It’s been a another stellar year for super fund members with returns being the second best in a decade. But with fund members in Australian share options scoring 23 per cent, moving beyond default options into specialist sector options can pay even better dividends if you choose wisely. By Alex Dunnin
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- Super funds have just had their second best year this decade.
- They have averaged 14.4 per cent during 2005-06, 13 per cent per annum over the last three years and 8.4 per cent per annum over the decade.
- Choosing sector options can really boost your hip-pocket if you choose them wisely as Australian share options averaged 23 per cent last year and international shares averaged 18 per cent.
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It’s been another stellar year for super fund members with returns being the second best in a decade. In fact returns from super fund default investment options this year averaged a whopping 14.4 per cent, which is only a little higher than the very impressive but much more important three year figures of 13 per cent per annum.
Driving returns so high have been Australian shares which returned 24 per cent for the year to 30 June 2006 and overseas shares which also rocketed ahead with a 20 per cent return. This is so important because shares, whether Australian or overseas, make up nearly two-thirds of most super fund’s investment portfolios.
Long term super fund returns - balanced options
Good investment returns in the share markets over the last few years have also encouraged many fund members to take the plunge to choosing sector specialist investment options like Australian shares. If you were one of the shrewd fund members who did this then even if your fund was only average it would still have made you 23 per cent.
When choosing between super funds however, lots of the talk is between industry funds and master trusts, and also whether you should join a public offer fund, meaning one that you can join freely yourself without having to go through your employer. According to the SelectingSuper fund performance surveys, industry funds averaged 14.9 per cent during 2005-06 and master trusts averaged 12.6 per cent.
While this is a very big gap between the segments, much of it is explained by industry funds having generally much lower fees than master trusts because usually they are direct-sell funds that don’t need the support of financial advisers and because master trusts are usually much more complex funds with many more investment and insurance choices on offer.
This means industry funds are generally much simpler super funds and this can translate into much lower fees. These headline results however really only mean something to you if you leave the investment decisions up to your super fund’s trustees by choosing only their default investment option.
Just like how fund members who chose Australian share investment options got different returns to those of the default options, if you had chosen other investment sectors as well you would have gotten quite different returns still.
For example, fund members investing in growth option would have earned 16.6 per cent last year, while investors who took the more conservative capital stable route would have earned only 7.6 per cent. Meanwhile, international share options earned 18 per cent, property options earned 14.4 per cent, and Australian bonds earned only a paltry 2.3 per cent.
These sector differences tell us that while picking the right super fund is important, its becoming increasingly important to choose the right investment sectors. If you are a ‘set and forget’ investor not wanting to worry too much about investments as you just want to leave it to the fund, then you should check out simple low cost funds like industry funds or low cost master trusts like Virgin or max Super.
But as soon as you decide you want to get a little more active and start to choose investment sectors yourself, then the decision is no longer just about industry funds versus master trusts as you now need to make sure you understand what’s available in each fund’s investment menu.
According to SelectingSuper, the top ‘set and forget’ funds in 2005-06 were MTAA Super, AustralianSuper, TISS, CBUS and AGEST, while the best super funds for making your own choices were Colonial FirstChoice, AMP, ING, Fiducian and IOOF.
Returns in each asset sector, to 30 June 2006
| (after all fees - pa) |
1 year |
3 years |
5 years |
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Diversified |
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Growth |
16.6% |
15.0% |
6.5% |
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Balanced |
13.1% |
12.4% |
6.5% |
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Capital Stable |
7.6% |
7.7% |
5.4% |
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Capital Guaranteed |
5.6% |
4.8% |
4.1% |
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Specialist |
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Australian Shares |
22.6% |
21.6% |
10.6% |
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International Shares |
18.2% |
12.2% |
-0.7% |
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Property |
14.4% |
13.6% |
12.6% |
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Australian Bonds |
2.3% |
3.2% |
3.8% |
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International Bonds |
1.5% |
4.5% |
5.0% |
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Cash |
4.4% |
4.2% |
3.9% |
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Other |
8.7% |
9.6% |
6.0% |
Source: Rainmaker Information
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