Most super fund members should be quite pleased with the returns their funds earned for the financial year just ended. So too will most retirees with pension plans and other investors with diversified portfolios set up by financial advisers.
The year turned out to be a good one for most people who invested beyond bank deposits. The average growth style portfolio earned 9.46 per cent. This is the most common investment approach of superannuation funds.
Super fund members can select their preferred investment option but those who don’t choose usually find the default option is a growth portfolio. Funds of that style have up to 70 per cent of their investments in growth assets such as shares and property both here and overseas.
At least 30 per cent is in defensive areas such as cash and fixed interest. Super funds pay a low rate of tax on their earnings so after-tax returns will be slightly below 9.46 per cent, probably around 8.7 per cent.
Investors who chose a more prudent approach with a maximum of fifty per cent growth assets earned 6.91 per cent. Conservative investors with only 30 per cent growth assets maximum earned 4.58 per cent. However people who chose a high growth option earned 12.26 per cent on average.
While the diversified fund averages were quite good they hid a wide range of returns from the investment sectors, clearly demonstrating the benefits of diversifying. Australian shares as measured by the All Ordinaries Index made 13.12 per cent for the year.
Small company shares didn’t do as well but were satisfactory at 7.01 per cent on average. Mining company shares were the standout performers with 21.57 per cent return for the year while energy stocks made only 6.7 per cent and the telecom average went backwards due to a drop in Telstra’s share price.
Looking overseas we saw international shares earn 14.73 per cent. If the portfolio was hedged to eliminate the effects of currency movements the return was an excellent 20.54 per cent. These figures again outpaced local shares showing the benefit of investing beyond local stocks.
We know that cash at bank earned around 2.5 per cent. Diversified fixed interest returned 2.83 per cent average. Inflation for the year was about 2.3 per cent though the exact figure isn’t available yet.
In the property sector we saw unlisted commercial property do well at 12.21 per cent. Global infrastructure was also strong with 13.42 per cent.
Australian stock market listed property funds had a bad year losing 5.64 per cent, though their five-year average still stands at 14.24 per cent per annum.