Tracking ‘real numbers’: active pulls away from indexed


John Peterson, an institutional advisor and investor who runs the Peterson Research Institute, has been monitoring like-for-like actual investment options offered by two big super funds, which track the relative performances of active versus indexed strategies.

Here is his latest update, which shows active options widening their lead over passive during longer periods. In a note to clients last week, Peterson says super fund returns for periods to June 2019 are now available. “So, I can update progress in the ‘active balanced’ (normal cost) versus ‘indexed balanced’ (low cost) experiment being conducted by AustralianSuper and Hostplus Super.”


He says: “Recall, that both Australian Super and Hostplus have, for the last seven years, offered both an actively managed and indexed option to investors. These options have the same levels of expected risk (five negative years in 20 in each case) and broadly the same return objectives (CPI plus 4 per cent, and CPI plus 3 per cent for the actively managed and indexed options respectively).

“The options offered by each super fund are based on the same investment expectations, are constructed by the same investment teams, managed using the same information, and have the same administrative structures. These can truly be said to be ‘experiments’, in that all extraneous factors have been ‘controlled for’ with the exception of directly attributable to investment fee differences.

“As would be expected, the actively managed balanced (normal cost) options have higher investment costs than the indexed balanced (low cost) options. (54bps lower for Australian Super and 69bps for Hostplus.)”

Returns to June 2019

The option returns for period to June 2019 are set out in the following table

Unsurprisingly, Peterson says, given the performance of some equity strategies, the active options did relatively less well over the past year. It is notable, however, that over all periods of two years or longer, the active options have materially and consistently outperformed their indexed equivalents.

“These are real investment options with actual superannuation fund members’ retirement savings invested in them. Given that, I leave you to draw your own observations about the relative advantages of ’normal cost’ or ‘low cost’ investment options for members retirement savings.”

– G.B.