The Lonsec Board of Directors is very pleased to announce the appointment of Mike Wright as CEO of Lonsec effective 5th July 2021.

Lonsec Chairman Mark Spiers said, “Mike’s unique blend of leading teams to develop and implement client-oriented growth and service initiatives along with his strong industry relationships and knowledge were exactly the leadership attributes that we were seeking.”

“By continuing to stay close to our clients Lonsec has enjoyed significant growth across all its business units and I am excited to be able to work with the great team at Lonsec to continue to build on this,” said Mike.

Mike was most recently the CEO of Xplore Wealth, an ASX listed company specialising in providing managed account investment solutions to financial advisers. Xplore Wealth was successfully acquired by Hub24 via a Scheme of Arrangement, completed 2nd March 2021.

Prior to this, Mike had a long and successful career in the Westpac/BT Group, where he held senior executive roles with Westpac’s Retail & Business Banking, and was State General Manager of Queensland before leading the Advice business at BT.

Release ends

For more information, contact:

Rob Hardy
robert.hardy@lonsec.com.au
+61 2 8651 6744

While not as strong out of the gates as members had hoped, January’s result nevertheless marked the tenth consecutive month of gains for super funds as members continue to claw back their losses since the start of the pandemic a year ago.

According to SuperRatings data, the median balanced option and median growth option both returned an estimated 0.4% in January, while the median capital stable option was flat at 0.1%. Over the 2021 financial year to date, the median balanced option returned 9.1%, reflecting the strength and speed of the recovery in the second half of 2020.

As Victoria endures a snap five-day lockdown and other state governments increase testing and tracing efforts in the face of the new ‘UK variant’ of the COVID-19 virus, markets are still exposed to potential downside risk. Despite good news on the vaccine front, it will take time for vaccines to be distributed nation-wide to every demographic. Until then, members should be ready for a bumpy ride in 2021.

“Super funds have had a promising start to 2021, but the pandemic isn’t over yet,” said SuperRatings Executive Director Kirby Rappell.

“Movements in financial markets are still closely tied to how governments are managing new COVID-19 cases, as well as the timing and efficacy of vaccines. In short, we expect more ups and downs in the market, and super funds are not immune.”

Accumulation returns to end of January 2021

FYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a)
SR50 Growth (77-90) Index 10.8% 1.7% 6.5% 8.8% 8.1% 8.2%
SR50 Balanced (60-76) Index 9.1% 1.8% 5.9% 7.7% 7.2% 7.6%
SR50 Capital Stable (20-40) Index 4.2% 1.1% 3.7% 4.6% 4.6% 4.9%

Source: SuperRatings estimates

Pension returns were also slight but positive in January. The median balanced pension option returned an estimated 0.3% in January and 9.9% over the financial year to date. The median pension growth option returned an estimated 0.4% and the median capital stable option returned an estimated 0.1% through the month.

Pension returns to end of January 2021

FYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a)
SRP50 Growth (77-90) Index 11.9% 2.0% 7.1% 9.7% 9.0% 9.1%
SRP50 Balanced (60-76) Index 9.9% 1.8% 6.5% 8.5% 8.1% 8.4%
SRP50 Capital Stable (20-40) Index 4.7% 1.4% 4.3% 5.2% 5.1% 5.7%

Source: SuperRatings estimates  

The pandemic still looms large across the global economic landscape, with over 100 million confirmed COVID-19 cases worldwide at the start of February. The gradual rollout of vaccines is offering hope that we can achieve a new normal despite early logistical roadblocks and shortages in some regions.

Meanwhile Australia’s recovery continues and has been most evident in the labour market, which continues to outperform expectations. The unemployment rate fell from 6.8% to 6.6% in December with 50,000 jobs added over the month. While lockdowns will likely continue to be used as a policy tool, they will hopefully be shorter and more targeted.

According to SuperRatings, super funds are in good health and well positioned for 2021 despite the challenges.

“One thing that was reinforced in 2020 is that Australia’s superannuation system is built to withstand market storms and even pandemics,” said Mr Rappell.

“Overall funds are focused on the risks and opportunities that lie ahead. To date, they have shown the ability to manage their investment positions and provide the additional support that many members need in this environment.”

Release ends

Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the merits of the superannuation or pension financial product(s) alone, without taking into account the objectives, financial situation or particular needs (‘financial circumstances’) of any particular person. Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If SuperRatings advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each superannuation or pension financial product before making any decision about whether to acquire a financial product. SuperRatings research process relies upon the participation of the superannuation fund or product issuer(s). Should the superannuation fund or product issuer(s) no longer be an active participant in SuperRatings research process, SuperRatings reserves the right to withdraw the rating and document at any time and discontinue future coverage of the superannuation and pension financial product(s).

