In 2023-24, two of Australia’s largest retail superannuation funds outperformed the sector, delivering returns exceeding 11%, fueled by a surge in technology stocks. This success came as their industry fund counterparts struggled to counteract declining unlisted asset prices.
Colonial First State and AMP saw their financial year returns surge to 12.1% and 11.1% respectively in their default MySuper options, benefiting from heavy exposure to global equity markets. This contrasted sharply with industry fund giant AustralianSuper, which posted a more modest 8.5% return.
AMP’s Chief Investment Officer, Anna Shelley, increased the fund’s exposure to global equities late last year, betting on the resilience of the US market. In contrast, AustralianSuper’s CIO, Mark Delaney, attributed their lower returns to a defensive strategy earlier in the year, with an underweighting in equities proving costly.
The rise of US-listed chipmaker Nvidia, which became the world’s most valuable company in June amid the AI technology boom, significantly boosted returns. Meanwhile, unlisted property markets continued to decline, with both Shelley and CFS CIO Jonathan Armitage noting their funds’ low exposure to commercial real estate as a strategic advantage.
SuperRatings estimated that the median balanced super fund returned 8.8% for the financial year, slightly up from 8.5% last year. During the same period, the S&P/ASX 200 returned 7.8%, and the S&P 500 delivered an impressive 22.7%.
Global Equities Drive Returns
“Global equities were a key driver of our returns,” Shelley said. “We’ve been overweight because we believed that economic conditions, particularly in the US, were more robust than many anticipated. This wasn’t necessarily a bet on AI or tech stocks specifically, but rather a belief in supportive underlying economic conditions.”
Shelley highlighted that earlier pessimism about US and European economic conditions turned out to be unfounded, benefiting their strategy.
Shares Trump Unlisted Assets
While unlisted assets weighed on AMP’s overall returns, their low exposure to property helped mitigate the impact. Historically, industry funds’ bias towards unlisted assets has cushioned against sharemarket volatility but now poses challenges due to shifts to online shopping and flexible work trends.
The regulator has been pressuring funds to improve their unlisted asset valuation practices to better manage diversification and liquidity risks.
“Office property was a key weakness last year, but our lower weighting in this area compared to industry super funds helped,” Shelley noted. AMP’s strategy also included exiting underperforming assets, such as hedge funds, over the past three years.
Armitage pointed to the strong performance of technology stocks as a major contributor to CFS’s returns. “But it’s not just been tech – strong returns from a wide range of stocks, including luxury goods and healthcare, have also played a significant role,” he added.
Further Declines in Unlisted Property Expected
Armitage and Shelley both anticipate continued declines in commercial real estate valuations. However, they remain poised to take advantage of any opportunities that may arise.
Chant West predicts that the value of most super funds’ unlisted property portfolios will fall in the high single digits this financial year, despite significant reductions in property values last year.
AustralianSuper’s Delaney acknowledged the fund’s low property exposure but noted difficulties across all segments and markets in 2023-24. The fund’s defensive stance over Christmas, reducing listed market exposure in favor of cash and fixed income, limited its ability to capitalize on the surge in global equities.
Other super funds showed varied performances, with Rest Super delivering 8.67% in its default MySuper option, HESTA at 9.1%, and the Australian Retirement Trust outperforming with 11.3%.
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