For many people in Australia and around the world, 2023 was a year that had very little cheer. Whether it was conflict in the Middle East, floods in Australia, or continuing cost-of-living rises, bad news seemed to abound. But in among all that there was a nugget of good news. After a less-than-impressive 2022, 2023 saw a massive recovery in superannuation.
A release from financial services company Chant West showed an 8.8 per cent increase in the median growth fund return in 2023. The Sydney-based firm released the data just before Christmas, declaring 2023 had ended on a high with strong December results.
The impressive result was more than enough to offset superannuation losses sustained in the 2022 calendar year. Mano Mohankumar, Chant West’s senior investment research manager, said international share market growth was a key factor in the recovery. Australian shares also performed well, but the tech sector helped push international shares up by a whopping 22 per cent.
“While Australian shares haven’t reached the same heights this year, they’ve still delivered a solid 9.5 per cent over the same period,” he said.
Mr Mohankumar said news of these results was welcome for the many Australians who have had a difficult few years. “At a time when many Australians are feeling financial stress due to high inflation and high interest rates, the better-than-expected calendar year return will provide some good news,” he said.
“It’s a reward for super fund members who have remained patient and maintained a long-term focus.” The result was more than enough to “offset the entire 2022 calendar year loss of 4.6 per cent,” he said.
Inflation, interest rates and superannuation
Mr Mohankumar said indications of inflation slowing down was another driver. “In the month of November, the strong performance from share and bond markets was largely on the back of slowing inflation in the US and other regions,” he said. This further raised hope that interest rates may have reached their peak.
“Over [that] month, Australian shares surged 5.1 per cent,” Mr Mohankumar said. “International shares fared even better, returning 8.4 per cent in hedged terms.”
That increase was pulled back by a rising Aussie dollar in the same period. “The sharp appreciation of the Australian dollar over the month pulled back that return to 4.4 per cent,” he said.
Mr Mohankumar said Australian and international bonds also performed strongly, returning 3.0 per cent and 3.2 per cent respectively.
What does 2024 hold?
Despite the strong finish to 2024, Mr Mohankumar said a period of uncertainty lay ahead. “Despite this positive news, market volatility is unlikely to disappear given the uncertain backdrop,” he warned. Mr Mohankumar cited signs of slowing economic growth in the US, stubborn services inflation and geopolitical risks as potential hindrances.
“However, super fund members should take comfort in the fact that most Australians are invested in well-diversified portfolios,” he continued. These portfolios “have their investment exposure spread across a wide range of asset classes. That diversification helps provide smoother returns during periods of market volatility.”
Despite the uncertainty, the strong finish to 2023 has given Aussie superannuation members a positive start to 2024. The recovery from the 2022 also serves as reassurance that superannuation is a long-term game.
Did you keep a close eye on your superannuation in 2023? How did your funds perform? Let us know via the comments section below.
Also read: Superannuation system failing women and low-income earners, survey finds