Copyright © 2021 SuperRatings Pty Ltd (ABN 95 100 192 283 AFSL No. 311880 (SuperRatings)). This media release is subject to the copyright of SuperRatings. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth.), no part of this media release may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of SuperRatings. This media release may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to SuperRatings copyrighted material, applies to such third party content.

November was the strongest month for superannuation in 2020 and the 8th consecutive month of positive returns for members.

As COVID-19 restrictions ease nation-wide and investors look forward to the approval and distribution of a vaccine, share markets globally have pushed to record highs, delivering windfall gains for super members.

According to estimates from leading superannuation research house SuperRatings, the median balanced option returned 4.9% in November as members enjoyed an early Christmas gift that has put them back into the black over the course of a volatile and uncertain year.

Since the start of 2020 the median balanced option has delivered 2.3% and is on track to finish the year in positive territory. Super has bounced back strongly in the second half of the year, returning 7.5% from the start of July to the end of November, reversing the large falls back in February and March.

According to SuperRatings data, the median growth option returned an estimated 6.2% in November and 2.4% over the calendar year, while the median capital stable option returned an estimated 2.0% in November and 1.7% over the calendar year.

“We’ve had a watershed month for super and hopefully this strong performance can continue through to the new year,” said SuperRatings Executive Director Kirby Rappell.

“Given the world is battling a pandemic that has resulted in large sections of the economy being placed in lockdown, the results are remarkable. This is the year super proved its worth once again and reminded us why it is so critical to our economic success.”

Accumulation returns to end of November 2020

CYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a)
SR50 Growth (77-90) Index 2.4% 2.4% 6.6% 7.9% 8.0% 8.4%
SR50 Balanced (60-76) Index 2.3% 2.2% 5.8% 7.1% 7.3% 7.9%
SR50 Capital Stable (20-40) Index 1.7% 1.5% 3.8% 4.3% 4.6% 5.1%

Source: SuperRatings estimates

Pension returns had a similarly strong month. The median balanced pension option rose an estimated 5.4% in November and 2.6% over the calendar year. The median pension growth option rose an estimated 6.8% in November and 2.6% over the calendar year, and the median capital stable pension option returned an estimated 2.3% in November and 2.0% over the calendar year.

Pension returns to end of November 2020

CYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a)
SRP50 Growth (77-90) Index 2.6% 2.6% 7.3% 8.7% 8.9% 9.3%
SRP50 Balanced (60-76) Index 2.6% 2.4% 6.6% 7.8% 7.9% 8.5%
SRP50 Capital Stable (20-40) Index 2.0% 1.7% 4.4% 5.0% 5.2% 5.9%

Source: SuperRatings estimates  

The global recovery is underway and is looking sufficiently V-shaped, but recent economic news has been mixed. Infection rates have risen in the US and Europe, causing a loss of momentum, but news of successful vaccine trials have boosted confidence.

The UK has begun rolling out the Pfizer-BioNTech vaccine, while Australia and the US are preparing to do the same once the vaccine is approved. Meanwhile, China has ramped up its trade conflict with Australia, putting tariffs of up to 200% on Australian wine and suspending the importation of Australian beef, barley and timber.

“Australia’s success in containing the coronavirus has put us in an enviable position, but there are still significant risks at play. The pandemic is not yet defeated and there are geopolitical issues weighing on the outlook. Members should be optimistic but prepare themselves for potential surprises as we head into 2021.”

Release ends


Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the merits of the superannuation or pension financial product(s) alone, without taking into account the objectives, financial situation or particular needs (‘financial circumstances’) of any particular person. Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If SuperRatings advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each superannuation or pension financial product before making any decision about whether to acquire a financial product. SuperRatings research process relies upon the participation of the superannuation fund or product issuer(s). Should the superannuation fund or product issuer(s) no longer be an active participant in SuperRatings research process, SuperRatings reserves the right to withdraw the rating and document at any time and discontinue future coverage of the superannuation and pension financial product(s).

Copyright © 2020 SuperRatings Pty Ltd (ABN 95 100 192 283 AFSL No. 311880 (SuperRatings)). This media release is subject to the copyright of SuperRatings. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth.), no part of this media release may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of SuperRatings. This media release may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to SuperRatings copyrighted material, applies to such third party content.

SuperRatings and Lonsec have announced the winners of this year’s Fund of the Year Awards, which was held virtually for the first time in the event’s 18-year history.

The Fund of the Year Award went to QSuper, which also took home the Pension of the Year Award and the Smooth Ride Award. UniSuper claimed the MySuper of the Year Award, and Sunsuper clinched the MyChoice Super of the Year Award.

