After many years of growth, superannuation balances went backwards last year and gave members a nasty jolt.
It was the first negative year since 2011 and the first really major decline since the shocking 21.5 per cent loss experienced in 2008 during the Global Financial Crisis.
With the average balanced fund (with 61 to 80 per cent growth assets) down 4.8 per cent by SuperRatings calculations, and 4.6 per cent by Chant West reckoning, a fund with $150,000 invested at the start of the year would have been worth $142,950 at year’s end.
But just because the benchmark was down at that level doesn’t mean everybody did that badly. SuperRatings’ list of top 10 performers shows that two funds, Perpetual Balanced Growth Fund (a retail fund) and First Super Balanced turned in positive results of 1.65 per cent and 0.08 per cent respectively.
The rest of the top 10 suffered losses of 3.64 per cent or less. That is a better performance than the federal government’s Future Fund, which came in with a negative 3.7 per cent despite not having the extra costs super funds incur in servicing hundreds of thousands of members.
The top performers on SuperRatings charts, by and large, did not represent a flash in the pan result. The top 10 included seven of the top 10 funds as measured over the past year.
What drove the top performers?
SuperRatings executive director Kirby Rappell says the strong performers in 2022 tended to be funds that “used value managers who have been delivering better than average performances during the period of high volatility that we have been seeing lately”.
Another driver for better performance last year was “funds that had a much lower weighting to fixed interest than the average because fixed interest had a pretty tough time”, Mr Rappell said.
Fixed interest typically makes up about 14 per cent of the asset base of a balanced super fund.
While bonds are usually considered a conservative or safe asset like cash, that wasn’t the case last year. Rising interest rates caused the value of Australian and international bonds to decline 9.7 per cent and 12.3 per cent respectively at the same time that shares and listed assets also dropped dramatically.
“That decline in bonds was a once-in-30-year event, the previous bond crash was in 1994,” said Tharbojan Rasiah, principal of Rasiah Private.
Typically, the funds that outperformed the average had exposure to bonds well below that 14 per cent average.
The other driver of strong performance last year was exposure to the resources sector which boomed as COVID restrictions were lifted and Russia’s invasion of Ukraine caused shortages of energy, fertilisers and other minerals, Mr Rappell said.
“There has been a sort of rotation going on with strong returns in resources stocks while the tech sector, after years of strong growth, underperformed recently,” Mr Rappell said.
And, while low costs are usually considered a significant driver of better returns, this alone was not the case. SuperRatings’ published chart of the top 10 funds in terms of low fees demonstrates this.
Only two funds in the cheapest fees category, Vision and Mercer, are listed in the top 10 performers over either one or three years.
What to look for in a super fund
To get a good look how a fund performs over time it pays to go back a long way. This table shows that, in the long term, the major industry funds have performed well.
So, don’t panic just because your fund took a dip in the difficult year just gone. If you look back over 20 years you will see that some funds that took larger than average dips last year have performed strongly over time.
And remember superannuation is a long-term game.
That doesn’t mean that you should ignore poor performance.
“Poor returns can be an indicator of problems in a fund because the bottom performers are usually terrible,” Mr Rasiah said.
But returns figures are not enough by themselves to choose the super fund you want to invest your retirement in. You need to look below the surface at the investment make-up of the fund you are interested in.
While a fund maybe classed as “balanced” it may have an investment make-up that would be better described as “high risk”.
“We’ve seen super funds that have a balanced option label but have 90 per cent of their investments in what I’d describe as high risk categories,” Mr Rasiah said.
High risk categories tend to be listed products, like listed shares, property and infrastructure. Unlisted products, like private equity and other alternative classes, don’t bump around with the market.
But make sure that unlisted asset prices are being reported regularly so that poor performance is not being masked by long periods between reports. These days quarterly reporting is what you want to see.
So before you open or change a super fund look at its website to get a good picture of its investments. If you still have questions, give the fund a call and ask them.
The New Daily is owned by Industry Super Holdings
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