According to estimates from the researcher, 2019 was the best year for Australian super funds in six years, with the median balanced option returning 13.8 per cent for the 12 months leading up to December.
Super funds had performed particularly given the average return for the median balanced accumulation option was seen to give 7.7 per cent per annum over the last decade and 6.4 per cent over the last 20 years.
Based on SuperRatings’ figures, last year represented the fourth highest return over the last two decades.
Yet December saw an estimated fall of 0.9 per cent, ending the year on “a sour note”, SuperRatings noted, with markets being driven predominantly by the health care and materials sectors.
The median growth option returned an estimated -1.1 per cent in December and 16 per cent over the year, while the capital stable option returned a predicted 1 per cent and 7 per cent respectively.
SuperRatings executive director Kirby Rappell is optimistic 2020 will deliver good returns, but he has erred on the side of caution.
“We’re anticipating a solid year for super in 2020, but the key challenge for funds will be the low return environment,” Mr Rappell said.
“Even with the possibility of a pickup in economic growth, yields are extremely low and it’s getting harder to find opportunities in the market. Company earnings growth is slowing, and Australian consumers are under pressure, so fundamentally it will be more challenging than 2019.
“That doesn’t mean it will be a bad year, but super members should not expect to bank another 13 per cent.”
Expect more mergers
SuperRatings has also tipped that 2020 will see more funds come together, after a number of high-profile amalgamations already taking place in the past year.
One key driver of merger mania will be the sustainability of operating expenses – which SuperRatings has found to be a challenge for some funds across all sizes.
However, smaller funds are more likely to have a higher cost per member and management expense ratio (MER), which measures the operational costs of the fund relative to its size.
Generally, the research house commented, mergers have been based on geographic proximity, similar industry sectors and strategic fits, with funds seeking “merger partners that are strong in areas in which they may be weaker”.
Mr Rappell commented with increasing regulatory scrutiny, funds are focused on the “challenge of increasing scale and driving down fees”.
“It’s pleasing to see that there’s a clear focus among providers on their plans to adapt to the changing landscape, which should support continued uplift in member outcomes,” he said.
APRA’s recent MySuper heatmaps measuring fund performance have emphasised the regulator’s aim to be tougher going forward.
It now has stronger power to force underperforming funds to merge, which SuperRatings believes is likely to further drive consolidation.
Looking back on 2019
The main driver of performance in 2019 was said to be equities, of which Australian shares generally make up the greatest portion.
The research noted the Australian share market delivered a return of 18.4 per cent last year, while international shares delivered 25.4 per cent (unhedged) and 25.8 per cent (40 per cent hedged in Australian dollars).
Meanwhile, listed property returned 14.2 per cent, fixed interest – another major asset class for funds – returned 4.4 per cent, and cash returned 1.5 per cent.
“Looking back over the past 15 years to 2005, the median balanced option with a starting balance of $100,000 would have grown to an estimated $259,340 by the end of 2019 (a return of 159.3 per cent),” SuperRatings noted.
“Similarly, the median growth fund would have risen to an estimated $264,208 (a return of 164.2 per cent).”