The winners were announced at a virtual awards event on 29 October, broadcast live from the Museum of Contemporary Art, Sydney.

“It’s important to recognise the significant work that all funds have done to support their members through a very challenging year,” said SuperRatings Executive Director Kirby Rappell.
“In a highly competitive field, we decided that QSuper was the fund that performed most strongly across the key criteria of investment performance, fees, member services, financial advice and insurance, and fund governance.”

“Congratulations to the team at QSuper on a fantastic effort. It was a strong field this year and we note the high calibre of all award winners, with the quality of their offerings shining through the pandemic.”

“A lot has changed in super, and there are even more changes to come. We should always be focused on improvement, but we shouldn’t lose sight of the incredible outcomes being produced by a large number of funds, both for their members and the retirement system as a whole. Despite the uncertainty, there is every reason to be positive about super.”

 

Congratulations to all of the finalists for this year’s SuperRatings and Lonsec Fund of the Year Awards Dinner. A full list of the awards is available below.

SuperRatings Fund of the Year Award

Winner

QSuper
 
 
 
 
 
 
 
 

SuperRatings MySuper of the Year Award

Awarded to the fund that has provided the Best Value for Money Default Offering.

Winner
UniSuper

Finalists
AustralianSuper
BUSSQ
CareSuper
Cbus
Equip
HESTA
QSuper
Sunsuper
TelstraSuper
UniSuper

SuperRatings MyChoice Super of the Year Award

Awarded to the fund with the Best Value for Money Offering for Engaged Members.

Winner
Sunsuper

Finalists
AustralianSuper
Aware Super
Hostplus
Mercer Super Trust
NGS Super
QSuper
Statewide Super
Sunsuper
Tasplan
UniSuper

SuperRatings Pension of the Year Award

Awarded to the fund with the Best Value for Money Pension Offering.

Winner
QSuper

Finalists
AustralianSuper
Aware Super
BUSSQ
Cbus
HESTA
Hostplus
QSuper
Sunsuper
TelstraSuper
UniSuper

SuperRatings Career Fund of the Year Award

Awarded to the fund with the offering that is best tailored to its industry sector.

Winner
Cbus

Finalists
BUSSQ
Cbus
HESTA
Mercy Super
TelstraSuper
Hostplus

SuperRatings Momentum Award

Awarded to the fund that has demonstrated significant progress in executing key projects that will enhance its strategic positioning in coming years.

Winner
Aware Super

Finalists
Aware Super
Cbus
Equip
HESTA
Mercer Super Trust
Sunsuper

SuperRatings Net Benefit Award

Awarded to the fund with the best Net Benefit outcomes delivered to members over the short and long term.

Winner
AustralianSuper & HESTA

Finalists
AustralianSuper
Cbus
HESTA
Hostplus
QSuper
UniSuper

SuperRatings Smooth Ride Award

Awarded to the fund that has best weathered the ups and downs of the market, while also delivering strong outcomes.

Winner
QSuper

Finalists
AustralianSuper
Aware Super
BUSSQ
CareSuper
Cbus
QSuper

Infinity Award

Awarded to the fund most committed to addressing its environmental and ethical responsibilities.

Winner
Local Government Super

Finalists
Australian Ethical Super
CareSuper
Christian Super
Future Super
HESTA
Local Government Super

Lonsec Investment Option Award

Seeks to recognise and highlight the work of asset managers and key players incorporating ESG.

Winner
CareSuper – Sustainable Balanced

Finalists
CareSuper – Sustainable Balanced
Cbus – Growth (Cbus MySuper)
Suncorp Multi-Manager Growth
Sunsuper for Life – Balanced

 

Release ends

In a financial year that saw a bull market turn into a sharp selloff followed by a recovery, super funds were rocked by a level of volatility not seen since the financial crisis a decade ago.

As funds finalise their reporting for June 2020, the fallout from the Covid-19 crisis is clear, but far from the sea of red that members and commentators may have expected back in March. For members invested in any of the top 15 performing balanced options, the past year has netted a slim but positive return compared to the estimated median return of -1.2%.

According to data from leading research house SuperRatings, Suncorp was the top returning fund over the 12 months to the end of June, with the Suncorp Multi-Manager Growth Fund returning 3.8%. This was followed by BUSSQ and Australian Ethical Super, whose balanced options returned 2.5% and 2.4% respectively.

Top 10 SR50 Balanced Index options over 12 months

* Interim return
Source: SuperRatings. Returns to end June 2020.

While it is important to acknowledge those funds that have outperformed during the Covid-19 pandemic to date, members should bear in mind that long-term performance is what really counts.

