Long-term super returns soften blow of ‘highly unusual’ 2022

Superannuation trustees have consistently achieved above-target returns to members over the longer-term despite four major market shocks in the last 20 years.

According to the latest research from analytics firm Chant West, the median growth super fund delivered an annualised return of 7.8% since the superannuation regime was established in July 1992.

Trustees delivered average returns exceeding the consumer price index (CPI) by approximately 5.2% — 1.7% ahead of the typical return objective of 3.5% above CPI.

When assessed over the past 20 years — which included the ‘tech wreck’ in 2002-2003, the GFC in 2007-2009, COVID-19 in 2020, and the recent inflation-induced downturn in 2022 —super funds achieved average annualised returns of 7.2 %.

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Moreover, median growth funds exceeded return objectives over rolling 10-year periods, except the decade between mid-2008 and late-2017 — characterised by the 16-month-long GFC, during which growth funds lost an average of 26%

“Most importantly, members should take comfort in the fact that funds are continuing to meet their long-term return objectives – and they’re doing so by a comfortable margin,” Chant West senior investment research manager, Mano Mohankumar, observed.

The above-target performance of super funds over the longer-term has helped offset recent weakness, with the 2022 calendar year recording negative returns (-4.6%) — the first time since 2011 and only the fifth time in 30 years.

However, this had come off the back of strong returns in 2021 (13.5%).

According to Mohankumar, the 2022 calendar year was “highly unusual”, with all traditional listed asset sectors (except cash) closing the year in the red.

International shares fell 16.4% in hedged terms, driven by an 18% slide in US markets. The impact on Australian shares was subdued, with returns slipping 1.8 %.

Meanwhile, Australian and global real estate investment trusts (REITs) took the biggest hit, falling 20% and 24.1%, respectively amid rising interest rates.

Weak bond yields compounded the poor underlying result in 2022, with Australian bonds and international bonds down 9.7% and 12.3%, respectively.

“What made the year even more challenging was that bonds didn’t play their usual cushioning role.,” Mohankumar said.

“It’s highly unusual for both shares and bonds to fall over a full year but that’s what happened in 2022.…”

But, overall, Mohankumar said the result provided cause for optimism.

“Despite all this, the median growth fund was down less than 5% – not a bad result at all,” he said.

“That’s mainly because most major funds now invest far beyond the traditional asset sectors, with meaningful allocations to private equity, unlisted property and unlisted infrastructure which all delivered positive returns over the year."