The Rainmaker Default MySuper Index is set to post 2020-21 financial year returns of 18%, after all fees and taxes.
The only time superannuation annual returns have beaten this was just before the 1987 stock market crash. Returns in the 1986-87 financial year peaked at 19%, only marginally ahead of this year's results.
Driving returns were the 33% financial year return from listed property, 28% from both Australian and international shares and 20% from global infrastructure.
Offsetting this were lacklustre financial year returns of 3.6% from unlisted direct property, 0.2% from international bonds, 0% from cash, and -0.8% from Australian bonds.
"These returns mean Australia's 13.5 million super fund members earned $520 billion in investment earnings in the past 12 months, or almost $39,000 each," said Alex Dunnin, executive director of research and compliance at Rainmaker Information.
To get a sense of how large these investment earnings are, Dunnin said "this is three-times the amount of all the money everyone contributed into their superannuation accounts through the year, six-times the amount of all the compulsory Superannuation Guarantee contributions or 17-times what was paid in fees."
Terrific returns from Australian and international shares and listed property, asset classes more favoured by retail super funds than not-for-profit (NFP) super funds, explains why the retail superannuation segment is now outperforming.
"Reinforcing this, unlisted and direct property, being an asset class that has generally been the backbone of why NFP funds have performed so strongly over the long-term, has delivered only meagre returns this financial year," said Dunnin.
These same factors explain why the Rainmaker Lifecycle MySuper Index is outperforming the Rainmaker Single Strategy MySuper Index to the end of May 2021.
Lifecycle products are those that invest default superannuation differently depending how old the member is. Young members aged in their 20s to 40s typically have most of their superannuation invested into shares and property. Single strategy products are those that invest your default superannuation the same way regardless of your age, usually into balanced-growth diversified portfolios.
Despite record MySuper returns, the ESG outperformance seems to have halted.
"Up until February this year, Rainmaker's ESG superannuation indexes were regularly outperforming the standard indexes by at least 1% p.a. But now the situation has reversed. By 31 May 2021, the Rainmaker Diversified ESG Superannuation Index was tracking 1.6 percentage points behind the standard index over the 12 month period," said Dunnin.
With MySuper returns so high right now, these differences may seem minor. However, what is troubling is that both the Australian shares MSCI Australia ESG Leaders index and the international shares MSCI ACWI SRI (ESG) index are marginally outperforming the regular stock market.
"Super fund ESG investment managers seem to right now be under performing some of the major ESG capital market benchmarks. As important as ESG is, the primary job of super funds will always be delivering the maximum investment returns they can," said Dunnin.
Despite this, Rainmaker found that overall, super funds are on average outperforming their capital market indexes in international shares, property and fixed interest. They are under-performing on average in Australian shares.
"Super funds seem to be addressing their under-performance problems just at the right time," said Dunnin.
FUA in managed accounts platforms has continued its rapid growth, increasing by almost 50% p.a. in the last three years.
Australian retirees used to overwhelmingly favour retail superannuation funds. Not anymore.