Over 10 years, the top performers are AustralianSuper, whose balanced option has returned 8.8% p.a., followed closely by UniSuper and Hostplus. Performance for the median balanced option continues to hold strong, returning an estimated 7.6% over the decade to 30 June 2020.

Top 10 SR50 Balanced Index options over 10 years

Source: SuperRatings. Returns to end June 2020.

“Importantly, over the long term, returns remain very healthy,” said SuperRatings Executive Director Kirby Rappell. “Super is a long-term game, so members should avoid chasing short-term results and ensure they are invested in a quality fund with the right investment strategy that is well positioned to deliver for their needs over the course of their working life.”

Interestingly, only half of the top performing funds over 12 months were among the top performing funds over 10 years, highlighting the difficulty for investment strategies to perform well in differing market conditions over a longer term.

“It was pleasing to see 15 out of the 50 options in the SR50 Balanced Index generate a positive return in the 2019-20 financial year, which speaks to the quality of funds available to members,” said Mr Rappell.

“Managing risks while delivering a positive return in this environment has been a real challenge, and this is likely to continue through the rest of 2020.”

According to SuperRatings, given the success of super over the past 10 years in accumulating wealth, members will feel the bumps more when markets go down.

“Prior to Covid-19, we saw the industry average account balance rise over $100,000, compared to around $30,000 during the GFC,” said Mr Rappell.

“This means that, on an absolute basis, members will see their balance move around a lot more than they have previously. Funds have done an excellent job of both managing risk and educating their members on these issues, but more can be done in this space.”

QSuper delivered the best return to risk ratio of its peers over the 7 years to 30 June 2020. While CareSuper, Cbus, MTAA, VicSuper and AustralianSuper delivered a higher return over this period, they did so at a slightly higher level of risk.

Top 10 SR50 Balanced Index options over 7 years ranked by risk and return

OptionRankingReturn % p.a.
QSuper – Balanced18.0%
BUSSQ Premium Choice – Balanced Growth27.9%
CareSuper – Balanced38.1%
Cbus – Growth (Cbus MySuper)48.5%
MTAA Super – My AutoSuper58.0%
VicSuper FutureSaver – Growth (MySuper) Option68.2%
Catholic Super – Balanced (MySuper)77.8%
First State Super – Growth88.0%
AustralianSuper – Balanced98.8%
Media Super – Balanced107.7%

Source: SuperRatings. Returns to end June 2020. Risk and return ranking based on Sharpe ratio.

 

Release ends

We welcome media enquiries regarding our research or information held in our database. We are also able to provide commentary and customised tables or charts for your use.

For more information contact:

Kirby Rappell
Executive Director
Tel: 1300 826 395
Mob: +61 408 250 725
Kirby.Rappell@superratings.com.au

In the wake of the most challenging quarter for financial markets in living memory, super members are scrambling to check their account balances to see what effect the sell-off is having on their retirement savings.

While members are undoubtedly nervous and wondering what the market has in store for them next, leading research house SuperRatings cautioned members against making investment decisions based on an emotional reaction to the current environment.

“Our message for super members, especially those further from retirement, is stay invested if you can,” said SuperRatings Executive Director Kirby Rappell.

“Knee-jerk changes to your portfolio could have a negative effect on your retirement. Switching to cash will lock in losses and mean you miss out on the upside when the market eventually recovers. We suggest members talk to their fund or financial adviser to help ensure any decision is aligned with a long-term strategy.”

Superannuation has been hit hard by the coronavirus and the market’s reaction to extreme measures such as social distancing, lockdowns, and travel bans.

According to estimates from leading research house SuperRatings, the median balanced option fell 8.9% in March and is down 10.0% over the quarter.

The median growth option, which generally has a higher exposure to shares, fell 12.5% in March and 14.1% over the quarter. The median capital stable option fared relatively well amid the market turmoil, falling only 4.1% in March and 3.8% over the quarter.

Accumulation returns to end of March 2020

  CYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a)
SR50 Growth (77-90) Index -14.1% -6.4% 3.1% 3.7% 6.8% 6.5%
SR50 Balanced (60-76) Index -10.0% -3.1% 3.7% 4.3% 6.7% 6.5%
SR50 Capital Stable (20-40) Index -3.8% 0.4% 3.1% 3.2% 4.5% 4.9%

Source: SuperRatings estimates

Pension returns have also been buffeted by the wave of selling. The median balanced pension option fell an estimated 10.2% over the March quarter, while the median growth option fell 14.4%. In contrast, the median capital stable option was down 3.8%.

