Industry funds outperform retail super funds for 2011/2012 year

Can you feel it? The warm breeze is the collective sigh of relief within the financial services industries that super fund returns are in the black – … well, okay, for most super funds, but not all funds.

The median growth fund delivered a return of 0.5% for the 2011/2012 year (compared with 9.2% for the 2010/2011 year and 10.4% for the 2009/2010 year), according to rating company, Chant West. A ‘median’ return is the return for the super fund in the middle of the list.

If you compare the investment performance of industry funds and retail super funds over the 2011/2012 financial year then industry funds come up trumps. Industry super funds delivered a positive return of 1.0% while retails funds on average suffered a loss of 0.2%, which works out to be a significant 1.2% difference in returns for the year.

More significantly, over the past 10 years, industry super funds have outperformed master trusts (retail fund sector) by a massive 1.4% a year, with industry funds delivering 6.1% a year on average, and retail super funds delivering 4.7% a year. If you look at total returns over the 10-year period to 30 June 2012, then industry funds have delivered 80.3% compared to 58.9% for retail funds, according to Chant West.

Industry super funds have benefited from their lower exposure to listed shares (52% compared with 56% for master trusts), says Chant West director, Warren Chant.

“Industry funds finished ahead of master trusts because, as a group, they tend to have lower allocations to listed shares. So in relative terms they do better when shares produce low or negative returns, as has been the case this year and for several years in the past decade. The corollary is that they also have higher allocations to unlisted assets such as private equity, unlisted property and unlisted infrastructure (20% versus 4%), which have performed relatively well for them.

“Over the longer term, the strategic allocation policies of industry funds have served them very well. In particular, those allocations to unlisted assets have added to performance and reduced volatility, or risk. They do mean slightly higher investment costs, but those extra costs have been more than justified by the added benefits,” says Chant.

The tables below list the top-performing super funds for the 2011/2012 year, and over a 7-year period.

Note: Based on Chant West’s rankings, a growth fund typically holds between 61% and 80% in growth assets such as shares and property. Some super funds may describe this type of asset allocation as a ‘balanced’ investment option, and this type of investment option is the typical default option for super funds (where you don’t actively choose your investment options for your super account).

Top 10 performing super funds for 2011/2012 year

So last year’s top performer can be this year’s dud, and vice versa. What then does this mean for anyone considering whether the super fund they have is the best-performing super fund over the long term?

Previously, Warren Chant has provided the following advice for super fund members: “From the member’s point of view, I think the message – now more than ever – is to keep an eye on your fund’s performance regularly, and at least every year. Don’t be too concerned if it underperforms in the short term, but if it consistently underperforms over a few years, try to find out why and maybe look at some alternatives.”

The top-performing super funds for the 2011/2012 year are listed in the table below, and 7 of the top 10 super funds are not-for-profit super funds (industry funds, public sector or company super funds). The performance data is based on Chant West figures, and the table ranking is based on individual investment options offered by a superannuation fund, and the investment options involved in the ranking process look after assets worth more than $500 million.

Source: Chant West, 25 July 2012 media release (www.chantwest.com.au)

*Performance is net of investment fees and taxes. It does not include administration fees or adviser commissions.

Top 10 performing super funds over 7 years – industry funds win

Industry super funds dominate in Chant West’s table for the top 10 performing super funds over 7 years with industry super funds taking 7 of the top 10 places, although a corporate super fund (run for the company’s own employees) tops the list – Commonwealth Bank Group Super Mix 70 – with an average annual return over 7 years of 6.0%.

Note: The cash rate for the same 7-year period is 5.5%.

Source: Chant West, 25 July 2012 media release (www.chantwest.com.au)

*Performance is net of investment fees and taxes. It does not include administration fees or adviser commissions. The table ranking is based on individual investment options offered by a superannuation fund, and the investment options involved in the ranking process look after assets worth more than $500 million.