The top-performing growth classified fund over the year was UniSuper Balanced, which returned 18.4 per cent, while the worst recorded return in the growth category still topped double digits at 10.5 per cent.
The average “growth” fund return was 14.7 per cent with all returns provided net of fees and taxes, but before administration costs and adviser commissions.
Over the quarter ending December 31, 2018, the average growth fund declined 4.6 per cent as equities tumbled on fears the US Federal Reserve would continue an aggressive interest rate-hiking program.
However, over the long term the greater risk associated with having more exposure to equities via growth or balanced superannuation funds has produced superior returns compared to conservative funds.
Over the past 10 years, the top-performing “growth” fund is Hostplus Balanced, which has returned 9.2 per cent annually, with AustralianSuper Balanced second at 9 per cent and UniSuper Balanced third at 8.9 per cent.
Overall, growth funds have now delivered positive returns in 10 of the past 11 years.
Funds categorised as conservative in their investment approach that have between 21 to 40 per cent of their investments in growth assets returned 8.3 per cent on average over the past year.
Over the past five years conservative funds have returned just 5 per cent a year on average, compared to 8 per cent for a growth-classified fund or 9.5 per cent for a high-growth fund that has up to 100 per cent of its investments in growth assets.
Chant West’s research also shows how retail investors are now being pushed into “lifecycle” super products that automatically adjust allocations to growth assets depending on an investor’s age.
Anyone born in the 1970s or afterwards would have an allocation around 88 per cent to growth assets. Australians born in the 1960s, 1950s and 1940s would have about 67 per cent, 47 per cent and 43 per cent respectively allocated to growth assets.
“While our growth category is still where most people have their super, a meaningful number are now in so-called ‘lifecycle’ products,” says Mano Mohankumar of Chant West.
“Most retail funds have adopted a lifecycle design for their MySuper defaults, where members are allocated to an age-based option that is progressively de-risked as that cohort gets older.”
Chant West says that most not-for-profit superannuation funds still use traditional growth classified funds as their default option, but lifecycle is the most common default option in the MySuper sector.
In the not-for-profit or industry sectors, members will voluntarily switch to lower-risk categories as they get older and prefer to focus on income and capital protection over growth.
The risk versus reward trade-off is exaggerated when sharemarkets hit their straps, as those who were overly defensive in their approach at too early an age tend to lose out on capital growth.