Pension returns to end of March 2020

  CYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a)
SRP50 Growth (77-90) Index -14.4% -5.9% 3.7% 4.4% 7.8% 7.3%
SRP50 Balanced (60-76) Index -10.2% -2.5% 4.2% 4.6% 7.3% 7.2%
SRP50 Capital Stable (20-40) Index -3.8% 1.0% 3.8% 3.7% 5.1% 5.6%

Source: SuperRatings estimates

The only good news in March seemed to be signs of a relief rally as markets priced in the government’s fiscal stimulus packages and the Reserve Bank of Australia’s bond-buying program, along with similar efforts from governments globally.

While more pain is expected, markets have already sold off heavily in response to the coronavirus and the measures taken to contain it.

How is your super option exposed to market moves?

According to SuperRatings, times of severe market stress can make investors second-guess their long-term investment strategy. For super members, switching to a more conservative investment option in the middle of a crisis can lock in significant losses and mean missing out on the upside when markets inevitably recover.

Older members nearing retirement are likely to be in conservative balanced or capital stable options which have higher allocations to defensive assets, providing protection from share market movements.

As the chart below shows, Australian and international shares generally make up just over half of the portfolio for a balanced option, with the rest invested in bonds, property, alternative assets, and cash. For growth options, shares typically make up around 67% of the portfolio, meaning members are more exposed to movements in share markets.

In contrast, members in a capital stable option will typically have only a 20% allocation to shares, with much higher allocations to bonds and cash, providing more stability and protection against share market swings.

Over time we have seen funds investing more in Alternative assets such as unlisted property, infrastructure and private equity, with these assets representing around 20% of the average balanced fund’s portfolio in 2019, up from 15% in 2008.

Asset allocation by investment option


Source: SuperRatings indices

Members need to keep the current market conditions in context. For most members, while there may be a fall on paper, the loss only becomes crystallised when members sell out. If you’re in the 20 to 40 age bracket, you have another 30 to 50 years to go before you need to start drawing down on your super. Even members in their 50s will need to rely on their super for drawdowns over the next 20 to 30 years.

Lonsec has partnered with AMP to make its Retirement Managed Portfolios available via MyNorth Managed Portfolio.

The portfolios harness the depth and breadth of Australia’s leading research provider, allowing users to build high-quality retirement solutions incorporating Lonsec’s best investment ideas. Underpinning the portfolios is Lonsec’s strict quality criteria, requiring funds to be rated ‘Recommended’ or higher by its investment research team.

“Our managed portfolios give financial advisers access to investment solutions supported by one of Australia’s largest investment research and consulting teams,” said Lonsec CEO Charlie Haynes.

“Being able to draw on our investment selection and portfolio construction expertise is a real plus, and we’re proud to be able to extend this access via the North platform users.”

Lonsec’s Retirement Managed Portfolios are objectives-based and focused on delivering an attractive and sustainable level of income while generating capital growth through a diversified portfolio of managed investments.

Lonsec offers three Retirement portfolios: Conservative, Balanced and Growth. Each are designed to achieve different risk and investment objectives over various timeframes. They are constructed using a range of funds that play a specific role, such as income generation, capital growth and risk control, and backed by Lonsec’s rigorous governance and review processes.

“Our Retirement Managed Portfolios have been constructed to manage the risks most relevant to investors in the retirement phase,” said Lonsec’s Chief Investment Officer Lukasz de Pourbaix.

“By diversifying across asset classes, managers and return sources, we aim to manage risks such as capital drawdown, which can materially impact the longevity of a retirement portfolio, particularly in the early stages of transitioning from superannuation to the pension phase of investing.”

“We’re very excited to be working with AMP to make these portfolios available to AMP’s North wrap users.”

Inclusion on North further expands the distribution of Lonsec’s Managed Account offering, following its existing availability on the BT, Macquarie, HUB24, Netwealth and Praemium platforms.

Lonsec’s retirement portfolios have been constructed to meet the income and capital objectives of investors in the retirement phase as well as to manage risks that are specifically relevant to retirees.

AMP’s North platform offers advisers flexible and efficient access to a range of investment products, which now include Lonsec’s retirement portfolios, giving advisers the tools they need to meet their clients’ goals.

The question no-one wants to ask is – Why are APRA collecting, interpreting and then publishing information in the public domain? The answer is simple – They shouldn’t be!

Instead of regulating, APRA are now trying to play the shame game through their just released heatmaps. But there is a real risk that some of those shamed will be the wrong funds. As the founder of SuperRatings, Jeff Bresnahan says, “The problem is that no one in the industry wants to tell the regulator that they have got it wrong.”

Effectively, APRA is putting into circulation data which analyses just parts of a super fund, not the whole. By ignoring things like Governance, Advice, Insurance and Member servicing structures, consumers are not being provided with the whole picture.

