Retail superannuation funds underperform
Keeping your retirement savings in a retail superannuation fund, rather than an industry fund, can harm your wealth.
In the 2016 calendar year, industry funds outperformed retail super funds by 1.3%, which may not sound like a lot, but in a low-growth investment climate with cash rates of 1.5% it is significant.
Industry funds performed better than retail superannuation funds over all time periods - three, five, seven and 10 years - according to research house Chant West.
Source: Chant West
Industry funds returned 5.5%pa over 10 years compared with 4.6%pa for retail superannuation funds.
These differences can be significant over the long term. Someone with a starting super balance of $30,000 and an income of $80,000 would be $13,120 better off after 10 years. An industry fund would return $151,109 compared with $137,990 for a retail fund.
Non-profit industry funds made up 2016's list of top 10 super funds with growth options. Catholic Super and HOSTPLUS were the top-returning balanced funds, delivering 10.1% compared with the median return of 7.3% for all super funds.
So why have industry funds performed so well?
The two have quite different asset allocation.
"Over the longer term industry funds have outperformed retail funds largely because, as a group, they tended to have lower allocations to listed shares during periods when shares underperformed," says Warren Chant, director of Chant West.
"That situation no longer applies, but at the same time they have also had higher allocations to unlisted assets such as private equity, unlisted property and unlisted infrastructure, which have performed well for them. That difference does still apply, with industry funds currently investing 20% in these sectors against 5% for retail superannuation funds, and that goes some way to explaining their outperformance in 2016."
Chant says that over the longer term, the asset allocation policies of industry funds have served them very well.
"Those allocations to unlisted assets do mean slightly higher investment costs, but those extra costs have been more than justified by the better performance and lower volatility."
He says industry funds have also been more prepared to shift away from their longer-term target asset allocations to take advantage of mispricing or to preserve capital. Overall, those medium-term shifts have had a positive effect on their performance.
David Whiteley, chief executive of Industry Super Australia, says industry funds deliberately invest in high-performing, nation-building infrastructure assets such as roads, airports and utilities to secure the best returns for their members.