But a closer look at the list of failed funds may cause some concern. Among the failed funds were some familiar names: Colonial First State and BT Super’s Retirement Wrap, for example. And, should a member of a failed fund do as APRA suggests and compare their fund using the YourSuper Comparison tool, they may be confused by the results. BT Super’s Retirement Wrap for born in the 1980s, for example, achieved an 8.18% net return over 7 years. Despite this result being on-par with Aware Super Growth (8.17%) and Local Government Super’s Balanced Growth product (7.96%), BT’s product has a clear ‘Underperforming’ category by its name.2
The best performing fund (and the highest risk fund, with over 90% allocated to growth investments) was the Local Government Super’s High Growth product, which had a return of 9.46% over the 7 years. This may be a good return when compared to other MySuper products, however when compared to the High Growth Index (which is not a MySuper product), over the same 7 year period you could have achieved a return of 10.50% and the fees would have been more than 50% less.
What is the benchmark?
According to APRA, the 76 funds were graded as either a ‘pass’ or ‘fail’, based on an analysis of comparison of fees versus performance over a period of seven years.
Some argue the test was flawed, because it did not tell members why and by how much their fund failed the test. The test is a retrospective, relative performance assessment where the so-called underperforming products are compared against top performing products. Any product that falls half of one per cent (0.5%) below the median is labelled as failing.
What should you do?
Each of the failed funds is required by APRA to write to their members alerting them about their underperformance and encouraging them to move elsewhere. What will you do if you receive this letter?
In many cases, retaining a ‘failed’ product may be in your best interests. As we know, there are many important factors to consider when choosing a super fund, such as appropriate levels of risk, the insurance coverage and even whether you agree with a fund’s investment approach i.e. an ethical approach.
I’m happy to announce that none of my clients were in the poorest performing funds, however if you were, as discussed above, I have concerns basing your super fund choice only on performance.