AMP forecasts muted returns ahead for super funds

Reflecting on the events of 2023, AMP’s chief economist is predicting “a rougher and more constrained ride” for markets in the year ahead, with balanced growth superannuation funds potentially delivering single-digit returns.

AMP’s Dr Shane Oliver noted balanced super funds managed to return around 9.5 per cent despite bumps along the way in 2023, more than making up for the 4.8 per cent loss in 2022, as both shares and bonds rallied.

“2023 turned out to be a strong year for investors with shares and bonds rallying on the back of falling inflation, the anticipation of interest rate cuts in 2024 and better than feared economic growth,” he said.

“2024 is likely to see positive returns helped by falling rates but they are likely to be more constrained and volatile given risks around the timing of rate cuts, recession risks and geopolitics.”

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Looking ahead, he forecast balanced growth super funds to return around 5.3 per cent.

“Global shares are expected to return a far more constrained 7 per cent. The first half could be rough as growth weakens, but shares should ultimately benefit from rate cuts and lower bond yields and the anticipation of stronger growth later in the year and in 2025,” Dr Oliver said.

“Australian shares are likely to outperform global shares, after underperforming in 2023 helped by somewhat more attractive valuations. A recession could threaten this though so it’s hard to have a strong view.”

He warned investors to expect the ASX 200 to end 2024 at around 7,900 points, revised up from AMP’s initial target of 7,500.

Bonds could provide returns around running yield or a bit more, as inflation slows and central banks cut rates, but the chief economist held a less optimistic view for property.

“Unlisted commercial property returns are likely to be negative again due to the lagged impact of high bond yields & working from home,” Dr Oliver said.

“Australian home prices are likely to fall 3–5 per cent as high rates hit demand and unemployment rises. The supply shortfall should prevent a sharper fall and expect a wide dispersion.”

Rate cuts will help later in the year, he added, highlighting AMP’s view that the Reserve Bank of Australia (RBA) will cut the cash rate to 3.6 per cent in 2024.

AMP Super delivers strong 2023 returns

In the 2023 calendar year, three of AMP Super’s MySuper fund options delivered returns in excess of 11 per cent.

Members born in the 1970s with a balanced growth asset allocation saw returns of 11.6 per cent for the year ended 31 December 2023.

It is the fund’s largest cohort in terms of funds under management.

Meanwhile, members born in the 1980s and 1990s, with exposure to a higher growth asset allocation including shares, property, and infrastructure, saw returns of 11.8 per cent.

According to AMP’s chief investment officer Anna Shelley, the strong returns underlined the strength of its Lifestage MySuper offers for different generations.  

“The returns were driven by a strong rebound in global shares following a challenging 2022 for markets,” she said.

“Sharemarket gains were led by the US tech sector which benefited from positive sentiment around the future applications of AI. We also saw meaningful contributions from investments in Australian shares, global listed property and credit.”

Off the back of these results, AMP said it intends to stay the course of actively managing its portfolios to deliver strong returns. 

“We’ll continue to prudently and actively manage our investment portfolios for members, ensuring diversification across asset classes, with appropriate liquidity and exposure to both domestic and global market opportunities,” Shelley said.

“Strong and sustainable investment returns are critical to helping give our members financial confidence and security in retirement.”