Retail super funds closing the gap

Retail superannuation fund returns matched it with their industry fund counterparts in 2014, albeit that industry funds continue to hold an edge over the longer-term, according to the latest data released by Chant West.

With both domestic and international equities identified as the key drivers for returns during 2014, the Chant West data revealed that both retail funds and industry funds returned 8.6 per cent over the 12 month period, albeit that over a 15 year span, industry funds had returned seven per cent  a year compared to 5.8 per cent for retail funds.

Commenting on the relative performance of industry versus retail funds, Chant West principal, Warren Chant said that, over the longer term, industry funds had outperformed retail funds largely because, as a group, they tended to have lower allocations to listed shares during periods when shares underperformed.

"That historical difference in allocation no longer applies, but equally important is that they have always had higher allocations to unlisted assets such as private equity, unlisted property and unlisted infrastructure (currently 20 per cent versus four per cent), which have performed well for them," he said.

Chant said that, over the longer term, the asset allocation policies of industry funds had served them very well and that while allocations to unlisted assets had meant slightly higher investment costs, this had been more than justified by better performance and lower volatility.

"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," he said. "Retail funds have not been idle, however, and in recent years they have become much more active in their asset allocation decisions. That, together with a greater appetite for alternative assets, has seen them close the gap on their industry fund competitors."

However Chant lamented that the introduction of MySuper, with its emphasis on low costs, had undone a lot of the good work in circumstances where most retail funds had structured their MySuper default options with a higher component of passive management and lower exposure to alternatives.

"That's all in the interests of reducing fees, but we believe it will also have the effect of reducing returns, and so will prove detrimental to their members in the long run," he said.