Best super fund returns in 15 years

Published on
May 31, 2021
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Best super fund returns in 15 years

The Rainmaker MySuper Index returned 20% in the 12 months ending March 2021, the highest one-year rolling return since April 2006.

The superannuation performance surge is happening because it was in March 2020 when the market bottomed, following the Feb-Mar 2020 COVID plunge.

Nevertheless, the MySuper index has climbed only half compared to what the ASX has.

"Driving the spectacular one-year performances were huge 12-month returns from the Australian shares, international shares and listed property fund sector indexes of 38%, 24% and 29% respectively," said Alex Dunnin, executive director of research at Rainmaker Information.

Over the longer term, MySuper index returns were a more measured 7.3% p.a. over three-years, 8.1% p.a. over five years and 7.7% p.a. over 10 years.

Australia's top performing single strategy MySuper products over the 12-month period were Hostplus, UniSuper, AMG Corporate Super, AustralianSuper and TWUSuper.

"Covid is an awful pandemic and for many Australians it's exacting a terrible price, but at least Australians can be rest-assured their super funds are doing their job and delivering for them."

Single strategy vs lifecycle

The default MySuper sector that holds $800 billion in superannuation, holding two-thirds of all superannuation accounts, comprising two segments: single strategy and lifecycle.

Single strategy MySuper products invest members' money the same way regardless how old they are. Lifecycle products invest members' money differently depending on how old they are, which in practical terms means when members are young they are more heavily invested into more aggressive strategies like shares but as members get older they are switched across to more conservative strategies like bonds and cash.

Three-fifths of MySuper assets are held in single strategy products and two-fifths are held in lifecycle products.

High returns from shares and property have enabled the MySuper Lifecycle Index to surge ahead of the MySuper Single Strategy Index during the past 12 months. Lifecycle is ahead in five of the seven age cohorts, meaning it is only members in their 50s and older who, on average, are currently getting better returns in single strategy MySuper products.

BT Life Stages has held top spot as Australia's most consistently best performing lifecycle MySuper product over the 12 months to end March 2021.

Highest to lowest

Despite the strong performance of capital markets and high returns being delivered from the MySuper indexes, there is still a huge variation in the returns being posted by Australia's MySuper products.

While the highest performing MySuper single strategy product delivered 23%, the lowest performer delivered less than half being just 11%. All single strategy products, however, delivered double digit positive returns.

Not-for-profit vs. retail

Because retail MySuper products tend to hold higher allocations to shares, the Retail MySuper Index outperformed the not-for-profit MySuper Index.

"The out-performance is a whopping 5.1 percentage points over the 12-month period, which is a record-breaking segment out-performance margin," said Dunnin.

Asset class performance

Australian and international equities and property were the highest performing superannuation asset class sectors for super funds. Fixed interest and cash were the lowest performing.

But compared to the headline asset class indexes, super funds have been found to be, on average, delivering lower returns than the index in Australian shares and property, but above-index returns, on average, in international shares and fixed interest bonds.

Even though these benchmark asset class index returns are before fees and taxes, superfunds should still be aiming to get ahead of them. After all, that's why most super funds use active investment managers and charge their members investment fees.

This means that super funds added value in international shares and bonds, but detracted value in Australian shares and property. Put another way, only 44% of MySuper assets are in asset classes where super funds added value in the past 12-month period.

"This under-performance in some asset classes reinforces why the government has pushed the superannuation regulator to introduce the performance test starting later this year," said Dunnin.

Super funds on average beat their index by 6.3 percentage points in international shares and by 2.5 percentage points in fixed interest bonds.

But in Australian shares they underperformed the index, on average, by 2.0 percentage points, and by 7.4 percentage points in property.

"Super funds' underperformance in property was in large part due the 0% index return from unlisted property," said Dunnin.

"Super funds unable to consistently beat their asset class indexes will be under a lot of pressure to review their investment strategies, remove under-performing investment managers and switch to indexing. Doing so may, ironically, not only boost their returns but see their fees go down."


Surging share markets have seen the 'ESG performance effect' take a breather.

While over the past year and a half the Rainmaker ESG superannuation performance indexes have outperformed the regular indexes, in the 12 months to end March 2021 they under-performed.

The Rainmaker ESG Diversified Index under-performed by 1.4 percentage points and the Rainmaker ESG Equities Index under-performed by 0.8 percentage points.

"ESG investments, as a group, are still performing strongly but whether or not a fund follows ESG investment principles, it will still be judged by the returns it delivers and the financial best interests it delivers to its members," said Dunnin.

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