Some funds are “absolutely” stronger in some areas than others, he emphasises. And Clarke can foresee when large funds will market the strongest offerings of their funds such as in cash or insurance – even to self-managed funds. Insurance is a standout possibility here that may appeal to self-managed fund trustees.
Research by SmartCompany suggests a combination of different funds that could be considered by fund members, including these three for starters:
While most super fund researchers charge a fee to use their research to compare fund performance, fees, insurance and other services in detail, there is a way to compare a few funds at a time at no cost.
A number of funds – including HOSTPLUS, AustralianSuper and First State Super – offer an online service, AppleCheck, from fund researcher Chant West that enables anyone to compare three funds at a time without the usual fee. Just check these funds’ websites.
AppleCheck provides such information as: performance from one to five years, administration and investment management fees, insurance options and costs, the quality of administration and member services, and availability of financial planning.
It is suspected that many fund members switch super funds and then are unable to get insurance cover in their new funds because of existing medical problems. This can be a particular risk for members with poor health and heavy debts.
Some funds require members who join as individuals, rather than as part of an employer group, to undergo medical assessments. And some funds only offer low levels of cover without a medical.
One strategy to overcome this trap is to leave a sufficient balance in your existing fund for your insurance cover to continue. You should check with your existing fund what conditions apply for the insurance cover to continue.
This strategy will give you plenty of time to hunt down an alternative insurance deal.
The gap between the best and worst performing balanced fund surveyed by SuperRatings was 5.7% a year over the five years to June 30, and 4.2% a year over 10 years.
SuperRatings even found that the fund with the best-performing cash-only option produced almost double the returns of the worst-performing one.
In short, funds with rotten performance can be highly damaging to your standard of living in retirement and should not be tolerated.
SuperRatings’ Jason Clarke reckons that the past five years – dominated by the global financial crisis – has been a pretty good time to judge how a fund performs in different market conditions.
Clarke says that if your fund underperformed the median fund returns when markets were both falling and rising, “I think you have a dog”.
A fund with a higher exposure to shares can generally be expected to perform better when markets are rising and not as well when markets are falling than a fund with a lower holding in shares.
So-called balanced super funds have approximately 70% of their portfolio in growth assets. But the actual percentages can vary quite a bit within a broad range. Some so-called balanced funds can have a markedly larger or smaller exposure to shares than others.
SuperRatings classifies a balanced fund as one with between 60-87% of its assets in growth investments. That’s quite a gap.
For instance, at the end of July, BT Bus Super – Westpac Balanced Growth Fund held 65% of its portfolio in growth assets with the remainder in defensive. By contrast at the end of June, HOSTPLUS Balanced had 75.9% of its portfolio in growth assets with the remainder in defensive.
And significantly, the BT fund held no alternative assets whereas 23.6% of HOSTPLUS’s portfolio comprised alternatives.
First State Super Diversified, for example, under-performed in the five strong years until the GFC then, because of its defensive portfolio, out-performed when markets turned down.
The fundamental message is that when choosing a fund, you should understand its portfolio makeup and the significance for potential performance of that portfolio.
SuperRatings’ performance table shows the best-performing funds over the five years to June 30 are: OSF Super – Mix 70, 5.8% a year; Buss (Q) – Balanced Growth, 5.3%; Club Plus Super – Balanced, 5.1%; Catholic Super – Balanced, 4.9%; NGS Super – Diversified, 4.8%; Telstra Super Corp Plus – Balanced, 4.7%; Local Super – Growth, 4.6%; CFS FC Emp – FirstChoice Moderate, 4.5%; AustralianSuper Balanced, 4.5%; and Health Super – Medium Term Growth, 4.3%.
Although these figures are after investment management fees and taxes, the returns are hardly breathtaking – particularly considering that inflation will erode much of the real return. The GFC really took its toll.
Nevertheless, super can provide excellent tax breaks, particularly if contributions are salary-sacrificed or tax-deductible to members (such as for the self-employed).
If you are satisfied to stick with a pre-mixed balanced portfolio – along with about 80% of other fund members – you are throwing money away by paying high fees to a fund with a huge choice of investment options.
The logic is simple. The more investment options, the more money you will pay in fees. If you want few or no investment options in addition to broad pre-mixed portfolios – such as high growth, balanced and conservative – you may be best off in a low-cost industry fund.
A typical feature of retail mastertrusts is the ability of members to choose from a large range of fund members – but a high cost usually applies.
Superannuation researcher SelectingSuper reports that the BT SuperWrap Personal Super Plan has the most investment options, a staggering 616.
Funds are increasing providing members with the option of taking limited investment advice concerning their super and retirement planning for little or no cost. This advice can provide invaluable at different stages of your life.
Some funds charge their members for investment advice – whether or not that advice is used. Ask your fund to stop charging you for unused advice. And if that doesn’t work, swap funds.
From July 12, the Government proposes that a compulsory annual renewal notice be sent to investors being charged for advice.
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