The top Australian super funds of 2023 revealed
Super funds with aggressive growth strategies delivered the strongest returns
Super funds with aggressive growth strategies delivered the strongest returns
Impressive share market gains in 2023 boosted the performance of Australian superannuation funds last year. All-growth super funds primarily invested in Australian and international shares delivered an outstanding 13.1 percent return, while conservative super funds containing fewer shares and more defensive assets such as bonds and cash booked a respectable 6.2 percent return.
Chant West has released its annual review of superannuation funds and revealed the top 10 performing funds among those with the median growth strategy. Super investors can choose between several types of strategies depending on their risk tolerance and stage of life. Typically, young Australians may prefer higher growth strategies because they have a longer time horizon to grow their super and can therefore tolerate more risk. Older workers closer to retirement tend to prefer balanced or conservative strategies that aim to preserve capital and deliver lower-risk gains.
Chant West revealed the performance of five different fund strategies common among Australian superannuation funds. All–growth super funds, which comprise 96 to 100 percent growth assets such as shares, delivered a median 13.1 return for investors. High-growth super funds with 81 to 95 percent growth assets delivered an 11.4 percent return. Median growth funds with 61 to 80 percent growth assets delivered 9.9 percent. Balanced funds with 41 to 60 percent growth assets returned 8.1 percent and conservative funds with 21 to 40 percent growth assets returned 6.2 percent.
Chant West senior investment research manager Mano Mohankumar said share markets in Australia and overseas performed well in 2023 and this was the biggest factor in super funds’ gains last year.
Mr Mohankumar said: “International shares was the standout asset class with a tremendous 23 percent return over the year, led by the tech sector which benefitted from advancements in AI. While Australian shares didn’t reach the same level, it still delivered a healthy 12.1percent over the same period.”
Share market returns include share price growth or capital gains, as well as dividends. Defensive assets also provided solid returns last year, with Australian bonds delivering 5.1 percent, international bonds 5.3 percent and cash 3.9 percent.
The top 10 median growth super funds are listed below, with the returns shown being net of investment fees and taxes but before administration fees and financial advisor commissions.
Chant West said the 9.9 percent delivered by median growth funds erased their 4.6 percent loss in 2022. That was the first year in 11 years that median growth funds recorded a fall in value. Mr Mohankumar said super funds had proven their resilience and robustness, particularly during recent years amid a once-in-a-century pandemic, rapidly rising interest rates and a global economic slowdown.
He pointed out that over the long term, Australian super funds have delivered above-target outcomes. He said the typical long-term objective for growth funds is to beat inflation by 3.5 percent per annum, which translates to just over 6 percent returns. “Since the introduction of compulsory super, the annualised return is 7.9 percent and the annual CPI increase is 2.7 percent, giving a real return of 5.2 percent per annum – well above that 3.5percent target,” he said.
“Even looking at the past 20 years, which includes three major share market downturns – the GFC in 2007-2009, COVID-19 in 2020 and the high inflation and rising interest rates in 2022 – super funds have returned 7.3 percent per annum, which is still comfortably ahead of the typical objective.”
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New research suggests spending 40 percent of household income on loan repayments is the new normal
Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.
Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.
“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.
CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.
Sydney
Sydney’s median house price is $1,414,229 and the median unit price is $839,344.
Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.
Melbourne
Melbourne’s median house price is $935,049 and the median apartment price is $612,906.
Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.
Brisbane
Brisbane’s median house price is $909,988 and the median unit price is $587,793.
Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.
Adelaide
Adelaide’s median house price is $785,971 and the median apartment price is $504,799.
Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.
Perth
Perth’s median house price is $735,276 and the median unit price is $495,360.
Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.
Hobart
Hobart’s median house price is $692,951 and the median apartment price is $522,258.
Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.
Darwin
Darwin’s median house price is $573,498 and the median unit price is $367,716.
Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.
Canberra
Canberra’s median house price is $964,136 and the median apartment price is $585,057.
Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.
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