It's Judgment Time For Your Fund

Sun Herald

Sunday July 29, 2007

Nicole Pedersen McKinnon

WITH super now so darn attractive, it's more important than ever that you are in the right fund. Unfortunately, determining what that is can feel a little like pin the tail on the donkey.

And no one wants to end up an ass in retirement.

Thankfully, that risk has somewhat abated in the past week with the release for the first time of comprehensive figures on the type of funds that have served investors best over the past decade.

A report from the Australian Prudential Regulation Authority on the 10 years to June 30, 2006 - a period when, APRA says, super "came of age" - has found that not-for-profit industry super funds convincingly beat their commercial counterparts, retail funds.

While industry funds returned an average of 6.7 per cent over the period, retail funds managed only 5.3 per cent.

The result is a significant blow to retail funds, which have already endured a very public and high-profile attack by industry funds in the form of the "compare the pair" commercials.

APRA's figures are after expenses and tax, so capture the impact of fees. Indeed, they bear out what industry funds have been arguing for years - that their low cost base, and therefore fee structure, produces superior returns for investors.

The fact is that funds with a higher fee structure - such as retail funds - need to perform better than the rest simply to equal their peers.

But instead they have underperformed by some 20 per cent over the past 10 years, an amount and a length of time that would mean a significantly different retirement outcome for their members.

What is interesting about APRA's data, however, is that industry funds aren't the best performing fund type.

The podium actually went to public sector, or government funds, which turned in an impressive 8 per cent. And a close second were corporate funds, those run for staff by big employers such as Telstra, with 7.8 per cent.

Again, much of the difference will have come down to fees.

Bully for you if you are a member of such a fund, which is generally closed to the public. If not, your best option may be a public-offer industry fund.

So which have performed best in the past financial year?

Newly released figures from data analyst SuperRatings show that the top five were:

* Catholic Super Fund - Balanced with a return of 21 per cent.

* Westscheme - Trustee's Selection with 18.8 per cent.

* MTAA Super - Balanced with 18.7 per cent.

* BUSS(Q) - Balanced Growth with 18 per cent.

* Australian Super - Balanced Option with 17.8 per cent.

The median balanced fund as reported by SuperRatings, which covers all fund types with an emphasis on industry funds, clocked up a decade-beating 15.7 per cent.

It's this figure by which you should judge your own fund.

If it has performed much worse, investigate how it has done in previous years. And if it has consistently underperformed, consider switching to a different - industry? - fund.

As super guru David Potts explains in our cover story, your fund's fees and performance will make a significant difference to the date you can retire. Turn to page six to discover how you could fast-track yours by years.

If you would like to appear in Investor Overhaul, simply send an email with your name and details to investor@fairfax.com.au. You would need to be willing to have your photograph and financial details published.