Super funds had a tremendous month in November with the median growth fund (61 to 80% in growth assets) up 2.5% for the month, benefitting from buoyant share markets led by the US market following the Republican party’s clean sweep victory. Taking into consideration market movements over December so far, with less than two weeks of the year remaining, Chant West estimates that the median growth fund return for CY24 is sitting at an impressive 11%. While markets are unpredictable, a strong result is likely and that would represent the 12th positive return out of the last 13 years.

Chant West Senior Investment Research Manager, Mano Mohankumar, says that strong share markets have been the main driver of the excellent CY24 return so far, in particular international shares which are up more than 20% this year. “Growth funds, on average, have 30% invested in international shares and 25% allocated to Australian shares. While not reaching the same heights, Australian shares have still delivered about 13%. The other point to note is that all other asset classes, with the exception of unlisted property, have produced positive returns for the year so far. Given the strength of share markets over the year, super fund members in higher risk portfolios would have fared even better.

“This year’s growth fund result would follow the better-than-expected return for CY23 of 9.9%, making the modest loss of 4.6% in CY22 seem like a distant memory. More importantly, super funds continue to meet their long-term return and risk objectives,” he said.

Chart 1 plots the year-by-year performance of the median growth fund over the previous 31 full calendar years since the introduction of compulsory super in July 1992, as well as the 2024 calendar year-to-date estimate. It shows that super funds have delivered on their risk and return objectives over the long term. Since the introduction of compulsory super, the median growth fund has returned 7.9% p.a. The annual CPI increase over the same period was 2.6%, giving a real return of 5.3% p.a. – well above the typical 3.5% target. Even looking at the past 20 years, which includes three major share market downturns – the GFC in 2007-2009, COVID-19 in 2020, and the high inflation and rising interest rates in 2022 – super funds have returned 7.2% p.a., which is still comfortably ahead of the typical objective.

“On the risk side, there have only been five negative years over the entire period, which translates to less than one year in every six. Again, funds have done better than their typical long-term risk objective which is one negative return in every five years, on average,” said Mohankumar.

The table below compares the median performance to the end of November 2024 for each of the traditional diversified risk categories in Chant West’s Multi-Manager Survey, ranging from All Growth to Conservative. All risk categories have generally met their typical long-term return objectives, which generally range from CPI + 1.5% for Conservative funds to CPI + 4.25% for All Growth.

Chart 2 below shows that for most of the time since compulsory super, the median growth fund has exceeded its return objective over rolling 10-year periods, which is a commonly used timeframe consistent with the long-term focus of super. The exceptions are two periods between mid-2008 and late-2017, when it fell behind. This is because of the devastating impact of the 16-month GFC period (end-October 2007 to end-February 2009) during which growth funds lost about 26% on average.