Which super fund has been the best performer over the past 10 years?
Australia’s best-performing publicly available balanced option, QSuper, has produced an average annual return of 9.7 per cent during the past decade to February 2019^, finishing on top of the SuperRatings SR50 Balanced Index (60-76) for funds open to the public^.
It was followed by UniSuper Accumulation 1, which averaged 9.6 per cent, and CareSuper, which averaged 9.5 per cent.
The SuperRatings SR50 Balanced Index (60-76) calculates returns after investment fees, tax and implicit asset-based admin fees.
What are ‘balanced’ funds?
‘Balanced’ funds are funds that hold a mix of return-seeking growth assets (such as shares and property) and return-protecting conservative assets (such as fixed interest and cash).
Australia’s financial services regulator, ASIC, has this advice: “Pick a fund that has performed well over the last five years – do not chase last year's best performer.”
Super is a marathon, not a sprint
QSuper head of investment strategy Damian Lillicrap says Australians should focus on long-term performance, because for most fund members, superannuation is a multi-year, multi-decade commitment.
“Our analysis shows that share markets can deliver a negative return around one out of every three years, and so it’s very possible for strong short-term returns driven by strong short-term share market performance to be just as quickly eroded by weaker share markets,” he says.
“Share markets can also deliver negative to flat returns for long periods of time, rolling 10-year returns to 2011 for the US stock market (see chart below) being a case in point.
“Funds that can deliver through changing investment environments deliver value for members.”
Focus on the cake, not the ingredients
It’s generally better to assess funds based on ‘net’ performance (after fees and costs) than ‘gross’ performance (before fees and costs).
Why? Because if you're like most people, the main thing you want to know is how much is in your super account at the end of each year.
Strategy is what separates the best from the rest
A fund’s long-term performance is largely dependent on its investment strategy – what assets it invests in and in what proportions and at what times.
For example, QSuper’s balanced option invests in shares, unlisted infrastructure, private equity, real estate and bonds.
The way QSuper invests in bonds is a perfect illustration of an investment strategy in action.
“QSuper has configured its bond investments in such a way that we’ve turned what are traditionally deemed to be ‘defensive investments’ into high-return-seeking investments,” Mr Lillicrap says.
“Because bonds generally rise – or tend not to fall by as much – in value when shares go down in value and vice versa, they provide our balanced option with a source of ‘uncorrelated returns’.
“In other words, bonds, especially high-return-seeking bonds, and shares usually don’t move in sync, and so investing the way we do provides different sources of potential return at different times.”
Good strategies never go out of fashion
Australia’s superannuation sector has a range of funds offering a range of strategies.
So how can you know which is the right strategy for you?
“Choose strategies that can gain returns in different environments, not just those that rise and fall with share markets,” Mr Lillicrap says.
“Or in other words, look for investment strategies that can provide good returns with less year-to-year performance ups and downs.
"It’s probably not great for super fund members’ peace of mind if they are in a fund that produces a good return one year, followed by poor returns next year and repeats this cycle. We believe members value a smoother ride.”
^ QSuper Balanced Option only. SuperRatings SR50 Balanced Index (60-76) median based on cumulative returns compounded annually after fees and for initial $50,000 invested over the period to 28 February 2019. Based on funds open to the public. Past performance may not be a reliable indicator of future performance. This is the return for the option as it does not take into consideration the timing of contributions, switching or withdrawals. SuperRatings does not issue, sell, guarantee, or underwrite this product. Go to superratings.com.au for details of its ratings criteria.
The views of the author are not necessarily the views of the QSuper Board. This information is general information only, and you should get professional advice before relying on this information. Past performance is not a reliable indicator of future performance. Each of QSuper’s investment options has a different objective, risk profile, and asset allocation. Visit qsuper.qld.gov.au for more information