Industry Super Australia (ISA) released an analysis of SuperRatings latest data last week, arguing that industry super funds “run rings around banks”.
According to ISA’s analysis of the SuperRatings Fund Crediting Rate Survey, SR50 Balanced (60-76) Index until 31 January 2018, industry funds had outperformed bank-owned funds by between 2.21 per cent and 3.40 per cent over separate one to 10-year metrics.
However, Chant West data for the same periods, but measuring diversified performance, found that the outperformance was more modest, ranging between 0.5 per cent for the 10-year metric and 1.6 per cent for the three-year metric.
ISA analysis of SuperRatings Fund Crediting Rate Survey, SR50 Balanced (60-76) Index, to 31 January 2018:
|1 yr %||3 yr %||5 yr %||7 yr %||10 yr %|
Chant West diversified fund performance across industry and retail funds to 31 January 2018:
|1 yr %||3 yr %||5 yr %||7 yr %||10 yr %|
According to Chant West head of research Ian Fryer, this comes down to a combination of different approaches to measuring fees and composition of the indices.
Chant West removes the investment fees while SuperRatings removes the percentage-based administration fee, producing a net result.
However, it’s more than just fees contributing to the difference, Mr Fryer said.
Commenting on ISA’s analysis of SuperRating’s data, he said, “A number of the products that ISA use in their bank-owned products have less relevance now than they used to because there's little money going into them and a lot of the money that used to be in them has been transferred out to MySuper products.”
That’s because, following the introduction of MySuper in 2014, a number of older retail products were no longer able to accept new monies as they had commissions coming out of them.
Three years later, in 2017, the money in those funds was required to be transferred out.
Mr Fryer said, “This [analysis] is not indicative of what someone would get as the default on the MySuper options in these retail products.”
However, ISA chief economist Dr Stephen Anthony rejected this diagnosis. He told Nest Egg that the difference in SuperRatings’ and Chant West’s figures is a matter of fee measurement, not index composition.
Dr Anthony said, “The difference between Chant West’s and SuperRatings’ numbers is that SuperRatings, just like APRA … records net returns including investment management fees and administrative fees.”
“Chant West doesn't include those fees, so it's a gross concept. As you can see it makes a huge difference,” he said, contending that as the net concept is closer to what members actually received, it is “the way to go”.
Additionally, he refuted the claim that the MySuper introduction has had a material impact on the SR50 index.
“We're talking about 10-year returns. In some instances we're talking about 15-year returns, that's where that ends, right there,” he said, responding to questioning about that claim.
“If there's something particular that people want to ask about a particular year from then on, we'd be happy to take that question and examine it, test it, but the fact of the matter is that the outperformance has been 2 per cent or greater on a 10-year rolling basis for many years, so I don't think that one stacks up.”
What does SuperRatings have to say?
CEO at SuperRatings Kirby Rappell told Nest Egg that SuperRatings collects data across around 2,000 investment strategies. Sector subscribers, like ISA, then undertake their own analyses using sample sets of funds.
“So personally it's not something that we've done the analysis for them,” Mr Rappell said.
He said SuperRatings each month analyses about 200 balanced options, which are funds with 60-76 per cent growth assets, then the 10-year average return for not-for-profit, or industry funds, is 5.45 per cent, at least until the end of December, while the median master trust delivered 3.91 per cent.
“From that point, there continues to be a reasonable performance difference from the two sides,” Mr Rappell said.
“It is different based on how you look at the two data, but that's based on our broadest possible data set, so that's sitting at about 1.55, 1.6 per cent p.a. over a decade and that takes into account both older products on the market and more contemporary products on the market.”
However, he did note that while SuperRatings' broadest indicator measures not-for-profit funds against master trust funds, ISA was analysing major-bank owned funds against industry.
“What I would say is that the number I just quoted has a benchmark that includes all products in the market; they have newer school products as well as older products,” Mr Rappell continued.
“I think the key contention here – a really important point to consider here – is that a lot of money still resides in historical products.
“It shows the importance of members being engaged with their super and making sure that they're in a really competitive product because the landscape has been changing over time, and thirdly, from this side, we will continue to track as much of the market as possible. As long as money is retained in those products we will continue to analyse them.”