also had positive results and unlisted assets such as property, infrastructure and private equity also delivered positive returns,” he says.
Chant West director Warren Chant said in a statement the strong sharemarket has been driven largely by positive sentiment.
“Investors have reacted optimistically to any good news and have been prepared to downplay any bad news. Economic data released in April was mixed. Domestically, we’ve seen a spate of weak economic data, prompting the Reserve Bank to cut interest rates to 2.75%,” he says.
The last time super fund returns were at these levels in 1996-97, typical growth funds gained 19.4%. Since this time, the closest on record is 2006-07 when super fund average returns were 15.6%.
Association of Superannuation Funds of Australia chief executive Pauline Vamos told SmartCompany the positive returns this financial year will quell the doubts of fund members about the volatile market.
“Coming up to June 30, people should be thinking about their super funds and consider putting in extra money, and taking advantage of the tax benefits.”
While superannuation returns this year are tracking well, industry advocates have recently been concerned with the government changes to the superannuation system.
In the 2013 budget, the federal government announced a range of measures including reducing super tax concessions for the very high income earners, and there will be higher concessions contributions caps. From July 1, 2013, anyone aged over 60 will be subject to a new cap of $35,000.
Vamos says the ASFA is concerned about the lack of bi-partisan effort at a government level to apply long-term policies.
“We have a rapidly changing population and it should be adjusted to support an ageing population in the long term, not to plug the current budget black hole,” she says.