Industry funds still top growth list: Chant West

Not-for-profit superannuation funds dominated Chant West's top 10 performing growth funds for the 2012 financial year.

Seven of the top performing growth funds were not-for-profit and generally had a lower than average weighting to shares and a higher than average exposure to alternative and listed assets which accounted for their superior performance, Chant West director Warren Chant said.

He said industry funds had outperformed master trusts for several years because of lower correlations to listed shares.

Chant said industry funds invested approximately 20 per cent in unlisted equities like private equity, unlisted property and unlisted infrastructure, compared to 4 per cent for master trusts.

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"Over the longer term, the strategic allocation policies of industry funds have served them very well. In particular, those allocations to unlisted assets have added to performance and reduced volatility, or risk. They do mean slightly higher investment costs, but those extra costs have been more than justified by the added benefit," he said.

The 0.5 per cent annual median growth fund return for 2012 combined with more positive returns in 2010 and 2011 took the three-year average for the median growth fund to 7 per cent, beating inflation which averaged about 2.6 per cent over the same period, according to Chant West.

But according to the research, conservative options outperformed growth options on a five, seven and 10-year basis due to market volatility and the global financial crisis.

"That's the opposite of what we would normally expect, which is that funds investing in growth assets like shares will outperform over the medium and longer term," Chant said.

"It's also the opposite of what members are told to expect, so funds have a bit of a job on their hands explaining that recent experience is not normal," he said.