Aware Super delivered 10.7% to members sitting in its default investment option, while HESTA delivered a 9.59% return through its balanced growth investment option serving the majority of its one million members, at the end of the 12 months to June.
Despite the uncertain economic backdrop, many super funds posted similarly strong results via their default options such as Brighter Super (10.62%), the Australian Retirement Trust (10%), Cbus (8.95%) and AustralianSuper (8.22%). The returns were largely driven by strong equity market performance.
More interest rate-sensitive markets like bonds, property and infrastructure struggled to make gains as inflation remained stubbornly high and central banks kept raising rates. But despite the challenging economic environment, financial markets remained resilient, according to Jeff Brunton, head of portfolio management at HESTA.
“Company earnings held up, tech stocks rebounded sharply, and while US and European banks were volatile in March, Australian banks were unaffected given their stability and capital strength, but have lagged the move higher in Australian equities,” Brunton told AsianInvestor.
The strong performance of the $48 billion super fund industry was helped by solid returns in global and Australian equity markets.
“Key to our FY23 numbers was not getting out of equities too early and missing the rally, particularly in Australian shares. We also had many of our investment partners in Australian and International equities providing good alpha contributions over the year,” he said.
Brunton and his team did observe potential concerning scenarios where the economy could enter rough patches both in Australia and particularly in the US, he said.
“While we were concerned, we never had a strong signal to sell our equity weight definitively, and we were able to capture the fact that equity markets had a reasonably buoyant year,” Brunton said.
INFRASTRUCTURE AND PROPERTY
Although share markets had a strong recovery after a lacklustre first quarter, unlisted assets, such as infrastructure and property also had an impact, according to Aware Super’s head of investment strategy Michael Winchester.
“We took the view some years ago that there was significant growth potential in industrial and logistics property and increased our exposure accordingly. That’s certainly been beneficial for returns. Infrastructure has also performed well,” Winchester told AsianInvestor.
“We’ve been investing in some compelling core-plus assets such as land titles, registries, digital infrastructure and renewables, and they’re delivering strong results for our members,” he added.
Aware Super also pivoted away from some struggling sectors throughout the financial year, such as the US office market, and into industrial and living markets.
“Returns in some parts of the office market have been challenged as work patterns have changed since the pandemic. The industrial sector, on the other hand, has gone from strength to strength, as reflected in the strong returns we’ve achieved on our investment in Aeria Management Group, the operator of the Aeria precinct at Bankstown Airport, and of Camden Airport, in Western Sydney,” said Winchester.
“Our build-to-rent and other assets in the living sector have also been resilient.”
As the economic outlook remains uncertain in the year ahead, Brunton discussed how HESTA plans to maintain its performance.
“More recently equities valuations have got to the point where we needed to trim some of our positions, and we switched that money into cash and bonds. We have added duration risk to our portfolios and plan to add back some credit risk in private credit,” said Brunton.
Looking ahead, the big issue is interest rates and finding the neutral level in Australia and offshore, he said.
“We’re likely to see further rate rises in Australia and the US. At some point, there is a risk that central banks will get rates to a restrictive level whereby the economy slows more quickly,” said Brunton.
“We will continue to closely monitor markets and apply our disciplined investment processes.”