Mid-size funds come out on top

The superannuation industry has long been accustomed to the idea of ratings. After all, it is responsible for the public’s retirement futures – no small weight to carry.

Many ratings however, have been industry-centric. In a sector renowned for poor member engagement, that’s little surprise. The Superannuation Fund Crown Ratings aim to improve how informed members are on their funds however; as the tables and charts in Super Review's pages show, members will be able to easily understand and compare how their fund options are performing.

While there are some surprises in there – mid-size funds have dominated amongst the top performers, for example – it’s the consistent options that have largely won out for investments made in listed fund selections.

Table 1: Top 15 superannuation funds for highest % of options to receive 5 Crowns

Group

% of options for 5-Crowns

NGS Super

75

AustSafe Super

67

QSuper

60

Statewide Super

60

Sunsuper

59

First State Super

58

Australian Super

50

BUSSQ Building Super

50

Energy Super

50

VicSuper

50

CARE Super

45

Legal Super

42

REST Industry Super

42

EISS Super

40

Telstra Super

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Methodology

As written elsewhere in Super Review, the best-performing funds under the Crown Ratings system are those that prioritised consistency. When you consider the methodology behind the Crowns, it’s not surprising that such funds were rewarded.
The ratings are based on alpha, volatility, and consistency and strength of performance, measured across the three years prior to each rebalancing, which will occur biannually.

Specifically, the ratings identify funds that have displayed superior performance in terms of stock-picking, consistency of outperformance against a credible benchmark, and achievement of results at a relatively low risk.

According to FE, “certain types of performance are more valuable than others”. As such, the drivers behind performance recognised by a Crown Rating are those that it determines as intrinsically more valuable to superannuation fund members in nature, because of their solidity.

The top 10 per cent of options were rewarded five Crowns, the next 15 per cent four Crowns, and each of the remaining three quartiles were given three, two, and one respectively.

Beyond the Crowns themselves, FE has also created peer group mixed asset indices. Reflecting that the superannuation industry isn’t managed the same way as traditional investment funds are, the indices seek to provide a benchmark for superannuation fund performance.

Speaking on the benefit of the indices in light of the Crowns’ overarching goal of better informing the public and industry on superannuation fund performance, FE’s head of data for Australia, Stuart Alsop, said: “Being able to asses a fund/product option based on a benchmark of their peers aids with comparability and assists the member in making a more informed decision.”

All of the MySuper options looked at in chart one for example, also fit into one of these indices. This means that for members going into a fund’s default option, they can better assess the performance of that option against its peers.

Chart 1: Table 1 Top 10 funds’ MySuper options’ 3-year performance

They don’t need to look up other options’ returns individually or try and gauge different time periods to make a better-informed decision.

And the returns of these indices show that funds belonging in them generally wouldn’t be ashamed of their performance. As table two shows, returns across the last 10 years fairly consistently hover from six to seven per cent. Those that don’t – the moderate and cautious mixed asset indices – are just reflecting the trade-off investors in those assets have made in return for safety.

Table 2: Long-term returns of superannuation Mixed Asset peer group indices

Index

1m

3m

6m

1yr

Ann. 3yr

Ann. 5yr

Ann. 10yr

Mixed Asset
 Flexible

-1.37

-4.87

-3.45

-1.46

3.38

4.27

7.17

Mixed Asset
 Growth

-1.56

-5.78

-4.14

-2.07

3.71

4.58

6.67

Mixed Asset
 Aggressive

-2.13

-7.47

-5.47

-3.03

4.11

4.99

6.60

Mixed Asset
 Balanced

-0.96

-4.10

-2.71

-0.85

3.63

4.49

6.00

Mixed Asset
 Moderate

-0.46

-2.07

-1.34

-0.47

2.24

3.06

4.51

Mixed Asset
 Cautious

-0.09

-1.30

-0.79

0.13

2.26

2.88

3.93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chart two, showing the returns of these indices over the period of time the Crown Ratings were judged, shows similar results.

Chart 2: 3-year performance of superannuation Mixed Asset peer group indices

Who came out strongest?

Table one shows the top 15 funds by the percentage of five Crown options they hold, meaning they are the top funds to have their options do proportionately strongest.

Interestingly, the list is dominated with mid-size funds. With the exceptions of AustralianSuper and REST Super at the larger end and BUSSQ Building Super and AustSafe Super at the smaller, it’s largely the superannuation providers whose number of offerings and funds under management (FUM) hover in the middle of the road that have done well.

Considering the emphasis of the Australian Prudential Regulation Authority (APRA) and of some larger providers on scale, this is worth noting.

While some of the larger providers had high numbers of four and five Crown options, this was offset by equal amounts of one and two Crown ones. This doesn’t really show strength then, as they struggled as much as they succeeded. Another interesting perspective on scale, then.

There was also little to separate many of the options offered by these top 15 funds.

Chart one, for example, shows the returns of the top ten of these funds’ MySuper options over the last three years (as that’s the performance period upon which the Crowns were determined). The difference in returns between the best-performing, AustralianSuper’s Balanced option, and the lowest, BUSSQ Building Super’s Balanced Growth option, was less than five percentage points.

Considering that most of these products have longer investment horizons, this is a negligible difference. Again, consistency is a recurring theme.

Working toward a better super industry

As well-traversed throughout this issue of Super Review, the use of data can improve the superannuation industry as a whole, for members and funds alike.

This is essentially what the Crown Ratings seek to do by better informing members.

There are gaps in the data however, and these paint a glaring picture of how greater sharing of data is needed to allow better comparison and accountability.

As was evident in the incorrect data calculations of the Productivity Commission’s interim report, those both overseeing the industry and investing in it are going to try and compare and analyse superannuation funds regardless of whether accurate data is provided by the funds themselves. Put simply, there is too much riding on their performance, too much money invested and future retirements hanging in the balance, to not submit funds to deep scrutiny.

Perhaps clearer data will only come when regulators mandate it.

“Data provision for Superannuation funds has been wanting for some time now, this is partly due to the lack of a comprehensive performance reporting standard that would allow for the consistent approach to data provision and performance reporting to the industry,” Alsop says.

“This would inevitably improve transparency and benefit members knowing that funds can be compared on a like for like basis using a consistent methodology.”

Or perhaps superannuation funds will put it forward themselves in the interests of their members.

With rigorous ratings such as the Crowns now in the market, hopefully transparency and accountability is only set to increase.




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