How Good is your fund ?

Investors have been warned to exercise care in using superannuation fund league tables as criticism mounts over new Australian Prudential Regulating Authority data listing investment returns of superannuation funds. One fund which is listed as the top performer of accumulation funds over 5 years returned a staggering loss of nearly 25 percent for the past 12 months for its default investment option. In addition to criticism over the timeliness of the data, experts warn that the published tables do not reflect investment choices made by investors. Another researcher has warned that badging definitions used by some fund managers and research houses do not accurately portray the underlying investments and risk.

The recently published APRA report provides investors with data showing the performance of most large public offer schemes with returns listed to the end of June 2008.

“This performance data will assist in evaluating the long-term performance of funds and their trustees. The information is not intended to be used to assess short-term returns and that is why we present annualised data with three and five-year averages. The long-term is the best timeframe to consider superannuation performance.’ Says APRA Deputy Chairman Ross Jones

But others warn that the tables do not provide investors with meaningful information, particularly as almost all funds offer a range of investment choices.

Warren Chant, principal of Sydney based research house Chant West said “The former minister for superannuation Nick Sherry and APRA should hang their heads in shame for releasing such misleading and confusing information to the public”

Pauline Vamos CEO of the Australian Association of Superannuation funds says that the APRA approach aggregates all of the investment options within the fund and then treats this as a single fund in calculating performance.
“The funds at the top of this returns list generally have relatively few investment options and most money is invested in the default option. As such, the APRA return figure for these funds is in line with the return of their default, balanced fund, investment option. For more complex funds with multiple products and investment options the APRA return is a return for the total of all the different investment options every member has chosen. It is not unexpected that these funds appear more towards the middle or lower part of the list.” She says.
Similarly, the asset allocation of funds can have a major bearing on performance and with ongoing concern over the use of unlisted assets, investors have been urged to exercise caution in chasing returns without understanding how the returns have been achieved.
For example, Fund A’s standard “Balanced” investment option might see 60 percent invested in listed Australian shares with 10 percent in listed property and the remaining 30 percent in cash and fixed interest investments. Fund B’s’ balanced option, might see 10 percent allocated to unlisted property and 10 percent to hedge funds instead of fixed interest investments. Overall, fund B has 30 percent of the total fund in unlisted assets compared with nothing in Fund A. This difference would see the returns over the past 12 months being considerably different.
Warren Chant says that these differences in fund descriptors are not clear to investors but can have a major impact on returns.

“For example, MTAA and WA’s Westscheme have Balanced options but when we looked at the actual underlying asset mix we believe they are more like high growth options and therefore have higher risk. MTAA went from the number one spot in 2008 down to last position in just 12 months.” He says

The high profile MTAA industry superannuation fund is listed at the top of APRA’s accumulation fund list for the rolling five year period ending June 2008 returning 12.8 percent. However, the balanced option returned negative 24.6 percent for the twelve months following. The 5 year rolling average to June 2009 is 3.8 percent for the balanced option. If members do not make an investment choice, their funds would be invested in this option.

According to MTAA’s 2008 annual report, more than half the fund is invested in unlisted assets which “allows members 100 percent access to innovative, alternative investment options.” Unlisted assets have attracted criticism recently over the valuations being used when there is no ready market to accurately determine values.

“Other industry and public offer funds also utilise unlisted assets and even though the ongoing fee and commission issue is a factor in net returns, the asset allocation is the main determinant of performance. Of course what’s happened previously is no guarantee of what will happen in the future” Says Warren Chant.
West Australian based superannuation funds have shown mixed returns over the past 12 months and while more investors are choosing to take a hands on approach by making specific investment selections, the default options for most funds have performed under median returns for comparable funds.

*****TABLE FOLLOWS*****



Default option

 

 

June 2008-June 2009

5 yr average to Jun 2009

APRA 5 yr rolling Average to June 2008

 

 

 

GESB Super

 

 

-12.5%

N/A

*

 

Untaxed GESB Weststate

 

 

-15.1%

3.6%

*

 

WA Local Govt Super

 

 

-17.2%

3.4%

9.1%

 

Westscheme

 

 

-20.7%

3.3%

7.9%

 

 

 

 

 

 

 

 

Chant West Median Return for “Balanced” type fund

 

 

-12.9%

4.3%

 

 

 

 

* GESB not required to report to APRA, GESB Super commenced in 2007, Untaxed does not allow for tax on exit of up to 15 of balance%

 

 

Source: Chantwest.com.au, fund websites