the ABCs of choosing a Superfund (Part 2)

In Part 1, I talked about the type of superfund,  the return target and the level of risk taken.  Part 2 is about performance and fees.

3. Performance -  The median MySuper Balanced Option returned over 10% last year, how did your superfund compare to this? Although "past performance is not a reliable indicator of future performance", it still is AN indicator. The chart below shows the median, top and bottom quartile performance for the default MySuper Balanced Option of all superfunds over various periods to 30 June 2017. The yellow dots represent the median.

                              Source: SuperRatings. Rolling returns to 30 June 2017. 

Last financial year was a strong performing year, with global equities delivering circa 15% and Australian equities close to 14%.  With most Superfunds investing broadly between 55% - 70% in Equities (in the Balanced Option), its no wonder that the median Balanced Option delivered over 10% for the year. The 10 year return numbers are the weakest, as it is impacted by the GFC.

In an earlier post, I talked about Industry vs Retail superfunds. We’ve all seen the classic ads on TV, comparing the super balance of Mr X with an Industry superfund and Mr Y with a Retail fund.  So is it true, does Mr X retire with more money in his pocket? Here’s the performance results comparing the median Industry superfund vs median Retail superfund (as represented by master trusts), again focusing on the default MySuper Balanced Option.  

                             Source: SuperRatings. Rolling returns to 30 June 2017. 

As you can see, Industry superfunds have outperformed Retail funds over a number of periods.  So all else equal, looks like Mr X is going to retire richer.   That's not to say that this trend will always be the case.  Historically, Industry superfunds have tended to hold more real assets (Property and Infrastructure), whereas Retail funds have held more Equities.  Over the last few years there have been periods where Equities have crashed (e.g. the GFC which is reflected in the 10 year return numbers), but core real assets have been more resilient. But with the tailwind of the record low interest rate environment possibly leaving us, who knows whether this will be the case going forward?

I've done a bit of a deeper dive and shown the performance of the largest 25 Options (based on data as at 30 June 2017 reported to SuperRatings).

                            Source: SuperRatings. Rolling returns to 30 June 2017. Where data is not available at the time of writing, it is denoted by "-"

If you look at the weaker performing superfunds e.g AMP, Commonwealth (red and orange numbers), quite often they are Retail superfunds.  

4.  Fees -  This is somewhat painful, but important too.  At the end day, you want bang for your buck, and the fees you pay will make a difference.  Take time to read through the Product Disclosure Statement (PDS) and make sure you understand everything you are paying for i.e. investment fees (including base and performance), admin fees and insurance etc.  

Of course cheaper fees do not mean the best option, and most people are happy to pay a higher fee for a better return. There are a number of funds that have neatly packaged cheap Options, but that's because most of the Option is invested in passive investments (more on active vs passive in a later blog).  So check to see what the underlying investments are, and that the Option is diversified across asset classes.

The following table shows the same top 25 Superfund Options by size, and the reported fees on a $50,000 balance (as at 31 March 2017, the latest available data reported to APRA).  Just note that APRA is continually changing the rules around how superfunds must disclose fees (if you ever feel bored look up RG97 fees) so the fees disclosed by superfunds may change in the next few years.

                                       Source: SuperRatings. Rolling returns to 30 June 2017. Where data is not available at the time of     writing, it is denoted by "-"


Unfortunately there are a number of fees not provided, but you may be able to work this out by working through all the fees disclosed.  


I have had a few specific requests from people to comment on Spaceship, so I had a look a quick look at the PDS, and the fee for an average balance of $50,000 was $878, roughly double the fees disclosed by the funds above.  Based on this fee, you would have to be pretty confident that the fund's tech stocks are going to sky rocket your returns into the stratosphere.  

That's it for very high level overview of how to choose a superfund! Remember individual circumstances will determine what is suitable for you as this is only a guide of what to look out for and is not in any way financial advice.  Please conduct your own research and consult your financial planner.  Happy researching!