Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 317

Did your super do better than this in FY19?

Most Australians hold their superannuation in funds selected by their employer. Although the default process faces criticisms and members are generally disengaged, it produces excellent results.

For the first time ever, according to Chant West, institutional super funds delivered a 10th consecutive positive financial year return, with the median growth fund up 7% last financial year. Growth funds have a 61% to 80% allocation to growth assets, although there is some debate about the accuracy of this categorisation. The average return over 10 years has been a healthy 8.8% pa. The funds are unlikely to achieve anywhere near that level in the next decade.

No one way to produce the best results

Surprisingly, the top two funds over one year, QSuper and UniSuper, manage vastly different portfolios, and they are both in the top few over a more meaningful 10 years, as shown below. Chant West’s Senior Investment Manager, Mano Mohankumar, said:

“QSuper, like most not-for profit funds, has a meaningful allocation to unlisted assets such as property, infrastructure and private equity. However, where its strategy is unique is that it further smooths out returns for members by investing significantly less in listed shares than other funds. Against that, it maintains a significant allocation to long duration bonds which carry sharemarket-like risk but are a better diversifier against sharemarket falls than traditional bonds.

UniSuper, in contrast, has a strong focus on listed assets. Unlike most other not-for-profit funds, it has very little invested in unlisted assets. Instead, it prefers to gain its exposure to property and infrastructure by taking large stakes in high quality listed companies. UniSuper believes that taking this listed market route has enabled it to be opportunistic in building a portfolio of higher quality property and infrastructure assets at attractive prices.”

It is estimated that 93% of Unisuper’s assets are listed securities available to anybody. How did your portfolio perform relative to these large funds? (results are net of investment management fees).

Top 10 performing growth funds, one year to 30 June 2019 (%)

Source: Chant West, red line is survey median.

Top 10 performing growth funds, 10 years to 30 June 2019 (%)

Source: Chant West, red line is survey median.

The table below shows performance by fund category. While 2% makes a material difference in a superannuation balance over 15 years, the ‘All Growth’ fund long-term return of 7.8% is only 2% higher than the conservative fund, although the latter’s result is aided significantly by falling bond yields.

Diversified fund performance to 30 June 2019

Source: Chant West.

In the last 27 years, as shown below, growth funds have delivered negative returns in only three years including the two years of the GFC. The last decade has been wonderful for super fund members, and the long period of strong returns suggests growth rather than defensive is worthwhile over multi-decade investment horizons.

Source: Chant West.

Australian shares managed funds results

Turning to managed fund results as reported by Mercer, the table below compares the Top 10 in Australian shares (ranked according to their one-year results) out to 5 year performance. It is evidence that fund managers should not be judged on short-term numbers. For example, the top fund over one year, the Martin Currie Australian Real Income Fund, was 108th out of 142 over 3 months and 99th out of 121 over 3 years. But its 5 year number was also strong.

The table also shows:

  • In the last year, the median manager (up 9%) has significantly underperformed the S&P/ASX300 index (up 11.4%) but they were much closer over 5 years with the median at 9.5% and the index at 8.9%. However, the results are before management fees so the median manager would struggle to match the index.
  • Although a challenge for any investor, picking the top fund manager versus the bottom produces a major result difference. For example, the top fund over 5 years was Selector High Conviction Equity Fund at 19.2% while the bottom quartile delivered only 8.7%. With each quartile holding 26 managers in the 5 year numbers, that’s a lot of talented fund managers delivering poor long-term results.

 

Graham Hand is Managing Editor of Cuffelinks. This article is general information and does not consider the circumstances of any investor.

 

13 Comments
Warren
August 11, 2019

Karen, GESB aims to provide on its website all the information that a member needs to evaluate the range of investment options that are offered. GESB doesn’t subscribe to Chant West, so doesn’t appear in their performance tables.

Although the Board and Investment Committee (on which I sit) isn’t all that interested in short term peer comparisons, I can’t let Steve’s throwaway remark stand. “Modest” is a subjective term, so let me share some facts.

The GESB Super Growth Plan over 2018-19 year returned 7.5% after fees – which would place it above median, but just outside the top 10 in the chart. Over the 10 years the net return was 9.5% per annum, which would place GESB in the top 10.

As a member of GESB’s investment committee, I’m reasonably satisfied with those numbers, but not because they seem to line up well in an arbitrarily defined category in a table of several superfunds. Rather, it’s because they deliver solidly against the return objectives that we indicate to members we’re seeking to provide.

