Low-cost super index funds again provide extra bang for buck as shares surge and private property battles

Low-cost index options continue to upstage the traditional balanced investment mixes offered by superannuation fund managers. In what SuperRatings described as a repeat of the prior year, index-focused funds starred in its list of balanced funds for 2023-24 as surged shares and COVID clouds continued clinging to office towers. SuperRatings said funds with higher exposures to shares again performed well, while those with the common balanced super buffer of unlisted property suffered subdued returns. As most traditional balanced investment options battled to achieve double-figure returns, Aware Super’s Future Saver index fund generated a bumper 12.9 per cent return in 2023-24. The indexed balanced options of industry funds Rest and Hostplus came equal second with 12.2 per cent, while the index choices at at Australian Retirement Trust and Brighter Super grew 12.1 per cent and 12 per cent respectively. By comparison, Australian Retirement Trust’s regular balanced option posted a relatively modest but highly respectable return of 9.9 per cent and Brighter’s equivalent generated 10.6 per cent for its savers. Unlisted assets can buffer funds against market fluctuations, something which can be good for reported returns when markets are falling and bad when shares are surging. The Australian Prudential Regulation Authority has warned super funds to closely scrutinise the value of their unlisted assets and to ensure they have robust and active valuation processes. Delayed processes can distort returns if savvy investors are able to switch out of unlisted assets before their fund has adequately adjusted their valuations. Index funds achieve with their target mix growth and defensive assets using listed shares, cash and externally-managed debt holdings. SuperRatings executive director Kirby Rappell said managing volatility was a key consideration for super funds and the need to consider the risk of falls had become more evident. “While this has meant some funds that were more defensively positioned didn’t benefit as much from this year’s share rally, having strong diversification supports smoother returns over the long term,” Mr Rappell said.