Property the super differentiator

As superannuation fund members face their worst returns in a decade, leading actuarial house Chant West has identified the key differentiator between industry funds and retail master trusts as property exposure and, particularly, exposure to direct property.

More importantly, the Chant West analysis suggests the industry funds may face a challenge when book values are ultimately compared with actual sale prices when properties change hands.

In an analysis issued today, Chant West has acknowledged that industry funds have outperformed retail master trusts over the past year and argues that property holds the key, particularly the manner in which the different funds invest in property.

“Much of the recent performance gap relates to property, specifically to the different characteristics of listed and unlisted property investments,” the analysis said.

“While master trusts have gained their property exposure mainly through listed vehicles in Australia and overseas, industry funds have had much larger allocations to unlisted property, especially in Australia, and this has been to their advantage.

“Because of their liquid structure, listed property trusts behave far more like shares and their value over the last 12 months has moved in line with the equity market. The Australian listed property index was down nearly 24 per cent in the 12 months to 30 April and this situation did not improve in May,” the analysis said.

“In contrast, industry funds in the main have preferred to invest direct in property. The value of unlisted property is not determined by the market but the appraisals of professional valuers. At a time when the share market has been turbulent the unlisted property index has risen over 19 per cent,” it said.

“We estimate that property has added 1.5 per cent to the total fund return for the average industry fund over the year, while it has cost the average master trust the same amount,” the Chant West analysis said.

“Industry funds will be looking closely at their property assets in the lead up to the reporting season. When you consider the credit crunch and the savage re-pricing of risk that we’ve seen in other markets, it raises the question of how realistic are current appraised property values,” it said.