The median superannuation growth fund gained 12.7% in value for the 2012 calendar year, and the median fund is sitting on a promising gain of 3.5% for the 3 months to December 2012, according to rating company Chant West.
Chant West director, Warren Chant says: “After the disappointment of 2011, when the median growth fund was down 1.9%, 2012 surprised on the positive side. Despite the global economic backdrop being shaky, to say the least, we saw excellent returns from Australian and international shares and, in particular, from listed property securities here and overseas. Those were the stand-outs, but in fact all asset sectors delivered positive returns for the year.
“Yes, the world is uncertain and markets are volatile, but the better funds are well diversified and have multiple sources of return. They don’t rely exclusively on share and property markets for growth. When those sectors perform well, as they did in 2012, that helps deliver the strong returns we’ve seen. When shares and property do less well, some of the other assets these funds invest in still produce positive returns that help cushion any falls. The moral is: When you’ve found a good, well-diversified fund, stick with it.”
Chant West reports this is the third positive calendar year return in the past 4 years and the eighth positive year in the past 10 years. Chant says: “Since the shock 21.5% loss in 2008 [calendar year], which came during the height of the GFC, growth funds have returned 7.3% per annum over the subsequent four calendar years. That’s a cumulative gain of 32.7%.
“With listed shares and property performing so well, those members in more growth-focused funds fared better in 2012. That should help drive home the message that it is dangerous to try to ‘time’ investment markets. If you’d got nervous at the end of 2011 after a negative year and with so much uncertainty in the air, you might have been tempted to switch to cash. If so, you’d have missed out on the bounce-back in growth markets and ended up considerably worse off, because cash produced the worst return of all asset sectors.”
Looking longer term, the median superannuation growth fund has returned 5.2% each year, on average, for the 3-year period to December 2012. A more depressing result is that the median growth fund has delivered a mediocre return of 1% each year, on average, for the 5-year period to December 2012, although it has delivered a middling 6.3% each year, on average, for the 10-year period to December 2012, according to Chant West.
Double-digit returns for 2012, for most investment options
Based on Chant West’s rankings, a growth fund typically holds between 61% and 80% in growth assets such as shares and property. A median is simply choosing the return for the fund in the middle of the list.
Although the term ‘growth fund’ covers those super funds with investment options having a 61% to 80% allocation to growth assets, some super funds describe the identical asset allocation as ‘balanced’ option. Chant West’s description of ‘balanced’ however is 41% to 60% in growth assets.
The returns for the ‘growth’ option were 12.7% for 12 months to December 2012, and a gain of 3.5% for the 3 months to December. The returns for Chant West’s version of ‘balanced’ option weree 10.7% for the 12 months to 31 December 2012, and a gain of 2.7% for the 3 months to December. You can find more detail on the investment returns for growth or balanced options in the table below.
The balanced/growth asset allocation is the default option for most large super funds which means that at least 80% of all super fund members have their superannuation money invested via a growth or balanced investment option. If you don’t actively choose your investment options for your super account, then your retirement savings will be invested in the default option.
If you do actively choose your investment option/s then your super savings may be invested in another type of investment option such as conservative or high growth.
The table below lists the performance figures for the five main asset allocations for: 3 months, Financial year to date (6 months), 1 year, 3 years, 5 years, 7 years, and 10 years.
|Diversified Fund Performance: Results to 31 December 2012|
|Fund Category||Growth Assets (%)||3 mnths (%)||FYTD (%)||1 Yr (%)||3 Yrs (% pa)||5 Yrs (% pa)||7 Yrs (% pa)||10 Yrs (% pa)|
|High Growth||81 – 100||4.1||9.1||13.9||4.5||-0.5||2.8||6.2|
|Growth||61 – 80||3.5||8.0||12.7||5.2||1.0||3.6||6.3|
|Balanced||41 – 60||2.7||6.5||10.7||5.6||2.5||4.0||5.9|
|Conservative||21 – 40||2.2||5.0||8.8||6.0||3.6||4.7||5.7|
Note: Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions. Negative returns appear as follows: -1.6% means a loss of 1.6%.
Source: Chant West 21 January 2013 media release (www.chantwest.com.au)
Industry funds outperform retail funds over the long term
According to Chant West, the growth investment options for master trusts/retail super funds outperformed similar investment options in industry super funds for the 12 months to 31 December 2012, with industry funds returning 12.4% compared with the larger return 13% delivered by master trusts/retail funds.
Over 10 years to the end of December 2012, industry funds outperformed master trusts by 1% per annum, returning 6.9% against 5.9%, according to Chant West, with industry funds outperforming retail funds 7 out of 10 years.
Note: If this discrepancy in returns were to occur over a longer period, then a member of a retail super fund would end up with a substantially smaller super benefit than the member of the industry super fund, assuming everything else was equal.
Chant West reports that the difference between industry funds and master trusts is highly correlated with the performance of listed share markets (Australian and international) with retail super funds holding 60% of funds in these asset classes, compared to industry funds holding 54%.
Warren Chant says: Chant says: “Over the longer term, industry funds have outperformed master trusts because, as a group, they tend to have lower allocations to listed shares. In relative terms they do better when shares produce low or negative returns, as was the case 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. 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.”