Super funds not immune to active v index

Research and ratings house Morningstar says industry funds are increasingly competing with active managers and now Stockspot is claiming index super funds are undermining super funds utilising active strategies.

In doing so, Stockspot is arguing that, notwithstanding superannuation funds posting positive financial year results, many members are actually missing out because of the investment choices and fund manager selections made by their funds.

Stockspot chief executive, Chris Brycki is arguing the difference could be as much as 4% to 5%.

He said Stockspot has analysed the data and found the following results for typical default super options:

Balanced super funds, containing 41-60% growth assets, returned an average of 7-8% over the financial year when indexed balanced super funds returned 12-13%, a difference of 4-5%.

Growth super funds, with 61-80% growth assets, have seen returns ranging from 9-10% over the financial year when indexed growth super funds returned 14-15%, a difference of 4-5%.

“Stockspot has tracked this for over a decade and this year represents the biggest gap we’ve ever seen between the average default super fund and an indexed super fund of similar risk.”

“If your balanced or growth fund returned less than 10% this year, it’s important to question your super fund about it,” Brycki said. “Are the fees too high? Are they paying fund managers for unsuccessful stock picks? Are they invested in illiquid unlisted assets that are facing devaluations?”

“The trend of indexed super funds outperforming active ones is likely to persist as scrutiny increases over the valuation processes of unlisted assets by regulators like APRA, and as trustees adopt more realistic valuations of these assets.”

“We anticipate that more super funds will replace government bonds with strategic allocations to gold in the coming years, given the diminishing diversification benefits of bonds amidst persistent inflation.

“This year’s varied returns underscore the effectiveness of the APRA performance test that benchmarks funds against the index.

“Extensive research shows that 80-95% of actively managed funds across all asset classes underperform the index over time.

“If super funds are going to take active bets, it’s important they are held accountable for the additional risks they impose on member money. The best way to ensure this accountability is through comparisons to simple indexed portfolios.

“I am surprised to see super funds expanding their investment teams and opening overseas offices this year when it’s clear that such moves do not add value for members.

“Large super funds would be better served by reducing their investment teams and focusing on indexed investments, thereby passing the cost benefits on to their members.”