Returns data across the range of funds can be found here: https://www.gesb.wa.gov.au/members/investment-and-performance/performance/investment-returns/gesb-super

Geoff
August 09, 2019

Why did the CFS Wholesale Diversified fund not make the list? Their website is showing a return of 8.71% for the 12 months to June.

Hamish
August 04, 2019

Thanks for your article. Can you please elaborate on your comment in the second paragraph… “The funds are unlikely to achieve anywhere near that level in the next decade.”
Thanks

Graham Hand
August 04, 2019

Hi Hamish, a few points. Average returns for the last 10 years for ‘growth’ funds with 61 to 80% allocated to growth assets:

1. The bond allocation has done well with falling interest rates. With cash at 1% and 10 year bonds at 1.25%, how much further can they fall to generate capital gains (or income).

2. Equity markets at all-time highs a decade after the 2008-2008 GFC.

3. Valuations are high and while these levels do not tell you when the market will fall, they do indicate future returns will be lower.

I’d say 5% over the next decade will be a good result.

raymond
August 04, 2019

just to answer the question in the headline: yes. My SMSF increased 14% last financial year and 17% the year before. And that’s after brokerage, auditing, life insurance and all the other unnecessary costs that we are burdened with.

SB
August 04, 2019

Yes, mine is invested in only aust shares and cash and returned 66% in FY19.

Bill
August 04, 2019

Interesting how some of these ‘balanced’ industry funds hold up to 70-80% growth assets.

I wonder if members are aware of the higher underlying risks contrary to what the ‘balanced’ option implies?…. ‘Only when the tide goes out do you discover who’s been swimming naked.’

Joel
August 04, 2019

Some of the funds in the top 10 hold 90% growth assets, but this is depends on your definition of “growth”. Let’s just say that to call them “defensive” instead might be misleading.

Graeme B
August 04, 2019

Not a lot of us who didn’t beat the market are going to respond I suppose. It is probably vulgar to talk money but if I can shout or whisper I believe I did. Admittedly by taking a higher level of risk than the fundies could get away with.

Joel
August 04, 2019

What I find interesting is that all of the funds in these “best of” league tables still underperform the growth (i.e. 70%) multi-sector index! This is despite them having more than 70% growth as well (QSuper possibly excepted) over these periods. Even if you take a multi-sector index fund which is net of fees (which are low), there is still underperformance.

Everyone is battling it out to second best. It will be interesting to see if indexing continues to outperform over the next 10 years.

karen staniforth
August 04, 2019

Why do we never see performance figures for GESB Weststate/GESB Superannuation products? I would like to know how GESB is rated amongst other Superannuation Funds. Thankyou

Steve
August 04, 2019

You can find their results at their website (if you look right now). You will discover that their returns were modest for the past 12 months.

Steve
August 04, 2019

It is interesting to note that all of those fund members who rolled all of their super funds into HostPlus last year, simply because financial journalists & book authors sang their praises as Super fund of the year, only to discover that HostPlus didn’t even make it into the Top 10 funds for 2019.

Of course, no Statements of Advice were supplied to these fund members explaining why it was in their best interest to do so. It’s a good business selling books to the masses.

 

Leave a Comment:

     

RELATED ARTICLES

Super performance based on fund size, risk and unlisted assets

The 'Contrast Principle' used by super fund test failures

Is this really the best way to remove the super underperformers?

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

The greatest investor you’ve never heard of

Jim Simons has achieved breathtaking returns of 62% p.a. over 33 years, a track record like no other, yet he remains little known to the public. Here’s how he’s done it, and the lessons that can be applied to our own investing.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

Latest Updates

Shares

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Property

Baby Boomer housing needs

Baby boomers will account for a third of population growth between 2024 and 2029, making this generation the biggest age-related growth sector over this period. They will shape the housing market with their unique preferences.

SMSF strategies

Meg on SMSFs: When the first member of a couple dies

The surviving spouse has a lot to think about when a member of an SMSF dies. While it pays to understand the options quickly, often they’re best served by moving a little more slowly before making final decisions.

Shares

Small caps are compelling but not for the reasons you might think...

Your author prematurely advocated investing in small caps almost 12 months ago. Since then, the investment landscape has changed, and there are even more reasons to believe small caps are likely to outperform going forward.

Taxation

The mixed fortunes of tax reform in Australia, part 2

Since Federation, reforms to our tax system have proven difficult. Yet they're too important to leave in the too-hard basket, and here's a look at the key ingredients that make a tax reform exercise work, or not.

Investment strategies

8 ways that AI will impact how we invest

AI is affecting ever expanding fields of human activity, and the way we invest is no exception. Here's how investors, advisors and investment managers can better prepare to manage the opportunities and risks that come with AI.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.