Geopolitical tensions and economic shocks have posed a considerable challenge for share markets. Despite these choppy waters, superannuation has continued to deliver healthy returns for members, writes Chant West’s Mano Mohankumar.
Super funds have delivered their fourth consecutive financial year of better-than-expected performance despite ongoing challenges posed by war and trade instability.
The median growth fund’s 9.5 per cent return for FY26 backs up the 9.2 per cent, 9.1 per cent and 10.4 per cent returns achieved in FY23, FY24 and FY25. These remarkably consistent results have powered the cumulative return over the past four financial years to 44.0 per cent.
Despite the up-risking of members in lifecycle strategies over the past five years, the majority of fund members are still invested in options that hold 61-80 per cent growth assets. Those who sat tight through the recent trials and tribulations have been well rewarded for their patience.
It’s a testament to the resilience of the super system, and the sophistication of individual funds’ investment strategies, that performance has been maintained notwithstanding ongoing wars, global supply chain disruption, soaring energy prices, tariff confusion and trade tensions. Against that backdrop, Australia has also experienced persistent inflation, stagnant productivity, interest rate rises and higher energy costs, all of which have dampened consumer confidence.
‘Technology titans’ propel performance
The strong financial gains seen through FY26 were primarily driven by international shares’ robust returns – 22.7 per cent in hedged terms, and 14.9 per cent unhedged.
While the broad share market indices all rose, this masks the uneven dispersion of returns across regions and sectors. Most of the gains stemmed from the development of artificial intelligence (AI), which has become the dominant theme behind investment market performance.
To date, the main beneficiaries have been the hyperscalers and the enabling hardware industries including semiconductor manufacturers, memory producers, power infrastructure and data centre supply chains. These industries have captured a significant share of the hyperscalers’ rapidly expanding AI-related capital expenditure.
While there have been concerns expressed about the valuations of these companies, what we’re seeing is very different to the dot-com era. Today’s technology titans are delivering real earnings and real earnings growth. In good news for active managers the market is also getting deeper, with the upcoming IPOs of businesses including Anthropic and OpenAI.
The past few years have been particularly challenging for active management due to the concentration of share markets, but these new listings – and others in the pipeline – may present more opportunities for active managers to add value.
Smaller AI exposure weighs on Australian markets
Australian shares lagged their international peers over FY26 with a return of 6.2 per cent. This underperformance extends back over the past 10 years, albeit not to the same extent. The underperformance over the past year is largely explained by our much lower exposure to the AI/technology theme and subdued earnings growth.
The Australian market is highly concentrated, with Financials (mainly the big four banks) and Materials (mainly the global miners) accounting for nearly 60 per cent of the index. While strong commodity prices provided momentum for the major miners, banks and other consumer-facing sectors were generally flat to negative.
Diversification also added value over the past year. The traditional defensive sectors of bonds and cash contributed little to portfolio returns in FY26, so exposure to unlisted assets continued to prove worthwhile. It’s important to remember that unlisted property and unlisted infrastructure exposures are in part bond replacement assets in super fund portfolios.
Unlisted property (6.7 per cent) and unlisted infrastructure (8.5 per cent) delivered meaningful returns, easily surpassing Australian bonds (1.5 per cent), international bonds (2.9 per cent) and cash (3.9 per cent). And while private equity (10.1 per cent) lagged international shares, it significantly outperformed their Australian counterparts.
