Despite challenging economic times, a “resilient” share market has helped super funds rebound from losses to post double-digit gains during the 2023 financial year.

Growth funds generated median returns of more than 10% during the financial year, which erases the entire 3.3% loss from the previous financial year.

Superannuation consultancy Chant West reports that this represents the 12th positive return in the past 14 years, and that the FY23 return is well ahead of the typical long-term return objective of about 6% p.a.

The growth fund category is where the majority of Australians have their super invested. Typically, these funds have 61% to 80% invested in growth assets and target long-term capital growth.

Chant West reports that Brighter Super was the top performer across accumulation and pension phases, with 12.2% and 14% on its growth funds respectively to 30 June 2023.

Growth funds generated median returns of more than 10% during the financial year compared to losses of 3.6% the previous year. All top 10 performers generated returns of at least 11%.

Balanced funds invest across a mix of asset classes including equities, cash, fixed interest, and property. Brighter Super was also the top performer in this category, posting a 10.1% gain.

The Australian Financial Review (AFR) observes that what Chant West calls balanced funds are typically described as “conservative”.

The median performance of balanced funds over the decade was 6.6%. All top 10 performers generated returns of at least 6.8%. Vision Super Balanced posted almost 8%.

The AFR reports that Brighter’s chief investment officer, Mark Rider, doesn’t expect super growth to continue at the same pace, and thinks returns are likely to be “restrained but positive” as the economy is kept on a short leash with higher interest rates.

Chant West’s senior investment research manager, Mano Mohankumar, says the results highlight the resilience of super funds’ investment portfolios that have limited the damage resulting from the challenges of the COVID-19 crisis, rapidly rising inflation, and aggressively rising interest rates.

Mr Mohankumar reminded fund members to think long term.

“Super funds have had a good year with a median return of 9.2% but returns at that sort of level shouldn’t be thought of as normal,” he said.

“The typical long-term return objective for growth funds is to beat inflation by 3.5% p.a., which translates to just over 6% p.a.

“We now have data going back 31 years to July 1992, the start of compulsory super. Over that period, the annualised return is 7.8% and the annual CPI increase is 2.7%, giving a real return of 5.1% p.a. – well above that 3.5% target.

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

Related reading: Chant West, AFR