Super fund returns dip under 10% for 2009-10 as report reveals best funds of the past decade

Sharp falls in global sharemarkets during the June quarter have resulted in average super fund returns dipping under the magical double figure mark, according to the latest data from SuperRatings.

Despite predictions that super fund returns for 2009-10 could be as high as 15%, weakness on Australian and overseas equities markets saw the average return from balanced super funds (the super fund option used by most Australians) slip to 9.79%.

But it wasn’t just weak sharemarkets that took a toll – super fund feeds also played their part too, according to SuperRatings chief Jeff Bresnahan. He says the median return from balanced funds was actually 11%, but the impact of feeds forces the actual result below 10%.

Still, the 2009-10 returns are a big improvement on the loss of 12.7% seen in 2008-09 and the loss of 6.4% experienced in 2007-08.

“Whilst not looking great on paper, in a relative sense balanced options have achieved what they set out to do, namely to prevent significant losses through diversification,” Bresnahan says.

“Over the last decade…balanced options have gained 4.5% per annum. So, despite not being handsomely rewarded for risk in relation to cash and inflation over the same period, balanced options have at least kept ahead of both of these investments and will continue to do so over the long term.”

However, SuperRatings’ data does demonstrate the impact that the GFC has had on longer-term super fund returns.

Rolling three-year returns have now dipped to 3.52% per annum, and the rolling 10-year return has now fallen to 4.5%.

Over a 20 year period, the rolling return rate increases to a much more respectable 7.2% per annum.

“That’s well ahead of the prevailing inflation and cash rates over the same period,” Bresnahan says.

SuperRatings has also released data showing the best performing balanced funds over the past decade:

The common thread is that all the top performers are industry funds, which are operated on an not-for profit basis and were traditionally attached to union bodies.

Bresnahan says the strong performance of the industry funds is down to two factors.

“The fact is they do charge lower fees, year in year out and they have also utilised unlisted assets to a much higher degree than retail funds.”