Industry vs retail super funds

Have you ever wondered why some super funds outperform others? Well, wonder no more as SuperRatings’ Jeff Bresnahan explains why industry super has come out on top.

There has been much conjecture around the differences between Not For Profit Funds (NFP), commonly referred to as Industry Funds, which are run for the profit of members, and Retail Master Trusts (RMT), which are typically provided by banks and financial institutions, and maintain a profit focus.

While most of these debates focus solely on the impact of fees on a member’s retirement outcome, it is also worthwhile to consider how they compare in terms of investment performance. Ultimately, it is the Net Benefit a member receives (calculated as the investment return net of all fees and taxes) that determines the true value for money of a fund.

Through SuperRatings’ research, it is evident that NFPs have typically produced stronger investment returns over the long term (10-year period), based on a Balanced Investment Option (with allocations to growth assets, such as shares and property, of between 60 and 76 per cent).

As illustrated in the table below, the average NFP fund achieved a return of 7.18 per cent per annum over the 10 years to 31 March 2015, compared with the average RMT fund of 5.71 per cent. In contrast, over the short term, RMTs have performed better than NFPs (13.67 per cent and 13.10 per cent over the one year to 31 March 2015, respectively).

1 Year to 31 March 2015

10 Years to 31 March 2015

Average NFP Balanced Investment Option

13.10%

7.18% per annum

Average RMT Balanced Investment Option

13.67%

5.71% per annum

The main factor driving the differential in performances is the different underlying investments that NFPs and RMTs typically use. RMTs have traditionally allocated a larger portion of assets to shares (both Australian and overseas) and listed property, while NFPs generally invest more heavily in unlisted investments, such as infrastructure, private equity and direct property.

The higher allocation to shares has undeniably assisted the performance of RMTs over the past year, with both Australian and international share markets delivering strong returns of 14.1 per cent and 29.7 per cent, respectively, well ahead of a number of the unlisted markets.

Over the long term, however, returns on Australian and international sharemarkets have been more subdued, given the impact of the Global Financial Crisis (GFC) affecting returns. Returns on unlisted assets were less adversely affected by the GFC and this helped drive the long-term outperformance of NFPs against their RMT counterparts.

In any case, superannuation is a long-term investment – primarily to support members’ retirement needs – where the investment performance cannot be considered in isolation.

Read more at Supersavvy.com.au

Read more at Superratings.com.au

Read more at Moneysmart.com.au

Written by Jeff Bresnahan



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