As Bresnahan says, “While conflicts of interest were identified as a major issue in superannuation during the Royal Commission, it seems ironic that APRA has deliberately avoided reporting any measurement of a Fund’s Governance structure”.

In an industry which carries inherently conflicted Directors, it would appear that Governance is ignored in favour of more easily assessable information. Whether such omissions create any legal liabilities for APRA in the future remains debatable.

As a result, APRA continues its foray into unchartered territory. This is not the first time APRA have got it wrong. They have been producing performance tables for over a decade. Unfortunately, the performance tables were flawed from a usefulness perspective, in that they don’t reflect the performance of a super fund’s investment options. However, they continue to produce them and in doing so confuse and possibly mislead Australians.

And so it continues with the heatmaps. Having reviewed the heatmap methodology, SuperRatings is of the opinion that their release into the public domain may create more questions than they answer and that consumers could well be influenced into products that are inappropriate for them.

Aside from the bigger question of why APRA is publishing such data, there remain a number of problems with the methodology adopted. Critically, APRA appears to ignore implicit asset fees when measuring net investment performance.  As Bresnahan says, “This methodology can easily overstate the net benefit a member receives. Similarly, a low-cost investment option with high administration fees creates the very real possibility of consumers investing monies in cheap investment options that have no chance of outperforming the relevant index over any time period, whilst getting slugged high administration fees.”

Investment analysis since the onset of the Superannuation Guarantee in 1992 has shown that all implicit fees and performance must be analysed together on an actual net of fees basis. Many leading funds, in terms of balanced option performance, have had higher allocations than the average fund to traditionally more expensive asset classes such as infrastructure, private equity and unlisted property. These asset classes have continually outperformed cheaper alternatives.

It’s only when all actual fees and returns are combined that the range of results is clearly evident in dollar terms, as the following graph indicates. The graph shows the disparity of net earnings on a $50,000 starting balance (and $50,000 salary) with SGC contributions mapped over both the last 3 and 10 years. Notably, many of the funds that added the most value, over both the short and long term, invested into the more expensive asset classes. Driving people into low-cost options will come at the expense of future earnings, something that taxpayers will ultimately have to bear.

Net benefit trend analysis (over 3 and 10 years)

Source: SuperRatings

And the anomalies continue. The heatmaps are judging funds on short term performance over just 3 and 5 years. Whilst it will be claimed this is necessary due to the limited performance history of MySuper products, it should be noted that most funds have been around for over 25 years and that their default option provides an accurate MySuper proxy.

As Bresnahan said, “Given super is a key plank of Australia’s economic future, it seems counter-intuitive for the Government’s regulator to not measure funds over a more realistic period. Certainly, it is commonly accepted that 7, 10 and 15 year performance analysis is best practice given the long term (60 years plus) nature of superannuation membership.”

Again, a consumer moving funds due to seeing a 3-year performance gap, mid-way through an economic cycle, will no doubt be moving for the wrong reasons.

The way forward

Bresnahan says, “Australians are not stupid, but they remain frustratingly unengaged with their superannuation.” This problem remains the real challenge for much of the industry. APRA’s endeavours are admirable, but questionable at the same time. He goes on to say, “A regulator should set the structure under which funds need to operate. The morphing of this regulatory process into public comparisons leaves it open to being seen as stepping across the line. One wonders what they are actually trying to achieve by moving into this public domain.”

If APRA must continue down this path, then SuperRatings suggests that they need to concentrate on the whole picture, rather than isolated parts therein. This should, aside from earlier mentioned issues, also include:

  1. Regulations to enable consistent fee disclosures, including the inequitable use of tax deductions and transparency to members;
  2. The disclosure of risk within portfolios, both via the assumptions within their growth/defensive disclosures and accepted risk measures;
  3. Compulsory disclosure of major asset holdings;
  4. Moving members into go-forward products and removing legacy structures;
  5. Continued rationalisation of member accounts; and
  6. Increased focus on the decumulation phase and the optimisation of the alignment with retiree objectives.

Identifying poorly run funds is not difficult and APRA would be well aware of them. A series of simple measures such as the non-public fee analysis shown below, when combined with other key assessments, quickly shows those funds who have spent the past few decades masking conflicts of interest at the expense of members.

When it costs a fund over $1,200 to run every account (versus a median of $300) or a fund’s operating expenses as a percentage of assets are over two and a half times the median, then those funds bear further scrutiny. Similar work can be done across Investments, Governance, Administration and Insurance, to name a few. By putting together the whole picture, the poor funds are very quickly exposed.

