Fifteen superannuation funds have been singled out as the most consistent out-performers across all categories and market cycles over the past two decades – and the most likely to thrive in booms and busts to come.
A major new analysis by former Macquarie chief investment officer Craig Swanger mapped the typical multi-year data used by research houses and the Australian Tax Office’s YourSuper comparison tool against historical data covering cycles from 2002, including the global financial crisis and numerous property, infrastructure and bond market blips.
The analysis weeded out chronic under-performers and selected 15 out of more than 350 funds as members of the “Fierce Performers Index”, deemed as having the best chance of performing well in the future and being an appropriate choice for most Australians.
“The fierce performers outperformed across all categories: diversified, Aussie equities, global equities, index, lifecycle and ethical – every single one,” said Mr Swanger, who is now co-founder and “investments guru” at Super Fierce, a start-up providing digital financial advice to women.
The 15 funds were (in alphabetical order) Australian Retirement Trust (QSuper and Sunsuper), AustralianSuper, Care Super, Cbus Super, Energy Super, Equipsuper, HESTA, Hostplus, Vision Super, Mercy Super, MyLifeMyMoney Super (formerly Catholic Super), NGS Super, Public Service Super, Qantas Super and UniSuper. Australia Post Super Scheme received an honourable mention but is now part of Australian Retirement Trust.
The index’s release comes as the market waits for final 2021-22 financial year super fund league tables to be made public, after researchers Chant West and SuperRatings projected a median loss in balanced funds of between 3 and 4 per cent.
But Mr Swanger said the methodology used by most research houses, and the government’s official YourSuper portal, are flawed because they measure by the arbitrary construct of periods ending on June 30.
This also makes league tables susceptible to “gaming” by funds – a widely-acknowledged problem whereby funds re-rate the value of their unlisted assets just in time for the critical deadline.
“The problem with most rankings is that they use a blunt single period of time – one year, 3 years, 5 years, 7 years, 10 years – but every single one of those period ends on the same date,” he said.
“Unless you have a DeLorean, you can’t invest at a certain date in the past. You can only invest in the future ... Looking at various historical periods gives you the best chance of selecting a fund that will perform well in whatever conditions might occur over the next 20 or 40 years.”
From the group of 15 top funds that comprise the index, Super Fierce’s automated advice software recommends one based on the personal circumstances of the customer, such as age and income.
For example, AustralianSuper’s high-growth fund was ranked first for a 30-year-old female with a $60,000 balance and $105,000 salary, while Sunsuper’s balanced index option (now part of the Australian Retirement Trust) came out on top for a 50-year-old male with $220,000 in super and income of $155,000.
The ATO’s YourSuper tool, and APRA’s annual performance test – both outcomes of the Morrison government’s contentious Your Future Your Super (YFYS) reforms – only examine default MySuper funds, whereas the Fierce Performers Index assesses 104 investment options across the 15 top funds.
But while Super Fierce takes the position that choosing the right super fund requires tailored advice, Mr Swanger said all of the 15 top funds had a few key ingredients in common.
Almost all were industry or not-for-profit funds and while Mr Swanger said he had no bias against bank-owned and retail funds, their glaring omission from the list was primarily a function of higher fees historically charged.
The 15 top funds outperformed peers by an average of 0.80 per cent a year (or 80 basis points) and almost half of that outperformance (36 basis points) was attributed to fees.
“While past performance is not an indicator of future performance, there is a caveat: past performance caused by high fees is a predictor of future performance,” he said. “A bad fund because of high fees will remain a bad fund if it keeps its fees high.”
SuperFierce chief executive Trenna Probert, also a Macquarie alumna, added: “We have a house principle that lower fees are better.”
Retail funds such as those operated by AMP, Colonial First State and BT Financial Group have begun to lower fees in recent years, and some argue that higher administration fees cover a broader range of quality member services beyond investment management.
But they have still been disadvantaged in both the annual performance test and Fierce Performers Index due to high admin fees.
Most of the top funds (12 of the 15) were also found to offer passively managed index options – that is, those that track the performance of the market rather than actively select investments to try to beat the market.
Across the superannuation landscape, index options outperformed active by 1.66 per cent over 10 years. “That is way over statistical significance levels,” Mr Swanger said.
But he said that didn’t mean all funds should simply go all in on passive investing or that picking an index option (famously favoured by The Barefoot Investor books), was right for all members.
To be considered a Fierce Performer, funds needed to have an array of actively managed options and “nuanced” investment styles that cater to the personal preferences of consumers, such as those favouring ethical or environmentally conscious portfolios. “Our methodology does not penalise active,” Mr Swanger said.
Inability to take these styles and preferences within asset classes into account, was a key flaw of the government’s YFYS performance test and comparison tool, Ms Probert said.
“We were initially excited [about YFYS] but when we got under the bonnet, we became very concerned that people weren’t getting the whole picture and were going to make decisions that weren’t right for their financial wellbeing,” she said.
https://www.afr.com/companies/financial-services/ex-macquarie-cio-picks-the-best-super-funds-over-20-years-20220712-p5b0y7
