Superannuation members invested in lifestage funds and aged between 40 and 50 have produced an outstanding 12-month return on retirement savings according to the latest super fund analysis.
Rainmaker research shows lifestage (also lifecycle) MySuper returns for 40-year-olds have outperformed single strategy MySuper products in the 12 months to June 2017. On average, MySuper lifestage products for people in their 40s returned 11.6% compared to 10.8% for single strategy products.
The top performing lifestage fund for this age bracket was the Local Government Super High Growth option, returning 14% during the period. Also inside Rainmaker's top five were AMP Simple Default Fund MySuper 1970s (13.6%); Telstra Super Corporate Plus MySuper Growth (13.3%); Colonial First State FirstChoice Lifestage 1970-1974 (12.7%); and First State Super Employer - Growth (12%).
Colonial First State said the majority of its MySuper members received a return of about 13% for the 2016-17 financial year. It added that super members who took on greater investment risk were well rewarded.
Colonial First State head of investments Scott Tully said: "In the last 12 months, growth assets have performed very well with market returns in the double digits. Defensive asset classes such as fixed interest added little to portfolio returns due to increases in long term interest rates."
"Consequently we have added alternative investment strategies to our defensive asset allocation with the aim of reducing the dependence on interest rates," Tully said.
The super fund's views on growth assets is one shared by Rainmaker. In the researcher's latest benchmarking report it notes strong annual investment performance "has largely been driven by strong performance in growth assets."
"Listed equity markets both domestic and international have returned more than 15% in the 12 month period to June 2017, while global infrastructure and direct property not far behind. In the same period fixed interest portfolios have averaged around 1% and less for Australian only fixed interest," Rainmaker head of superannuation research Stephen Fay said.
Telstra Super chief investment officer Graeme Miller said: "In the last 12 months, investment conditions for shares turned out to be very favourable - with low interest rates, strong labour markets, and economic growth picking up in most major economies. The best performing assets in our portfolio were international shares."
He also said that "assets are now generally quite expensive and therefore we're not anticipating returns for the next financial year to be as strong as they were in 2017."
Rainmaker notes that current market dynamics play out differently for each default lifestage option depending how they have been constructed. What's also important is the whole of life return for a member of a lifecycle MySuper product will encompass both the growth asset phase and the de-risking lower growth asset phase.
"A commentary of superannuation returns that ignores the complexity of lifecycle funds does not tell the whole story especially when life stage options, in 2017 at least, have had such a strong year," Fay said.
Colonial First State's Tully said: "Ideally, superannuation members should take the time to understand their super fund's investment strategies however we know that practically, that doesn't happen."
"That's why FirstChoice Lifestage aligns the underlying investment portfolios with the age of our members to better meet their needs. Our younger members have higher exposure to growth assets compared to our older members, aligning portfolio risk with members' risk capacity," Tully said.