Australian superannuation funds have recently celebrated solid returns, largely attributing them to the performance of US tech shares. However, with a volatile election on the horizon and ongoing international conflicts, risks persist.
Retail funds AMP and CFS both announced impressive returns, emphasising the substantial impact of global equities on their performance for the past financial year, with AMP’s chief investment officer (CIO), Anna Shelley, pointing to US tech stocks as key drivers of their success.
US shares also bolstered the performance of Cbus, Aware Super, UniSuper and the Australian Retirement Trust, contrasting with Australian Super, which missed out on the US tech stock boom and underperformed its peers.
Funds’ heavy focus on the US was so significant that Super Ratings highlighted in its latest report that tech investments paid off handsomely for funds in FY2023–24.
Speaking about this trend with InvestorDaily, AMP’s chief economist explained that super funds’ reliance on global equities, especially on US markets, is not surprising.
Global equities emerged as the top-performing major asset class in the last financial year, delivering a return of 21.5 per cent, with tech stocks playing a significant role in driving up the US share market.
“Yes, tech helped push up Australian super fund returns last year,” Shane Oliver said, noting that there is a risk if tech slows and nothing fills its place.
However, the chief economist elaborated that “it wasn’t just tech shares that did well last financial year”.
“Japanese shares with a 25.6 per cent return actually did better than US shares, Australian shares underperformed but still returned a strong 12 per cent and Australian real estate investment trusts rebounded,” Oliver said.
“What’s more, most super funds have a diverse asset exposure – so whether it’s a good or bad year, there will be always some part of the portfolio that does really well (e.g. US shares in the last year) and some part that does poorly (e.g. unlisted commercial property). So it’s not unusual to have a strong contribution from one area in any one year and then other areas take over in the next period.”
Oliver earlier projected that more constrained and more volatile market returns are likely over the 2024–25 financial year.
He highlighted concerns over poor valuations, heightened investor sentiment, technically overbought conditions, and narrowing market breadth, especially as Nvidia and the tech sector experience turbulence.
Last month, Nvidia’s share price went into a vertical decline, with its market cap taking a $646 billion hit in a matter of three days. The firm’s share price rebounded in the days immediately following the three-day hiatus but has not yet surpassed US$130.
