Super funds sail through the storm in 2023

Despite returns swinging between positive and negative throughout the year, super funds delivered strong returns for members over 2023, boosted by a share rally in the final quarter of the calendar year. The median Balanced option reported a 2.7% return in December, and 9.6% for the full 2023 calendar year, fully recovering the -4.8% loss from the previous year.

The median growth option returned 3.0% in December and 11.0% over the year, while a smaller allocation to shares resulted in the median capital stable option returning 2.0% for the month and 6.5% across the year.

International shares have been the standout performer over the year, led by strong growth in technology shares. Returns were also strongly supported by Australian shares and further bolstered by rising cash rates improving fixed interest and cash returns.

Funds have also delivered for members over the longer term. An investment of $100,000 in the median balanced option 10 years ago would now be worth $189,005 while investing in the median growth option would now be worth $201,539. Members who invested in cash would have $117,637.

The highest SuperRatings Balanced Index returns over the year was 13.2% for members in the Hostplus – Indexed Balanced option, closely followed by Brighter Super Optimiser Accumulation – Multi-Manager Growth Fund returning 13.1% while ESSSuper – Balanced Growth completes the top 3 returning 12.8%.

Superannuation remains a long-term investment for most, with many members having several decades of returns before retirement. It is therefore important to remain focused on longer term returns, with the top performing funds over 10 years listed below.

The Hostplus – Balanced option remains the top performer over the long-term, with an average annual return of 8.3%, and is the only fund in our index with a higher than 8% annual return over 10 years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With shares driving most of 2023’s returns, passive investment options, where a fund tracks a specified index, performed well over the year. The table below displays the top 10 passive fund returns over 2023 and over 5 years, with most of these options having been available within superannuation for a shorter length of time.

 

 

As we have seen MySuper offerings develop in recent years, it is also worthwhile to note that lifecycle funds had a strong year. These funds reduce members exposure to growth assets, generally from around age 45-55, and therefore have a higher exposure to growth assets than Balanced options. With growth assets performing well, these options have done well for members in 2023.

We have taken a representative cohort below, showing the returns expected to have been realised for younger members (<45 years old) in these products.

The table above shows that we are seeing greater levels of competition across the market, which is a good thing for consumers. While we have seen mixed outcomes for lifecycle since 2014, it is pleasing to see the renewed competition coming to market for default members in these solutions. Generally, these funds have higher allocations to listed equities, which has supported their performance outcomes in 2023.

While we see inflation slowing into 2024, as the impact of the interest rate rises throughout 2023 softens consumer demand, we expect to see continued ups and downs, as markets remain sensitive to local and global events. The new year is a good time for members to consider the level of ups and downs they are willing to tolerate and do a health check on their fund across performance, fees and insurance.

2023 was another eventful year for Australia’s superannuation members, with funds navigating a range of market environments and shocks as well as ongoing and expanded scrutiny of how well their investments are performing.

We have seen a slowing of funds merging and investment menus consolidating with a significant number of funds now well into their journey towards realising merger benefits and, hopefully, being able to pass those back to members through better servicing and investment performance. In our latest review we rated over 400 superannuation products. Our product ratings are accessible on our website here.

SuperRatings Executive Director Kirby Rappell said, “Members are likely pleased with this year’s performance, with most seeing a full recovery from last year’s losses. Long term strategy and high levels of diversification continue to result in impressive long-term performance by those managing our retirement savings. As we look ahead to what 2024 might bring for super fund returns, ongoing uncertainty means it remains important to set a strategy and stick with it despite the potential for periods of falling balances.”