Why strong super gains are set to continue, for now

The typical super balanced investment option has maintained momentum following last year’s bumper return of 9.6 per cent, with a return of 1.8 per cent in February, following a return of 1.1 per cent in January.

However, with sharemarkets such as Australia’s and many developed-country markets, trading at or near record highs, returns could pull back.

Shane Oliver, chief economist at AMP, notes global shares have risen by more than 20 per cent from their lows in October last year to recent highs, with Australian shares rising by well into double digits over that time.

He is expecting a continuing rising trend this year in shares; though share prices remain vulnerable to a correction, or at least a period of consolidation.

It was only in 2022 that returns were last negative, when the typical balanced option in “accumulation” phase, where most people still working have their super savings, produced a 4.8 per cent loss, figures from SuperRatings show.

Much of the optimism on sharemarkets is being driven by the belief that interest rates will soon be on their way down, now that inflation is coming under control. While lower rates are positive for share prices, the risk is that higher rates could help induce slower economic growth.

Balanced options in the accumulation phase have produced an average annual compound return of 7 per cent over the 10 years to the end of February, and 6.7 per cent over 5 years.

Joshua Lowen, insights manager at SuperRatings, says the long-term results show how resilient super funds tend to be through market cycles. Allocations to shares constitute about 50 per cent to 60 per cent of the total exposures of balanced investment options.

That makes the performance of shares the main driver of returns over the longer term, with non-residential property, the next biggest driver, Lowen says.