For super funds and their advisers

Not-for-profits perform better but differentials ‘really scary’

Alex Dunnin

MySuper options delivered strong returns in the past one, three and five years, as did ‘non-MySuper’ super options, according to the latest Rainmaker research. But not-for-profit funds continue to dominate MySuper returns compared with commercial funds. And the gap between the competing sectors is even wider for other balanced strategies.

Rainmaker announced last week its latest figures, for periods to April 30. They show the ‘SelectingSuper’ MySuper default index delivered an average return of 7.8 per cent for the 12 months. This was up from 7.4 per cent for the previous month (annualised). Over three years the ‘SelectingSuper’ MySuper index averaged 6.3 per cent a year, over five years 8.5 per cent a year and over 10 years 5.6 per cent.

Stephen Fay, Rainmaker head of superannuation research, said the results rewarded MySuper products with high growth investment strategies and penalised excessively conservative products during those periods.

“Equities making up more than half the assets of MySuper products explains why these products as a group are performing so well with expectations growing that 2017-18 is likely to be another strong year for super fund members,” he said.

Australia’s top performing MySuper products, personal balanced products and retirement balanced products were:

But there were still huge variations in the returns being achieved by all MySuper products, with their returns ranging as low as 3.7 per cent a year for the 12 months compared to the top of 11.00 per cent, he said. Over 10 years the variation was almost as wide, ranging from highs of 6.8 per cent down to lows of 2.6 per cent.

“The best performing MySuper products are achieving returns three-times what the lowest performing products are achieving. Even allowing for the impact of different risk tolerances and fees, these ranges are significant,” Fay said.

The well-known gap between returns for not-for-profits and commercial funds is continuing, although it is wider in non-MySuper products than MySuper products.

According to the Rainmaker data, not-for-profit funds as a group delivered an extra 1.6 percentage points over 12 months and 1.4 percentage points per year over three years in MySuper default options. In the non-MySuper balanced segment, the not-for-profit premium jumps to 1.8 percentage points over 12 months and 1.6 percentage points per year over three years.

According to Alex Dunnin, the Rainmaker director of research and compliance, in the non-MySuper growth segment, the not-for-profit premium jumps even higher, to 2.1 percentage points over 12 months and 1.9 percentage points per year over three years.

He said: “The not-for-profit gap thus seems structural, at least right now. In Rainmaker’s view, it is driven by two core factors: the fund segments invest differently – which our analysis of APRA data confirms in spades – and, of course, fees… The investment differences are that retail funds tip towards listed assets and do not tip to unlisted [unlike the not-for-profits].

“We do not accept for a second that not-for-profit investment people are smarter than their retail counterparts. Such an argument would be absurd. So, this brings us to the issue of packaging,” Dunnin said.
“We hear a lot about how it’s unfair to compare not-for-profits and retail funds because of their different constraints of liquidity. I can see the argument but it doesn’t explain the MySuper differentials. We also dismiss the idea that not-for-profit and retail products should only be compared within themselves.”
Dunnin agreed with his colleague, Stephen Fay, about how concerning the gaps between the best and worst funds were. “They are really scary,” he said. “That’s what is really driving the Productivity Commission Report because those gaps dwarf any concerns over fees. When the differences between the outcomes achieved by the best and worst funds is routinely three-to-one, we have bigger problems than segment tribalism to fix.”

– G.B.

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