After April’s nail-biting ASX wipeout, following “Liberation Day” levies on United States trading partners, super funds delivered yet another cracking FY25 result, after the median growth fund was up 2.7% in May while markets continued to rise in June.
Numbers released by superannuation research firm SuperRatings yesterday revealed that the median balanced fund - with between 60% and 76% of balances exposed to shares and other growth assets - is estimated to have returned 10.1% in FY025, after adding 1.4% in June.
The third double-digit return for Australian super funds in the past 10 years is attributed to gains by big U.S. tech companies and Australia’s banks, notably Commonwealth Bank (ASX: CBA).
Funds held their nerve
According to Chant West’s Senior Investment Research Manager Mano Mohankumar, the super fund sector’s ability to repeat similar returns to those delivered over the past two years highlights the importance of super funds patiently holding their nerve amid the chaos.
What super funds clearly didn’t do, adds Mohankumar is get caught up in the short-term noise that threatened to leave superannuants underwater only three months ago.
Unless you haven’t been following, you’ll know that the 8% gain for the first seven months of the financial year to 31 January crashed to just 0.8% by early April, courtesy of U.S. President Donald Trump’s tariff mayhem.
According to Aware Super’s head of investment strategy Michael Winchester, the super fund sector’s ability to end the year with double-digit returns – after April's Lazarus-like dip – is a tribute to the sector’s resilience in the face of the market's disarray.
Market gyration since the beginning of the year, adds Winchester, brings home the importance of looking through the noise.
He reminds investors that while the market went to hell in a handbasket back in April, for the most part the long-term picture didn’t really change.
Winchester sees that pattern repeating over the next 12 months.
Seize opportunities when markets fall
But rather than damaging confidence when it comes to making long-term investments, particularly in illiquid markets, Winchester says the trick is to seize opportunities in public markets when stocks sell off or when uncertainty peaks.
“If you’re able to figure out what the impact is likely to be on growth and earnings, it can give you the confidence to step in and buy like we did in April,” said Winchester who’s Aware fund returned 11.9% in its default high growth option this year, its third consecutive year of double-digit returns.
“A lot happens, but if you look through the noise, for the most part the long-term picture doesn’t really change.”
Despite the market delivering a rollercoaster of news media headlines over the past 12 months, Winchester reminds the market at S&P500 volatility has largely been business-as-usual, with returns surprisingly faring somewhat better.
Given that the macro and geopolitical environment is rapidly evolving, he says funds can’t expect to sit on their hands if they want to continue generating double-digit returns.
“Uncertainty is what’s certain now… the Trump administration is clearly very unpredictable and will continue to wield trade policy as a blunt instrument to fulfill domestic political objectives,” he noted.
“But things usually settle down in a way where the settlement is worse than we would’ve liked but a lot less than we would’ve feared”.
Meanwhile, what Winchester and his Aware investment team are currently trying to get their heads around - courtesy of Trump’s wrecking ball approach to trade - is the growing realisation that the U.S. dollar is not the safe haven it once was.
“We’ve seen that in the return of the US dollar-weighted index, which is down about 12-13% since the Trump inauguration,” Winchester said.
“That is something that’s unusual and we’re spending a bit of time thinking about what that means for our hedge ratios.”
Don’t set and forget
Despite super funds having averaged 10.5% over the past three years - well above the 10-year average of 7.9% - SuperRatings executive director Kirby Rappell reminded superannuants to regularly review their investment settings in light of increased risk.
“Despite the strong performance over the past three years plenty of risks remain,” he said.
“Geopolitical tensions and cost of living pressures haven’t disappeared, and we suggest members remain alert to market conditions and review their longer-term settings, such as whether they are in the most appropriate investment option for their situation,” he said.
Meanwhile, AMP Capital chief economist Shane Oliver warned superannuants to be wary of changing to more conservative investment settings after equities have been hit, urging adherence to “sound long-term investment principles”.
