Strong year for super funds as banks, AI boost returns
By John Collett
Workers’ retirement savings have been boosted by a strong financial year for super funds, with SuperRatings estimating the median performing “balanced” option returned 8.8 per cent for the financial year just ended, largely down to the strong performances of US tech stocks and Australian banks.
REST’s Andrew Lill says exposure to US tech stocks has helped its flagship Core Strategy Option to post good returns. Credit: Natalie Boog
Kirby Rappell, the executive director of SuperRatings, says that similar to the previous financial year, international shares were the best performer with a return of 17 per cent, as the rapid developments in artificial intelligence saw the share prices of a relatively small number of US tech stocks hit the stratosphere.
They include members of the “Magnificent 7”, such as Nvidia, whose share price in US dollars rose about 200 per cent over the 12 months to June 30, 2024, and Meta, whose share price rose about 70 per cent higher over the same period.
Australian shares also made a strong contribution to returns, with a return of about 11 per cent for the sector. Big bank stocks posted strong gains.
Andrew Lill, chief investment officer of REST, one of the largest not-for-profit super funds, says companies with strong balance sheets, higher profitability and strong earnings have achieved considerable gains despite inflation remaining “sticky”.
“Our exposure to these higher-quality companies, such as many of the Magnificent 7 tech stocks at the forefront of artificial intelligence development, and our decision to stay fully invested in listed equities has been strongly rewarded,” he says.
REST has about $4.5 billion invested in the Magnificent 7 through its Core Strategy option – the fund’s default option where the vast majority of members have their money.
The Core Strategy Option returned almost 8.7 per cent for the 12 months to June 30, 2024 and has produced an average annual compound return of almost 8.3 per cent since its inception 36 years ago.
REST’s returns would have been even stronger, but its property exposure, like that of other super funds, was a drag on overall performance.
“Parts of the commercial property sector have had a challenging year due to stubbornly high inflation and subsequently higher interest rates”, Lill says.
“We do, however, continue to see the property asset class as an important diversifier for achieving long-term resilient returns for our members.”
Super funds have lots of investment options, including those that invest in a single asset class, but most fund members, still working, have their retirement savings with their funds’ balanced option.
Balanced options spread the money between asset classes, but their single largest exposure is to shares – typically about 55 per cent.
SuperRatings’ Rappell says some fund members may be tempted to switch to one of their fund’s options that has a higher exposure to shares.
“However, risks remain, particularly around the trajectory for inflation in Australia and geopolitical factors, such as ongoing wars and the upcoming presidential elections in the United States,” he says.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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