Operating expenses versus size and members

Source: SuperRatings

But it’s not all gloom and doom for the process. Importantly, after 14 years of industry debate, APRA has finally made a call on what constitutes a growth asset and what constitutes a defensive asset. The growth/defensive debate remains loud within the industry but with APRA’s call of Australian Unlisted Property and Australian Unlisted Infrastructure being 25% defensive, at least there is a starting point. SuperRatings suspect this will not however be the final position.

Certainly, APRA’s front foot involvement with data will give cause for reflection for all super funds, as the funds review their results and assess whether it has any implications for their future.

SuperRatings continues to watch the evolution of the market and continues to monitor funds on their effectiveness in responding to key challenges. We look forward to seeing whether the heatmaps evolve over time and remain broadly supportive of APRA’s underlying intentions. However, we underline that this remains only part of the picture and that the risk of making providers look alike is real. In an environment where innovation is needed, regulatory settings to support innovation are vital to ensure a vibrant industry that thrives into the future resulting in better outcomes for members.

Release ends

We welcome media enquiries regarding our research or information held in our database. We are also able to provide commentary and customised tables or charts for your use.
For more information contact:

Jeff Bresnahan
Founder & Chairman
Tel: 1300 826 395
Jeff.Bresnahan@superratings.com.au

Kirby Rappell
Executive Director
Tel: 1300 826 395
Kirby.Rappell@superratings.com.au

Super funds are off to a positive start in the December quarter, regaining momentum following a rocky September and paving the way for double-digit returns for the 2019 calendar year.

While markets have come under pressure in recent months, super funds have once again proved they are up to the task of navigating the significant uncertainty in markets, geopolitics, and the global economy.

Super fund returns held up well in October, despite weakness from Australian shares and signs of softer economic growth globally. The major financials sector has come under pressure due to constrained lending, lower net interest margins, and continued fallout from the Royal Commission. IT shares also suffered a dip as investors questioned the lofty valuations of Australia’s local tech darlings.

According to SuperRatings’ estimates, the median balanced option returned a modest 0.3% in October, but the year-to-date return for 2019 is sitting at a very healthy 12.5%. The median growth option has fared even better, returning 14.4%, while the median capital stable option has delivered a respectable 7.1% to the end of October.

Over the past five years, the median balanced option has returned an estimated 7.6% p.a., compared to 8.3% p.a. from growth and 4.7% p.a. from capital stable (see table below).

Estimated accumulation returns (% p.a. to end of October 2019)

  YTD 1 yr 3 yrs 5 yrs 7 yrs 10 yrs
SR50 Growth (77-90) Index 14.4% 11.9% 10.1% 8.3% 10.1% 8.5%
SR50 Balanced (60-76) Index 12.5% 10.5% 8.9% 7.6% 9.1% 7.9%
SR50 Capital Stable (20-40) Index 7.1% 6.8% 5.0% 4.7% 5.3% 5.6%

Source: SuperRatings

Estimated pension returns (% p.a. to end of October 2019)

  YTD 1 yr 3 yrs 5 yrs 7 yrs 10 yrs
SRP50 Growth (77-90) Index 16.4% 13.3% 11.2% 9.4% 11.4% 9.5%
SRP50 Balanced (60-76) Index 13.8% 11.7% 9.8% 8.3% 9.9% 8.7%
SRP50 Capital Stable (20-40) Index 8.3% 7.7% 5.9% 5.5% 6.0% 6.4%

Source: SuperRatings

“This year has provided further solid evidence of the ability of super funds to deliver for their members through a challenging market environment,” said SuperRatings Executive Director Kirby Rappell.

“Whether it’s the US-China trade conflict, the weaker economic outlook, falling interest rates, or the rolling Brexit saga, there’s been a lot for funds to take in. This has been a real test of their discipline and ability to manage risks on the downside. Growing wealth in this environment while protecting members’ capital is a tall order, but they have managed it well.”

Shifting asset allocation key to managing risk

One of the most important trends in the superannuation industry is the broadening of members’ investments across different asset classes. Over the past five years, super funds have shifted away from Australian shares and fixed income and moved a higher proportion of funds into international shares and alternatives (see chart below).

Change in asset allocation (2009 to 2019)

Super fund asset allocations have shifted towards alternatives

Source: SuperRatings

The shift to alternatives is significant and has been the subject of debate within the industry. Alternatives include private market assets and hedge funds, which despite the negative connotations can provide an important source of diversification and downside protection when markets take a turn for the worse.

These assets tend to be less liquid, but they can play an important role for funds looking to generate income while managing risks for their members in a world characterised by low yields and growing uncertainty. However, funds should be clear about their alternatives strategy and the risks they could potentially add to members’ portfolios.

