$414bn of Australia's hard earned cash is invested in underperforming funds

Research from digital wealth provider InvestSMART has shown many of the country's biggest fund managers are charging fees for no, or underwhelming, performance.
By · 25 Sep 2018
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25 Sep 2018 · 4 min read
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InvestSMART's following Media Release was shared by Adviser Voice on September 25, 2018.

InvestSMART modelling of Morningstar data shows over $414 billion of everyday Australians’ hard-earned cash is invested in underperforming funds. Analysing over 9,300 managed funds in Australia, the research revealed that out of the 5,297 funds with a 10-year track record, 78% have underperformed their respective benchmark indices by an average of 1.88%, with average fees at 1.74%.

Commenting on the findings, InvestSMART CEO Ron Hodge said fees were the most important part of any performance equation.

“It is pretty well known in the industry that over the longer term, most fund managers will underperform their benchmark by the cost of their fees. This is largely because a benchmark does not have any transaction costs – it is a hypothetical calculation.

“So why are benchmarks important? Benchmarks are a comparison metric, allowing investors to compare apples with apples when they are looking at a number of investment options. For example, there is not much use comparing an International fund to an Australian Equities fund or a property fund with a bond fund,” he said.

To help investors more easily compare their fund’s performance against its peers, including fees, InvestSMART recently launched an industry-first online tool, Compare Your Fund. The tool allows investors to compare a range of managed funds (including super and pensions).

You can’t control performance but you can control costs

InvestSMART Chairman Paul Clitheroe said while historically it had been difficult for investors to compare fund fees and costs, Compare Your Fund allows investors to really do their homework before investing.

“While you can’t control the performance of your fund, you can control fees and we believe this tool will help investors truly understand the fees and costs involved in investing,” he said.

“There are plenty of low-cost investment products out there, if you’re paying too high a fee, you’re giving away too much of your share of investment returns.”

Technology as an enabler

Mr Hodge said technological innovation was gradually levelling the playing field for investors.

“Fund manager fees have fallen globally over the past decade and we believe advances in technology, along with regulatory change, will continue to put pressure on traditional fee models,” he said.

“InvestSMART is currently investing heavily in new technology-based products and tools, with the goal of continuing to help lower the total costs of investing to help Australians grow and protect their wealth.”

In addition to the Compare Your Fund tool, InvestSMART also offers stock research and analysis to over 630,000 members, and a popular free online Portfolio Manager, which allows investors to track all their investments in one place and conduct regular portfolio health checks.

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