Despite economic chaos in Europe and the US, super funds averaged nearly 9 per cent in 2010-11 with top funds earning an impressive 14 per cent.
By Alex Dunnin
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- Super funds are averaging 6.7 per cent per annum over the past 20 years, which while it might not seem high is still 2½ times the 2.6 per cent annual inflation rate.
- We normally expect super funds to experience negative returns just two years in 20 but the last decade has been so rough on investors they’ve experienced four negative years in just the last 10.
- While minimising fees is very important, being in a super fund that performs reasonably well is always the best way to deliver the best investment outcomes.
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The just gone financial year 2010-11 was an important year for super fund members because it showed that despite worldwide economic chaos, super funds can still perform reasonably well. There’s still no escaping however that the last 10 has been a very wild ride.
Long term super fund returns - default options
It’s been wild because super funds normally expect to experience negative annual returns twice every 20 years but in just the past decade they’ve experienced an unprecedented four negative years. It’s enough to almost shatter the confidence of most fund members especially as without these negative years funds could have averaged a whopping 10 per cent per annum.
These volatile times, where returns jump up and down very sharply from year to year, ironically remind us why superannuation is so important – to help us save for our retirement. Capital market returns may be unpredictable in the aftermath of the global financial crisis but no matter what they deliver us we still need to save for our retirement because if we don’t we’ll either have to work longer or expect a much smaller retirement nest egg.
One way to overcome this is saving extra and putting more money into our superannuation or investing money elsewhere to supplement our superannuation savings. But regardless what we do, superannuation will still be the lynchpin of our retirement savings plan simply because the tax concessions it provides are so generous.
Helping super fund returns perform reasonably strongly in 2010-11 were the 11.9 per cent they earned on the Australian share market, the 9.4 per cent they earned from their property investments and the 8.7 per cent they earned from their international fixed interest bonds. These investments make up about 60 per cent of all their assets if we count the 15 per cent they also hold in what are known as alternatives assets.
These returns were however held down by the 2.7 per cent they earned from international shares, the 5.0 per cent they earned from cash and the 5.6 per cent they earned from Australian fixed interest. These investment make up about 40 per cent of their total assets.
And let’s not forget the impact of the rising Australia dollar, which was so dramatic it undid almost all the earnings from international shares. For example, global shares earned more than 25 per cent in 2010-11 but this was before taking into account the 24 per cent rise in our dollar.
These asset class results show us other important features of superannuation, namely that which asset classes your superannuation is invested into can have a huge impact on the returns you will receive.
For example, growth investment options that have lots of aggressive assets such as shares and property averaged 8.6 per cent in 2010-11 or 4.0 per cent per year over the decade. Meanwhile balanced funds which are not so aggressive earned 7.5 per cent in 2010-11 and 4.4 per cent per year over the decade.
More conservatively invested capital stable investment options, ie those with a high proportion of their assets in fixed interest and cash, returned 6.2 per cent in 2010-11 and a relatively high 4.5 per cent per year over the decade. Their comparatively high long term return obviously reflects how well fixed interest bonds have performed recently particularly after taking into account the stock market melt-downs of the GFC and what’s been happening since on global debt markets.
Another feature to be very mindful of is that while the average balanced super fund might have averaged 7.5 per cent in 2010-11, the top performing balanced investment option achieved 12.5 per cent while the worst achieved 9.9 percentage points less at just 2.6 per cent.
This means the difference between being in the top versus the worst performing can be massive, reinforcing why choosing good super funds and monitoring them is so important.
Indeed if you were sharp enough to have picked the top fund each and every year you would be sitting on a 10 year return of 13.7 per cent per annum compared to an abysmal –4.3 per cent per year if you had been unlucky enough to have been in the worst performing fund each and every year.
Performance gaps this extreme should convince us that low fees only matter if the returns are still reasonable as there is no point being in a low cost fund if you still can’t make money in your superannuation. But conversely, paying more in fees just because you can is pointless as well.
The top super funds according to Rainmaker and SelectingSuper’s surveys for 2010-11, measured by their default investment choices, were Health Super, VISSF, Triple-S (SA), Local Super (SA) and Asgard Elements.
The best funds over five years measured the same way were Progressive Super, REST and also their master trust Acumen, Catholic Super, ClubPlus and NGS.
The top performing funds in each asset class were AMP Custom Super in Australian shares which earned 27 per cent, Sunsuper in international shares which earned 23 per cent, AGEST in property which earned 29 per cent, RBF (Tasmania) which earned 8 per cent, ASSET Super in international fixed interest which also earned 8 per cent and IOOF Portfolio Service for cash which earned 6 per cent.
Despite these mixed messages from superannuation, this year the take-outs are still the same they’ve always been: choose reputable funds you can trust and choose options from their investment menu that you understand. And make sure you know where your money is invested and what the long term return outcome is likely to be.
Finally, don’t forget that sometimes – like is happening now short term results can go against you. When that happens, don’t panic but try to understand why so you can make good decisions about whether you should stay put, switch investment options or switch super funds altogether.
Table 1: Long term super returns
| Years |
1 |
3 |
5 |
10 |
15 |
20 |
| Percent pa |
8.6% |
1.2% |
1.9% |
4.3% |
6.2% |
6.7% |
Source: Rainmaker Information
Returns in each asset sector, to June 2011
| (after all fees - pa) |
1 year |
5 years |
10 years |
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Diversified |
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Growth |
8.6% |
0.9% |
4.0% |
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Balanced |
7.5% |
1.7% |
4.4% |
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Capital Stable |
6.2% |
3.2% |
4.5% |
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Capital Guaranteed |
3.1% |
3.5% |
4.1% |
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Specialist |
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Australian Shares |
10.6% |
2.4% |
7.0% |
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International Shares |
5.3% |
-4.0% |
-2.5% |
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Property |
8.9% |
-4.4% |
3.4% |
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Australian Bonds |
4.0% |
4.0% |
3.6% |
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International Bonds |
4.5% |
5.0% |
4.6% |
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Cash |
4.0% |
4.2% |
4.1% |
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Other |
8.9% |
3.2% |
6.4% |
Source: Rainmaker Information
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