“This shift in asset allocation is in part being driven by the low interest rate environment, which has prompted super funds to reach for yield by allocating to alternatives and other less liquid assets,” said Mr Rappell.

“This isn’t necessarily a bad thing, and it may in fact result in a more robust asset allocation, but it’s something members should be aware of. Alternatives can help protect capital under certain market conditions, but they can also be used to boost returns by taking on some additional risk. We generally think the shift to a broader asset allocation is positive, but funds should not be complacent in ensuring risk is appropriately managed.”

A combination of factors has created fertile ground for market volatility, resulting in a bumpy ride for super members, who have experienced six negative monthly returns over the past year.

According to SuperRatings, the median balanced option return for August was an estimated -0.5%, with the negative result driven by a fall in Australian and international shares. The median growth option, which has a higher exposure to growth assets like shares, fared worse, returning an estimated -0.9%.

In contrast, the median capital stable option, which includes a higher allocation to bonds and other defensive assets, performed more favourably with an estimated return of 0.3% (see table below).

Estimated accumulation returns (% p.a. to end of August 2019)

1 month 1 year 3 years 5 years 7 years 10 years
SR50 Growth (77-90) Index -0.9% 5.2% 8.8% 8.0% 10.2% 8.5%
SR50 Balanced (60-76) Index -0.5% 5.3% 8.0% 7.5% 9.2% 8.0%
SR50 Capital Stable (20-40) Index 0.3% 5.3% 4.8% 4.8% 5.4% 5.7%

Source: SuperRatings

Investors were caught off guard in August as trade negotiations between the US and China broke down, while a range of geopolitical and market risks, including further signs of a slowing global economy, added to uncertainty.

In Australia, a disappointing GDP result for the June quarter revealed a domestic economy in a more fragile state than previously acknowledged. Action from the Reserve Bank to lower interest rates is expected to assist in stabilising markets but could be detrimental for savers and retirees who rely on interest income.

Pension products shared a similar fate in August, with the balanced pension option returning an estimated -0.6% over the month while the growth pension option returned an estimated -1.0% and the capital stable pension option was mostly flat with an estimated return of 0.3%. Long-term returns are still holding up well, with the median balanced option for accumulation members delivering 9.2% p.a. over the past seven years (in excess of the typical CPI + 3.0% target) and the median balanced pension option returning 10.2% p.a.

Estimated pension returns (% p.a. to end of August 2019)

1 month 1 year 3 years 5 years 7 years 10 years
SRP50 Growth (77-90) Index -1.0% 5.9% 9.9% 9.2% 11.5% 9.4%
SRP50 Balanced (60-76) Index -0.6% 6.2% 8.7% 8.0% 10.2% 8.8%
SRP50 Capital Stable (20-40) Index 0.3% 6.2% 5.5% 5.5% 6.3% 6.4%

Source: SuperRatings

“There will always be negative months for super members, but the timing of negative returns can have a real impact on those entering the retirement phase,” said SuperRatings Executive Director Kirby Rappell.

“For members shifting their super savings to a pension product, a number of down months in relatively quick succession will mean they begin drawing down on a smaller pool of savings than they might have anticipated. As members get closer to retirement, it’s important that they review their risk tolerance to make sure they can retire even if the market takes a turn for the worse.”

As the chart below shows, down months in the latter part of 2018 took their toll on pension balances, although they were able to recover through 2019 to finish above their starting value by the end of August 2019.

Pension balance over 12 months to end August 2019*

Pension balance over 12 months to end August 2019
Source: SuperRatings
*Assumes a starting balance of $250,000 at the end of August 2018 and annual 5% drawdown applied monthly.

Comparing balanced and capital stable option performance shows that the balanced option suffered a greater drop but was able to bounce back relatively quickly. A starting balance of $250,000 fell to $232,951 over the four months to December 2018, before recovering to $252,091 at the end of August 2019.

In contrast, the capital stable option was able to better withstand the market fall, with a starting balance of $250,000 dropping to only $241,746 in December before rising back to $252,201.

While both performed similarly over the full 12-month period, a member retiring at December 2018 could have been over $8,500 worse off if they were in a balanced option compared to someone in a capital stable option. While a capital stable option is not expected to perform as well over longer periods, it will provide a smoother ride and may be an appropriate choice for those nearing retirement.

“Super fund returns have generally held up well under challenging conditions, but there’s no doubt this has been a challenging year for those entering retirement,” said Mr Rappell.

“Under these market conditions, timing plays a bigger role in determining your retirement outcome. At the same time interest rates are at record lows and moving lower, so the income generated for retirees and savers is less, particularly if someone is relying on interest from a bank account. In the current low rate and low return environment, it’s harder for retirees to generate capital growth and income.”

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