The biggest idea in superannuation in a generation is the plan that everyone just has one fund for the rest of their life. Better still, that the single fund will be chosen from a “best in show” selection of funds that would be compiled by a new independent panel.
Will it ever come to pass? Already powerful forces in superannuation, such as the Financial Services Council, are lobbying against it. They say having a set of funds pinpointed as the very best would cause all sorts of problems. I guess so, especially for the funds that don’t make it to the top!
Being realistic, it might be a long wait for this “best in show” concept to get going. But, as someone once said, you can’t stop the power of a good idea.
There are a variety of lists of the top funds in Australia, but let’s go with a benchmark list as defined by the Australian Prudential Regulation Agency. To find, say, the top five publicly accessible funds is not that hard; you just have to ignore the “staff-only” funds, such as the Goldman Sachs Staff fund or the CBA Group super fund. And to be sure none of these funds have been just lucky over a short timeframe, let’s also focus on the 10-year figures that include how they performed during the GFC. Here’s the list:
One of the biggest and certainly one of the most influential funds, UniSuper is a $63 billion fund with a 10-year return of 5.8 per cent. Unlike the rest of the toppers on the APRA list (mostly industry funds) UniSuper is not strictly a “public offer fund”. It might be described as semipublic in that you can join if you work in higher education or you have a relative among its 421,000 members.
This is a typical public offer industry fund that covers general workers in just about every industry. It is one of the smaller funds in the top league with $16bn under management (compared with $123bn at the King Kong of industry funds, AustralianSuper). A quiet achiever, Care Super has about quarter of a million members and a 10-year return of 5.5 per cent.
With a 2 million membership base, REST is among the biggest funds. Such a major presence and $47bn in assets under management can restrict performance, but REST has impressed with an ability to still top the performance tables year after year — it has a 10-year average return of 5.5 per cent.
With its constant advertising and previous public endorsement by a former RBA chief, Bernie Fraser, Cbus is perhaps the best known of the industry funds. As with any industry fund, there is union links, including with the CFMEU, which is a “sponsoring organisation”. The fund has $40bn under management and returned a 10-year average return to its 750,000 members of 5.4 per cent.
This relatively small fund punches above its weight. It has emerged from the building industry but with just 85,000 members it could almost be described as a boutique operation. Nevertheless, it has been very successful in investing the $4bn or so under management with a 10-year average return of 5.2 per cent.
So there’s the top five — the best in show — according to APRA. The issue, of course, is what defines the best in show; those numbers will change in the future. The best funds of the past may not be the best funds of the future.
What’s more, some people will want more than raw numbers, they may want a fund that follows their principles closely — that might mean the fund is actively investing in renewables, or it might mean the fund should have no links to trade unions, it might just mean that the fund plays fair and by the rules. Retail funds from the big banks and insurers might tick the boxes on independent directors, but it’s not much consolation if they have higher fees and get beaten endlessly in terms of returns from industry fund rivals.
If you want to draw up your own list of “best in show” options for making the right choice in super I’d suggest picking from one of these choices.
Big funds: The APRA top five (UniSuper, Care Super, REST, Cbus and BUSSQ) along with perennial outperformers AustralianSuper, HostPlus and Sunsuper.
Big retail funds: If you insist on a fund that is not linked with unions then among the top retail funds (over 10 years, according to Superratings) you would have AMG Super-Corporate Super, smartMonday PRIME, Macquarie Super Options-Super Plan, Colonial First State (First Choice Wholesale Personal Super) and Mercer Super Trust — Corporate Superannuation Division)
Specialist funds — ethical and environmental: It’s your money and you may want to do more with it than hand it over to whoever tops the charts. Australian Ethical is the best known of the specialist funds group, while Future Super is also a key player. According to super ratings the top five sustainable balanced funds over 10 years are: Hesta’s Eco Pool, AustralianSuper’s Socially Aware option, VicSuper FutureSaver-Socially Conscious Option, Care Super-Sustainable Balanced UniSuper Accum (1) Sustainable Balanced.
Roboadvisers: ING Living super, SixPark, Stockspot, Ignition. If the remarkable success of passive investing in the wider funds management industry is anything to go by, then the biggest threat to the current power structure in super are the new digital operators designed from the ground up to keep fees low and to create funds that match the market. The roboadvisers are still too new to offer 10-year track records.
SMSFs: If you really want to run your own super then an SMSF is the best way possible to do it. There has been some negative publicity around SMSFs, but the SMSF system remains very attractive. The Productivity Commission suggests you need $1 million to succeed with an SMSF, but industry experts and active investors disagree with this estimate. A starting point of $200,000 is entirely feasible.
By James Kirby (Wealth Editor)
9 June 2018