Geared super funds hit jackpot

Latest research shows that geared super funds enjoyed a stellar 2019 thanks to a bull run in financial markets.

According to new Rainmaker research, the top 10 geared retirement and superannuation funds achieved returns in excess of 50% in the 12 months to November 2019, as a bull run in financial markets and some fortunate timing propelled funds with additional financial exposure to the top of the performance tables.

Colonial First State options took out the first eight positions in the top 10, with the wealth manager's FirstChoice Wholesale Pension Geared Share option achieving a 68.6% net return for the 12 months to November. On a three-year basis, the fund returned 29.7%.

According to Colonial First State's website, the fund achieved a 61.75% return for the 12 months to 31 December 2019. Additionally, CFS's data also shows its Colonial First State Wholesale Geared Global Property Securities option registered a 69.55% return over the same period.

The first non-CFS option to feature in the top 10 was Suncorp's Brighter Super Pension Perpetual Wholesale Geared Australian Share option, which returned 52.1% and 20% across the one and three year timeframes.

Rainmaker head of superannuation research Jason Ross described the results as "fairly spectacular".

"Geared funds provide a far higher risk for investors. During bull runs these returns are exponential, essentially resulting in a compounding effect," Ross told Financial Standard.

However, Ross warned against getting too excited by the results, noting that during corrections or bear markets geared funds experience extremely low returns, with their negative returns also compounded.

He adds assumptions in valuation models have changed between the fourth quarter of 2018 and the fourth quarter of 2019.

"These performance figures are for a particular point in time corresponding with a correction in financial markets that occurred in the fourth quarter of 2018 following trade tensions between the US and China, and the fourth quarter of last year, which saw a bull run in financial markets," Ross added.

"In essence the 12 months figures correspond with a low point, and a high point in the market. Returns over 14 or 15 months would instead have very different values. Though for the period ending 31 December 2019, some of these funds continued to show returns over 50%."

Editor's note: In the interest of transparency, Jason Ross was employed as a senior product manager at Colonial First State prior to joining Rainmaker.

Read more: Colonial First StateRainmakerGeared super fundsJason RossCFSFinancial StandardFirstChoiceGeared superannuationSuncorpperpetual
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