investor daily logo

Super funds tipped to reach double-digit returns

By Cameron Micallef
3 minute read

Superannuation funds have continued their rebound from the COVID crisis and are on track to make double-digit returns, a research house has reported.

Research released by Chant West showed that growth funds – those with between 61 and 80 per cent in growth assets – were up 2.2 per cent for the month of April.

The strong April numbers bring total returns for the 10 months of the financial year to 14.7 per cent, increasing the likelihood of double-digit returns.

Balanced funds or those with between 41-60 per cent in growth assets saw a 1.7 per cent increase in share price for the month of April.

Chant West senior investment research manager Mano Mohankumar said double-digit returns would have been inconceivable a year ago at the start of the pandemic.

“Should growth funds finish the year at or around the end-April level, it would represent the highest annual return since 2012-13 when they surged 15.6 per cent,” he explained.

“They’ve shown their resilience – as we saw last financial year when they limited the COVID-induced damage to post a small loss of 0.6 per cent – and now they’ve shown their powers of recovery.”

However, the strong gains have come off the back of strong falls in the March quarter last year, with the COVID-19 pandemic seeing the ASX lose over a third of its value in a matter of weeks. 

The strong recovery in sharemarkets was the main driving force behind the increase in value for superannuation funds, with Mr Mohankumar noting Australian shares were up 3.7 per cent, while international shares grew by 4.1 per cent for the month of April 2021.

“In the US, the vaccine rollout gained further momentum, with about 70 per cent of Americans now having had at least one shot of the vaccine.

“Markets were also boosted by some improving economic data and by President Biden following up his $1.9 trillion fiscal stimulus package with a proposed $2 trillion in infrastructure and manufacturing subsidies,” Mr Mohankumar said.

Domestically, Mr Mohankumar pointed to optimism in the Australian market following controlling the COVID-19 virus as well as domestic travel opening up. 

“Domestic borders are all open, and just yesterday we saw the resumption of quarantine-free travel to and from New Zealand courtesy of the new trans-Tasman travel bubble. There have been reports of Australia and Singapore planning a travel bubble, too, subject to progress on vaccinations. There was further positive news during the quarter with a better-than-expected company earnings reporting season,” he said.

The research manager also noted that despite market falls, the industry as a whole remained above its long-term objectives. 

“Since the introduction of compulsory super in 1992, the median growth fund has returned 8 per cent p.a. The annual CPI increase over the same period is 2.4 per cent, giving a real return of 5.6 per cent p.a. – well above the typical 3.5 per cent target.”

“Even looking at the past 20 years, which now includes three major sharemarket downturns – the ‘tech wreck’ in 2001-2003, the GFC in 2007-2009 and now COVID-19 – the median growth fund has returned 6.8 per cent p.a., which is still well ahead of the typical return objective,” Mr Mohankumar concluded.