Super funds deliver double-digit returns, but experts warn of tougher times ahead

Australian super funds notched a third consecutive year of strong returns, with the median balanced option delivering an estimated 10.1 per cent over the 2024-25 financial year, but an economist has warned that the rally may be harder to sustain as key risks gather pace.

SuperRatings estimates the median balanced super option returned 1.4 per cent in June, lifting the financial year gain to 10.1 per cent – a result shaped by strong early momentum followed by heightened volatility as Donald Trump returned to the US presidency.

Namely, while funds delivered a return of 8 per cent in the first seven months of the financial year, this fell to as low as 0.8 per cent following Trump's "Liberation Day" before rebounding to finish the year above 10 per cent, buoyed by strong share markets.

“We saw exceptional volatility in returns over the year, particularly following the announcement of US tariffs in early 2025, however the benefit of staying the course was once again proven as a quick rebound has resulted in the third double digit return year over the past decade," said executive director of SuperRatings Kirby Rappell.

The median growth option returned an estimated 1.5 per cent over the month, and 11.3 per cent over the year, while the capital stable option returned 0.9 per cent and 7.3 per cent, respectively.

Touching on market performance, SuperRatings highlighted the ongoing dominance of tech stocks driven by broad investment in AI and a positive outlook for cryptocurrency, which has fuelled growth in supporting infrastructure such as electricity generation and supply. Locally, the research firm flagged the strong performance of the financial sector, driven by bank shares – the CBA in particular.

“Overall it’s been another fantastic year for Australians' retirement balances and members should celebrate these returns," Rappell said, but warned that expectations that similar returns will continue in coming years should be tempered.

AMP chief economist Shane Oliver said the latest returns underscore how markets have once again defied expectations, climbing a “wall of worry” over the past 12 months as inflation fell, rate cuts resumed, and recession fears faded.

“The last year has seen investment markets climb another wall of worry, ending with strong returns for diversified investors,” Oliver said.

Global shares returned 13.8 per cent in local currency terms, with the weakening Australian dollar pushing that to 18.6 per cent for domestic investors.

Australian equities matched the global pace with a 13.8 per cent return, buoyed by falling rates, and outperformance by several sectors including IT, financial and telcos. Australian real estate investment trusts returned 14 per cent, while bonds also posted solid gains.

Meanwhile, national home prices rose 3.4 per cent, driven by continued strength in Perth, Brisbane, and Adelaide.

This positive market sentiment led super funds to their third straight year of strong (9-10 per cent) returns since the 2022 inflation shock.

However, looking ahead, Oliver flagged several risks that could test market resilience, as a result of which he expects returns to come in around 6-7 per cent over the next 12 months.

Topping Oliver’s list of concerns is the potential escalation of US tariffs, with the chief economist warning that “Trump’s tariff threat is at high risk of flaring up again” especially as the 9 July pause deadline approaches.

“More trade deals may soon be announced but the 20 per cent tariff agreed with Vietnam does not augur well and that or even higher could become the norm for some, including Europe and Japan. The 10 per cent general tariff on Australian goods is likely to stay,” Oliver said.

Meanwhile, concerns over the sustainability of US public debt are re-emerging, particularly as Trump’s “One Big Beautiful Bill” tax package passes into law – an event that Oliver said could keep deficits near 7 per cent of GDP.

“This in turn could accelerate the decline in the $US and put upwards pressure on US bond yields. Any move by Trump to undermine the Fed’s independence could accentuate this,” he said.

Geopolitical tensions also remain elevated, Oliver highlighted, noting that while the Iran conflict involving Israel and the US quickly fizzled, markets remain on edge over unresolved threats, including US-China tensions and the ongoing war in Ukraine.

Moreover, he highlighted the issue of shares being overvalued, noting that US shares remain expensive, driven by a narrow rally in AI-related stocks, while Australian shares screen moderately overvalued.

By contrast, European equities offer relatively better value, though Oliver warned valuations have historically been a poor predictor of near-term returns.

Overall, valuations coupled with fiscal uncertainty make for an environment conducive to a high likelihood of market volatility in the months ahead, Oliver said, adding that August and September are typically weaker periods for equities.

“Another 15 per cent or so correction is possible,” the chief economist said.

He, however, added that while the near-term outlook for shares is still messy, shares should benefit on a 6-12 month view as Trump pivots towards more market friendly policies, the Fed starts cutting rates from September, and other central banks including the Reserve Bank continue to cut rates.