Superannuation funds deliver 9.1 percent return for FY24
International shares were the biggest contributor to surprisingly strong gains
International shares were the biggest contributor to surprisingly strong gains
Strong share markets in Australia and overseas drove better-than-expected returns for superannuation growth funds in FY24, according to Chant West. The median growth fund, which comprises 61 percent to 80 percent growth assets likes shares, returned 9.1 percent in FY24. This was virtually a mirror performance of FY23 when the median superannuation growth fund returned 9.2 percent.
Chant West Senior Investment Research Manager, Mano Mohankumar, said FY24 was the 13th positive year for superannuation returns over the past 15 years. “The return experience over the past two years in the face of much uncertainty is another reminder of the importance of remaining patient and maintaining a long-term focus,” he said. “… FY23 kicked off amid surging inflation and uncertainty around when interest rate hikes might come to an end. At that time, I don’t think anyone could have forecast a 19 percent return over the subsequent two years and the small FY22 loss of 3.3 percent now seems like a distant memory.”
Mr Mohankumar said international shares were the biggest contributor to superannuation returns in FY24. As a group, international shares soared by 21.5 percent. The growth of overseas stock values was led by the American technology sector, with Magnificent Seven member Nvidia once again delivering astounding share price gains of 192 percent in FY24. Australian shares delivered total returns of 11.9 percent (including dividends) over FY24.
All major asset classes except unlisted property delivered positive returns in FY24, according to Chant West’s data. Australian listed property outshone international real estate with an impressive 23.8 percent return in FY24. International listed property returned 4.6 percent. High interest rates saw cash investments return a median 4.4 percent. Australian bonds returned 3.7 percent and international bonds returned 2.7 percent.
Unlisted property was dragged down by the office sector, with revaluations of buildings trending lower now that more people are working from home permanently following the pandemic. This has affected the demand for office space worldwide. In Australia, the average office occupancy rate is 76 percent of pre-pandemic levels, while US occupancy rates are about 50 percent, according to CBRE research.
Superannuation funds that had a higher allocation to shares and other growth assets outperformed the funds with balanced and conservative strategies, which are popular with pre-retirees. ‘All growth’ superannuation funds, which have a 96 percent to 100 percent allocation to growth investments, delivered a median 12.7 percent return in FY24. Balanced funds, which have a 41 percent to 60 percent allocation to growth assets, returned 7.4 percent. Conservative funds, which have just 21 percent to 40 percent in growth assets and higher allocations to defensive investments such as bonds, fixed income and cash, delivered 5.5 percent.
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When will Berkshire Hathaway stop selling Bank of America stock?
Berkshire began liquidating its big stake in the banking company in mid-July—and has already unloaded about 15% of its interest. The selling has been fairly aggressive and has totaled about $6 billion. (Berkshire still holds 883 million shares, an 11.3% interest worth $35 billion based on its most recent filing on Aug. 30.)
The selling has prompted speculation about when CEO Warren Buffett, who oversees Berkshire’s $300 billion equity portfolio, will stop. The sales have depressed Bank of America stock, which has underperformed peers since Berkshire began its sell program. The stock closed down 0.9% Thursday at $40.14.
It’s possible that Berkshire will stop selling when the stake drops to 700 million shares. Taxes and history would be the reasons why.
Berkshire accumulated its Bank of America stake in two stages—and at vastly different prices. Berkshire’s initial stake came in 2017 , when it swapped $5 billion of Bank of America preferred stock for 700 million shares of common stock via warrants it received as part of the original preferred investment in 2011.
Berkshire got a sweet deal in that 2011 transaction. At the time, Bank of America was looking for a Buffett imprimatur—and the bank’s stock price was weak and under $10 a share.
Berkshire paid about $7 a share for that initial stake of 700 million common shares. The rest of the Berkshire stake, more than 300 million shares, was mostly purchased in 2018 at around $30 a share.
With Bank of America stock currently trading around $40, Berkshire faces a high tax burden from selling shares from the original stake of 700 million shares, given the low cost basis, and a much lighter tax hit from unloading the rest. Berkshire is subject to corporate taxes—an estimated 25% including local taxes—on gains on any sales of stock. The tax bite is stark.
Berkshire might own $2 to $3 a share in taxes on sales of high-cost stock and $8 a share on low-cost stock purchased for $7 a share.
New York tax expert Robert Willens says corporations, like individuals, can specify the particular lots when they sell stock with multiple cost levels.
“If stock is held in the custody of a broker, an adequate identification is made if the taxpayer specifies to the broker having custody of the stock the particular stock to be sold and, within a reasonable time thereafter, confirmation of such specification is set forth in a written document from the broker,” Willens told Barron’s in an email.
He assumes that Berkshire will identify the high-cost Bank of America stock for the recent sales to minimize its tax liability.
If sellers don’t specify, they generally are subject to “first in, first out,” or FIFO, accounting, meaning that the stock bought first would be subject to any tax on gains.
Buffett tends to be tax-averse—and that may prompt him to keep the original stake of 700 million shares. He could also mull any loyalty he may feel toward Bank of America CEO Brian Moynihan , whom Buffett has praised in the past.
Another reason for Berkshire to hold Bank of America is that it’s the company’s only big equity holding among traditional banks after selling shares of U.S. Bancorp , Bank of New York Mellon , JPMorgan Chase , and Wells Fargo in recent years.
Buffett, however, often eliminates stock holdings after he begins selling them down, as he did with the other bank stocks. Berkshire does retain a smaller stake of about $3 billion in Citigroup.
There could be a new filing on sales of Bank of America stock by Berkshire on Thursday evening. It has been three business days since the last one.
Berkshire must file within two business days of any sales of Bank of America stock since it owns more than 10%. The conglomerate will need to get its stake under about 777 million shares, about 100 million below the current level, before it can avoid the two-day filing rule.
It should be said that taxes haven’t deterred Buffett from selling over half of Berkshire’s stake in Apple this year—an estimated $85 billion or more of stock. Barron’s has estimated that Berkshire may owe $15 billion on the bulk of the sales that occurred in the second quarter.
Berkshire now holds 400 million shares of Apple and Barron’s has argued that Buffett may be finished reducing the Apple stake at that round number, which is the same number of shares that Berkshire has held in Coca-Cola for more than two decades.
Buffett may like round numbers—and 700 million could be just the right figure for Bank of America.
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